BILL ANALYSIS
AB 910
Page 1
Date of Hearing: May 11, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 910 (De La Torre) - As Introduced: February 26, 2009
SUBJECT : Emergency Telephone Users: Surcharge Act: prepaid
communications service.
SUMMARY : States legislative intent to require users of prepaid
wireless service and prepaid calling cards to pay 911 surcharges
through a single charge collected at the time of purchase.
EXISTING LAW :
1)Imposes a surcharge on all intrastate telephone calls,
including calls made using voice over internet protocol (VoIP)
technologies and wireless technologies to fund 911 services.
2)Provides that the Department of General Services shall
determine annually a surcharge rate that it estimates will
produce sufficient revenue to fund the fiscal year's 911
costs, not to exceed 0.75% on intrastate telephone calls.
3)Requires the Public Utilities Commission (PUC) to design and
implement specific programs to ensure deaf and disabled
individuals have access to the telecommunications system and
requires the PUC to establish a surcharge on telephone service
not to exceed one half of one percent to pay for these
programs.
4)Requires the PUC to establish and maintain the California High
Cost Fund-A (CHCF-A) and California High Cost Fund-B (CHCF-B)
programs to subsidize the cost of providing telephone service
to rural and other high-cost areas through surcharges on
telephone bills. These programs are funded through a
surcharge on all intrastate telephone calls.
5)Creates the Moore Universal Telephone Service Act (Moore Act)
which sets the goal of providing high quality telephone
service at affordable rates to the greatest number of
citizens. The Moore Act provides that low-income customers of
telephone corporations shall be offered discounted telephone
rates for residential telephone service. The discounts are
funded through a surcharge on all intrastate telephone calls.
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THIS BILL:
1)Makes legislative findings and declarations regarding
equitable contributions to the funding of 911 systems by
consumers of prepaid communications services.
2)Defines "prepaid communications service" (prepaid services) to
include prepaid calling card telephone service and prepaid
wireless calling service as specified.
3)Defines "prepaid calling card service" as the right to access
telecommunications services which must be paid for in advance
and which enables the origination of calls using and access
number or authorization code, that is sold in predetermined
units or dollars of which the number declines with use in a
known amount.
4)Defines "prepaid wireless calling service" as service that
provides the right to utilize mobile wireless service which
must be paid for in advance and that is sold in predetermined
units or dollars of which the number declines with use in a
known amount.
5)States legislative intent to impose the collection and payment
obligation of charges to support the 911 service on the
consumer's retail purchase of the prepaid communications
service.
6)States legislative intent for the payment for the 911 service
to be collected at the time of purchase directly from the
consumer, remitted to the state or local jurisdiction and
distributed to the 911 emergency services fund.
FISCAL EFFECT : Unknown.
COMMENTS : This bill states legislative intent to require users
of prepaid wireless service and prepaid calling cards to pay
state and local 911 surcharges through a single charge collected
at the time of purchase.
1) Postpaid vs. prepaid telephone service: Postpaid service
refers to a plan in which phone bills are paid on a monthly
basis and service is provided under a long-term contract. At the
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end of each month, charges for all of the services the customer
has used are added up by the carrier and sent to the user as a
bill. Prepaid service refers to calling plans where an
individual pays for the service in advance. Typically, prepaid
plans entail a customer buying a set amount of calling minutes.
One of the advantages of a postpaid plan is that the user
essentially has unlimited phone usage credit. The subscriber can
make as many calls as he or she would like. A prepaid user can
only use a carrier's services as long as there is enough credit
to pay for that amount of service. Once the credit has been
depleted, no more calls can be made.
There are two products that are associated with prepaid
services: prepaid calling cards and prepaid wireless telephones.
Both of these products are sold at a variety of retail outlets
including stores, markets, post offices, pharmacies, gas
stations, and vending machines, as well as through the mail and
the internet. An individual who purchases a calling card must
use a phone that is already connected to a local provider to
call a toll-free or carrier-specific number and then activate a
Personal Identification Number (PIN) printed on the back of the
card. As calls are made, the usable minutes are automatically
deducted from the card balance. Some prepaid calling cards are
meant to be discarded once the minutes have been exhausted,
while others can be recharged. An individual who purchases a
prepaid wireless phone (also known as pay-as you-go) must
purchase credit in order to use that phone on a mobile phone
network. That user can access a mobile phone network without
ongoing billing. The user can then use the mobile phone network
until they run out of credit.
2) Surcharges : Current law imposes the state 911 surcharge,
charges to fund low-income programs, charges to fund rural
assistance programs, and charges to fund programs for the
disabled on the amount paid for all phone calls that originate
and end within the state (intrastate), because those are the
only calls over which any state has the authority to impose a
surcharge. Current law also specifies that the surcharge is to
be imposed at the time of billing.
3) Is it feasible to assess the 911 surcharge on prepaid
customers? : Calculating and collecting the 911 surcharges on
prepaid calling plans can be difficult. When the usage is
calculated at the end of the billing cycle, the carrier can
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easily determine how much that customer spent on intrastate
calls, apply the 911 surcharge (which is calculated as a
percentage of that amount) and then remit the surcharge revenue
to the appropriate jurisdiction.
The collection of 911 surcharge and other fees is more difficult
for prepaid calling plans. When a user buys a prepaid card for a
specified number of dollars, there is no way to tell for sure
how much that consumer will end up spending on intrastate calls.
In fact, an individual might buy a prepaid phone in California
and only use it on vacation in Minnesota. In that case, the
individual would have no intrastate calls and thus have no
obligation to pay into the 911 account. Due to this difficulty
in determining the appropriate surcharge, some carriers pay the
fees based on estimates of what portion of the calls are
intrastate. Other carriers appear to be not paying the surcharge
at all.
4) Growing pains : It has been estimated that the prepaid
wireless industry will reach $31.3 billion by the end of the
decade. Although prepaid phones remain a fraction of the overall
mobile phone market, sales of the category grew 13 percent in
North America last year, nearly three times faster than
traditional cell phone plans. Prepaid wireless customers make
up about 17% of all wireless customers, and the segment is
growing at a rate of 10-15% annually.
The growth in the use of prepaid services over postpaid services
has sparked a national discussion on how to insure essential
service like 911 continue to be funded in the future. In a
number of jurisdictions, public safety officials are concerned
that users of both postpaid and prepaid services are given
access to 911, postpaid users pay a disproportionately large
share of the cost, which varies depending on state policies.
Regardless of variations in state policies, as more consumers
switch to prepaid service, the burden of paying for 911
increasingly shifts onto a declining number of postpaid users.
5) Should retailers collect? : A number of states have recognized
the difficulties of applying traditional postpaid 911 surcharges
to prepaid services. As a result, over the past year
stakeholders including carriers, local governments and retailers
coalesced at the national level in conjunction with the National
Conference of State Legislators (NCSL) in order to discuss
various mechanisms for collection of these surcharges with the
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goal of developing model legislation for states to use. Early
discussions in the NCSL process seemed to indicate that
assessing some type of surcharge at the point of sale would be
the preferred method. This bill would implement that method by
developing a point of sale (POS) collection mechanism for the
911 surcharge. However, since those early NCSL discussions,
retailers have noted that a POS fee would shift the
responsibility, and therefore the costs, of the collection of
fees from the wireless carriers to the retailers. Furthermore, a
retailer would likely have even less information to use in
determining where the money should be remitted to than the
prepaid carrier.
6) Going big : According to the background sheet submitted by the
author's office the author's intent is to amend this bill to
impose a POS tax on prepaid services, much like a sales tax.
This tax would replace a number of state and local fees with one
tax that would go to the Board of Equalization (BOE), who would
then appropriate the money to the proper entities.
The charges included would be:
a) State and local 911 surcharges
b) Universal Lifeline Telephone Service (ULTS)
c) California Advanced Services Fund (CASF)
d) California Teleconnect Fund (CTF)
e) California High Cost Fund-A (CHCF-A)
f) California High Cost Fund-B (CHCF-B)
g) Deaf and Disabled Telecommunications Program (DDTP)
h) Public Utilities Commission Reimbursement Account
(PUCRA)
i) Local Utility Users Taxes (UUT)
7) Are prepaid carriers paying these charges now? : In order to
avoid the repercussions of non-payment, some prepaid service
carriers have developed their own formulas that provide
estimates of these fees that should be remitted to various
jurisdictions. It is unclear whether these estimates are
actually reflective of amount that these users should be
contributing to the various funds. The PUC is currently auditing
the funds over which they have jurisdiction (funds b-h above) to
get a better understanding of how much prepaid carriers have
been paying.
8) UUTs : In recent decades, local control of revenues in
California has declined substantially. The rates and bases of
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the three largest sources of general-purpose revenues; the sales
tax, property tax and vehicle license fee; are no longer under
the control of the local agencies that rely upon them to fund
essential services. The few taxes and fees that go directly to
local government, like the UUT, are important because they are
predictable sources of revenue. The author's intent is to
include the UUT in the POS tax that would then be remitted to
the BOE. Given the state's current fiscal challenges, local
governments have expressed the concern that if UUT money were
sent to the state it may be reallocated by the state for other
purposes.
9) New Definitions: This bill defines the terms "prepaid calling
card service" and "prepaid wireless calling service" and places
them in the Revenue and Taxation Code. The Business and
Professions code contains existing definitions of "prepaid
calling services" and "Prepaid calling card" in sections that
are referenced in the Public Utilities code. These definitions
have some overlap and may cause confusion for interested
parties. The author may wish to consider amending the
definitions in this bill to ensure they are consistent with
existing definitions.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Highway Patrolmen (CAHP)
Opposition
California Retailers Association
Analysis Prepared by : Nina Kapoor / U. & C. / (916) 319-2083