BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1364| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 CONTINUED SB 1364 Page 2 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 CONTINUED SB 1364 Page 3 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, CONTINUED SB 1364 Page 4 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 CONTINUED SB 1364 Page 5 JG:e 5/27/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED