BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 2570           Hearing Date:    6/27/2016
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          |Author:    |Quirk                                                |
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          |Version:   |6/14/2016    As Amended                              |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Nidia Bautista                                       |
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          SUBJECT: Telecommunications:  universal service:  wireless  
          communications

            DIGEST:    This bill makes changes to the state's LifeLine  
          universal telephone service program specific to procedures for  
          reimbursements related to wireless telephone service provided to  
          eligible low-income households.

          ANALYSIS:
          
          Existing law:
          
          1)Establishes the Moore Universal Telephone Service Act to  
            achieve universal service by making basic telephone service  
            affordable to low-income households through the creation of a  
            lifeline class of service.  Requires the CPUC and telephone  
            corporations to employ every means to ensure that every  
            qualified household is informed and afforded the opportunity  
            to subscribe to the service. (Public Utilities Code §871)

          2)States it is the intent of the Legislature that the CPUC  
            initiate a proceeding investigating the feasibility of  
            redefining universal telephone service by incorporating  
            two-way voice, and data service as components of basic  
            service. (Public Utilities Code §871.7)

          3)Defines "household" as a residential dwelling that is the  
            principal place of residence of the lifeline telephone service  
            subscriber, and excludes any industrial, commercial, or other  
            nonresidential building.  (Public Utilities Code §872)








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          4)Requires the CPUC to annually designate a class of lifeline  
            service necessary to meet minimum communication needs, set the  
            rates and charges for that service, develop eligibility  
            criteria for that service, assess the degree of achieving  
            universal service, including telephone penetration rates by  
            income, ethnicity, and geography.  (Public Utilities Code  
            §873)
          5)Requires a lifeline telephone service subscriber to be  
            provided with one lifeline subscription, as defined by the  
            CPUC, at his or her principal place of residence, and no  
            member of that subscriber's family or household who maintains  
            residence at that place is eligible for lifeline telephone  
            service. (Public Utilities Code §878)

          6)Requires the CPUC to, at least annually, initiate a proceeding  
            to set rates for lifeline telephone service and requires  
            telephone corporations providing lifeline telephone service to  
            apply the funding requirement in the form of a surcharge to  
            service rates which may be separately identified on the bills  
            of customers.  (Public Utilities Code §879)

          This bill:

          1)Prohibits the CPUC from reimbursing a telephone corporation  
            for providing wireless lifeline service to a new subscriber if  
            the subscriber has enrolled in wireless lifeline service with  
            another telephone corporation within the previous 60 days. 

          2)Provides that a subscriber may terminate wireless LifeLine  
            service within 14 days of service activation without incurring  
            any charges, including an early termination, as authorized  
            pursuant to Rulemaking 11-03-113.

          3)Requires the CPUC to reimburse a telephone corporation  
            providing wireless lifeline service within 60 days of the date  
            the telephone corporation submits a reimbursement claim. 

          4)Requires the CPUC to pay all of the costs of the telephone  
            corporation resulting from a late reimbursement if the CPUC  
            does not reimburse a telephone corporation for a reimbursement  
            claim for wireless lifeline service within 60 days, including  
            financing fees, interest payments, and staff time. 

          Background









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          About the LifeLine program.  The Moore Universal Service  
          Telephone Act of 1987 establishes the goal of offering basic  
          telephone service at affordable rates to the greatest number of  
          California residents.  To help achieve this goal, state law  
          directs CPUC to develop the California LifeLine Program to  
          provide basic telephone service at a discounted cost to  
          low-income households. The Act requires the CPUC to annually  
          designate a class of LifeLine service necessary to meet minimum  
          residential communications needs, develop eligibility criteria,  
          currently 150 percent of the federal poverty level (about  
          $36,000 annually for a family of four), and set rates for the  
          LifeLine services, which are required to be not more than 50  
          percent of the rate for basic telephone service.  The maximum  
          state subsidy in the current year is about $12.65 per month. The  
          federal government also administers the federal LifeLine program  
          that provides a monthly discount of about $9.25 per month. As a  
          result, an eligible participant has a combined nearly $22 per  
          month subsidy to cover the costs of telephone service.  
          Additionally, the CPUC provides (1) a per enrollee monthly  
          payment to cover carriers' administrative costs, (2) a one-time  
          connection subsidy for new enrollees or enrollees that switch  
          plans, and (3) a subsidy to cover other telephone taxes and  
          surcharges for LifeLine enrollees. The revenues to fund the  
          program are collected from a surcharge on telephone bills for  
          non-LifeLine customers. The CPUC adjusts the level of the  
          surcharge based on its projections of the amount of revenue  
          needed to cover the costs of the program. 

          Wireless telephone LifeLine.  Historically, the LifeLine program  
          in California has only included traditional landline service.   
          AB 2213 (Fuentes, Chapter 381, Statutes of 2010) made changes to  
          state law that gave CPUC the authority to allow LifeLine  
          customers to choose between wireline, wireless service or other  
          technologies.  In January 2014, the CPUC officially expanded the  
          program to allow wireless carriers to offer LifeLine service.   
          Participating wireless plans are eligible for the same monthly  
          subsidy amount available for traditional landline plans.  
          However, in the case of wireless telephone service the amount of  
          the subsidy varies based on the number of voice and data minutes  
          included in the telephone service plan. Wireless telephone  
          carriers participating in the LifeLine program must offer plans  
          that meet specified criteria and conditions established by the  
          CPUC related to quality of service, voice and text minutes,  
          consumer protection requirements and others. There are roughly  
          34 LifeLine wireless plans available and 21 of the available  








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          plans are offered at no cost. 

          Increased popularity. The expansion of the LifeLine program into  
          wireless telephone service has increased the demand for the  
          program. Program enrollment had been steadily declining prior to  
          adding wireless service in 2014. However, program enrollment  
          doubled between the years of  2013-14 to 2014-15 as a result of  
          the new wireless telephone service offering. With growth in  
          enrollees, program costs also have increased substantially over  
          the same time period. The surcharge on telephone service to fund  
          the program has increased from to 5.5 percent from 1.15 percent.  


          Recent legislative budget action. Per the Senate Budget  
          Committee analysis: As part of the May Revision, at the  
          Legislature's request, CPUC prepared a caseload and cost  
          estimate package that provides revised projections of the  
          current and budget year local assistance costs for the Universal  
          LifeLine program. For 2015-16, CPUC estimates LifeLine  
          expenditures will total $483.5 million, which is an increase of  
          $137.8 or 40 percent, compared to the 2016-17 Governor's Budget.  
          This projected increase in expenditures is due to increased  
          carrier claims from wireless service providers. In addition,  
          $53.2 million of the 2015-16 appropriation was used to pay  
          2014-15 carrier claims. In 2016-17, the May Revision estimates  
          total state operations and local assistance costs of $483.1  
          million, which is a decrease of $142.4 million from the January  
          proposal. 

          Why only wireless? This bill attempts to address various issues  
          of the LifeLine program from the perspective of a wireless  
          provider. However, many of the proposed changes could be  
          applicable to wireless, landline or other technologies should  
          they be included in the program. The author and committee may  
          wish to amend the bill to require technology neutral language  
          where applicable. 

          Why 60 days? At the initial rollout of the wireless LifeLine  
          program, the CPUC was paying reimbursements CPUC General Order  
          153 sections 9.5.2 and 9.9 specify a deadline of 60 to 120 days  
          (depending on the when the claim is submitted) by which the  
          California LifeLine Program may pay a claim to a qualified  
          telephone service provider for reimbursements without incurring  
          interest. According to the CPUC, as of this date, the LifeLine  
          program has never had to pay any interests for late  








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          reimbursements. It's understandable that telephone providers  
          would desire quick reimbursements for services provided,  
          particularly for smaller company providers whose main business  
          is hinged on the Lifeline program. Delayed reimbursements can  
          affect the company's cash-flow and debt-burden. However, the  
          desire to pay out reimbursements must be balanced against the  
          practical limitation s of processing payments for what is  
          quickly become a popular program. The author and committee may  
          wish to amend the bill to require the CPUC to reimburse  
          providers within 90 days, instead of 60 days as proposed in this  
          bill.  

          Ratepayers on the hook. The bill includes sanctions on the CPUC  
          if it fails to make a reimbursement to a provider under the  
          specified schedule. The proposed consequences could be costly  
          and beyond what would be reasonable, particularly requiring the  
          CPUC to pay all of the costs of the telephone corporation  
          resulting from the late reimbursement, including, but not  
          limited to financing fees, interest payments, and staff time.  
          Currently, the CPUC's general orders require the CPUC to pay  
          interest on late reimbursements - of which they claim to have  
          none. The author and committee may wish to amend the bill to  
          narrow and limit the sanctions proposed on the CPUC should they  
          reimburse a provider within the specified time. 

          Consumer choice. The bill proposes to limit the ability of an  
          eligible enrollee to transfer service and receive a subsidy if  
          they have previously enrolled in a program within the past 60  
          days.  The CPUC's third party administrator of the LifeLine  
          program provides a real-time verification system based on  
          matching a person's name and address. However, if there is no  
          match based on name or address, then the process to verify  
          eligibility becomes more difficult. Ultimately, an improved  
          verification system can help reduce fraud or mistakes in  
          enrolling someone who is not eligible. In those situations, the  
          wireless provider is left holding the bag which includes the  
          hardware - telephone and accessories. It may be that 60 days is  
          too long a period to institute a "port freeze" on someone who  
          may urgently need a phone and 14 days is too short to provide a  
          subscriber the opportunity to terminate their service without a  
          termination fee. This portion of the bill merits further  
          attention to ensure consumers are appropriately protected.

          Prior/Related Legislation
          








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          AB 2213 (Fuentes, Chapter 381, Statutes of 2010) deleted  
          references to LifeLine service being a residential basic  
          telephone service, required that an eligible low-income  
          subscriber be provided with one lifeline subscription per  
          household, and made findings that technologies beyond  
          traditional landline telephones could be used to offer  
          low-income citizens access to affordable, reliable, and high  
          quality basic telephone service.

          AB 1407 (Bradford, 2014) would have phased out the existing  
          lifeline program for basic landline service and created a new  
          lifeline discount of $11.85 per month for voice communication  
          services from a telephone corporation or eligible wireless and  
          Voice over Internet Protocol (VoIP) providers.  The bill would  
          have prohibit the CPUC from requiring state LifeLine providers  
          to offer more than is required under the federal LifeLine  
          Program. Died in the Senate Committee on Appropriations. 

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


            SUPPORT:  

          enTouch Wireless
          Pacoima Beautiful
          State Board of Equalization
          TruConnect Communications, Inc.

          OPPOSITION (unless amended):

          California Association of Competitive Telecommunications  
          Companies
          California Cable and Telecommunications Association
          Consolidated Communications, Inc.
          The Utility Reform Network

          ARGUMENTS IN SUPPORT:    According to the author, "The CPUC  
          initially refunded wireless lifeline providers every 45 days for  
          the upfront costs to companies in providing a phone and the  
          communication services.  However, in early 2015, the CPUC  
          changed its reimbursement period to 120 days which has resulted  
          in service providers leaving the marketplace, going into debt to  
          cover capital and operations costs, and ultimately hurting  
          low-income consumers by reducing service options.  Additionally,  








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          the enrollment process has experienced problems with customers  
          enrolling in multiple service plans within a short period of  
          time.  This is problematic for service providers because the  
          reimbursement subsidies from the state and federal government  
          are eligible one time to a consumer.  Providers are finding that  
          after waiting nearly three months for the CPUC's reimbursement,  
          a portion of their subscribers were in fact ineligible for the  
          service all along."

          ARGUMENTS IN OPPOSITION:    The opponents to this bill, CCTA and  
          CalTEL argue that this bill's provisions should apply to all  
          technologies, not only wireless telephone service.  They raise  
          concerns that the reimbursement rates proposed by this bill  
          would result in the CPUC prioritizing reimbursements for  
          wireless providers' ahead of reimbursements for other lifeline  
          service providers.

          In opposing this bill, the Utility Reform Network (TURN) argues  
          that these issues raised in this bill are better left to  
          decision-making by the CPUC within its proceedings.  TURN  
          asserts that "AB 2570 attempts to short circuit the CPUC's  
          process by creating a prescriptive legislative mandate on two  
          critical issues affecting the administration of the program -  
          carrier reimbursement payment schedules from the LifeLine Fund  
          and restrictions on customer choice of LifeLine providers."
          
          

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