BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  SB 1364
          Author:   Fuller (R), et al.
          Amended:  5/27/14
          Vote:     27 - Urgency


           SENATE ENERGY, UTIL. & COMMUNIC. COMM.  :  9-0, 4/1/14
          AYES:  Padilla, Fuller, Cannella, Corbett, DeSaulnier, Hill,  
            Knight, Pavley, Wolk
          NO VOTE RECORDED:  Block, De León

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 5/23/14
          AYES:  De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg


           SUBJECT  :    Telecommunications universal service programs:   
          California High-Cost Fund-A program

           SOURCE  :     California's Independent Telecommunications  
          Companies
                      Frontier Communications


           DIGEST  :    This bill extends the repeal date of the California  
          High-Cost Fund-A program (CHCF-A) program and California  
          High-Cost Fund-B (CHCF-B) program requirements until January 1,  
          2019.

           ANALYSIS  :    

          Existing law:

          1.Requires the California Public Utilities Commission (PUC) to  
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            establish and maintain universal service programs to ensure  
            statewide affordable telephone service and access to broadband  
            and advanced communications services, funded by customer  
            surcharges on landline, wireless, and Voice over Internet  
            Protocol (VoIP) service.

          2.Requires the PUC to establish and maintain a CHCF-A program to  
            support small independent telephone companies' provision of  
            basic service in rural, high-cost areas of the state.

          3.Requires the PUC, in administering the CHCF-A program, to  
            promote customer access to advanced services in rural areas  
            and to include in small company rate calculations the cost of  
            all reasonable investments necessary to provide voice services  
            and deployment of broadband-capable facilities.

          4.Requires the PUC to establish and maintain the CHCF-B program  
            to provide support to large providers that are Carriers of  
            Last Resort for provision of basic service in the high-cost  
            portions of their service areas.

          Existing federal law and decisions of the Federal Communications  
          Commission (FCC) provide federal universal service funding to  
          providers serving rural, high-cost areas to help pay for  
          facilities that provide customers both voice and broadband  
          service, and condition receipt of those federal funds on meeting  
          broadband deployment milestones and minimum network speeds.

          This bill 

          1.Extends the repeal date of the CHCF-A program and CHCF-B  
            program requirements, as specified, until January 1, 2019.

          2.Requires the PUC, in administering universal service programs,  
            and in administering state participation in federal universal  
            service programs, to prioritize policies and practices that  
            maximize the amount of federal funding to California.

          3.Makes conforming changes as it pertains to federal funding of  
            universal service programs.

           Background

           Existing law requires the PUC to oversee a variety of programs  

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          to ensure universal access to telecommunications services by  
          California residents.  These programs are supported by customer  
          surcharges on landline, wireless, and VoIP intrastate service.   
          Specifically, the state has two programs to promote universal  
          service in rural, high-costs areas.  The CHCF-A program supports  
          small rural telephone companies by covering the company's  
          revenue requirement (as determined by the PUC) and less  
          collected rate revenue and federal support.  There are currently  
          ten telephone companies receiving support under the CHCF-A  
          program (13 companies are eligible).

          The CHCF-B supports large carriers that are Carriers of Last  
          Resort by covering costs of providing service in high-costs  
          exceeding a set baseline (currently $36 per month).  Recipients  
          of support in the CHCF-B program are AT&T California, Verizon of  
          California, Frontier Telecommunications Company of California,  
          and Cox California Telecom.

          The PUC adjusts the customer surcharge for the CHCF-A and CHCF-B  
          programs, typically on an annual basis, to ensure adequate  
          funding to cover carrier claims and administrative costs. 

          The FCC also provides universal service funding to providers  
          serving rural, high-cost areas to pay for facilities that can  
          provide both voice and broadband service.  Funding for the  
          federal program comes from customer surcharges on interstate  
          services.

           Comments
           
          According to the author's office, rural residents and businesses  
          have a critical need to be connected through both the telephone  
          and the Internet for public safety, economic, educational and  
          other reasons.  Building, operating and maintaining  
          telecommunications networks in rural areas is extremely  
          expensive on a per customer basis due to tough terrain, greater  
          distances between customers, and sparse populations.  Due to  
          these factors, there's generally no business case for providing  
          affordable communications services in rural areas without cost  
          support from federal and state universal service program.  This  
          bill will help to maintain lower rates for rural customers and  
          provide access to telecommunications services than would be  
          otherwise available without state and federal high cost support.  
           All California telephone users - whether they use landline,  

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          VoIP, or wireless technologies, and whether they live in rural  
          or urban areas - pay a surcharge on their intrastate usage to  
          support the availability of affordable telephone service in  
          rural, high-cost areas of the state, ensure universal service in  
          virtually every area of the state, and thereby enhance the value  
          of the state's telecommunications network for all Californians.

           FISCAL EFFECT :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes


          According to the Senate Appropriations Committee:

           For the CHCF-A program:

             o    Annual revenues of approximately $35 million to the  
               CHCF-A Administrative Committee Fund (special) until 2019  
               from customer surcharges.

             o    Annual expenditures of approximately $40 million from  
               the CHCF-A Fund until 2019 to support small rural telephone  
               companies.

           For the CHCF-B program:

             o    Annual revenues in the low to mid-tens millions of  
               dollars to the CHCF-B Administrative Committee Fund  
               (special) until 2019 from customer surcharges (see staff  
               comment).

             o    Annual expenditures of approximately $25 million from  
               the CHCF-B Fund until 2019 to support large telephone  
               companies providing service in high cost areas.

           SUPPORT  :   (Verified  5/27/14)

          California's Independent Telecommunications Companies  
          (co-source)
          Frontier Communications (co-source)
          California Communications Association
          Office of Ratepayer Advocates
          Rural County Representatives of California



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          JG:e  5/27/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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