BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 3 - Padilla Hearing
Date: April 5, 2011 S
As Amended: March 29, 2011 FISCAL B
3
DESCRIPTION
Current law requires the California Public Utilities Commission
(CPUC) to establish and maintain universal service programs to
ensure that affordable telephone service is available in rural,
high-cost areas of the state, including the California High Cost
Fund B program, which sunsets on January 1, 2012.
This bill would extend the sunset date of the California High
Cost Fund B program to January 1, 2014.
Current law requires that all providers of telecommunications
services contribute to universal service programs.
This bill would require the CPUC to require providers of
telecommunications service using Voice over Internet Protocol
(VoIP) to contribute to state universal service programs and
would add an urgency clause so that statutory authority is in
effect prior to CPUC action in a pending VoIP proceeding.
Current law requires that state universal service programs not
be inconsistent with federal universal service law and
regulations of the Federal Communications Commission (FCC).
This bill would require the CPUC to report to the Legislature no
later than October 1, 2012, on whether proposed changes to FCC
universal service regulations require conforming changes to
state law.
BACKGROUND
Universal service is long-standing state and federal policy -
Universal service - ensuring the availability of high quality,
affordable telephone service for all Americans -- has been a
bedrock principle of telecommunications policy nationwide since
enactment of the Communications Act of 1934. But methods of
achieving universal service have evolved over time with changes
in the marketplace and technology. The challenge is how to keep
rates affordable in rural, sparsely populated areas with rough
terrain where the cost of providing service is high.
Historically, when the old AT&T ("Ma Bell") provided both local
and long distance service, rates for customers in high-cost
areas were kept affordable in part with revenue from above-cost
long distance charges. In addition, telephone companies
traditionally have set local service rates based on the average
cost of providing service across their service areas,
effectively a subsidy from densely populated urban areas to
enable lower rates in high-cost rural areas.
Competition in long distance markets and the breakup of AT&T in
1984, followed by local service competition with the
Telecommunications Act of 1996, led to federal and state
universal service programs funded by explicit customer charges
rather than embedded subsidies. California has two programs to
promote universal service in rural, high-cost areas: (1)
California High Cost Fund A, which provides direct support to
the 14 small rural telephone companies that are under
rate-of-return regulation; and (2) California High Cost Fund B,
which provides support for large local exchange carriers (AT&T,
Verizon, Frontier, and SureWest) for the high-cost areas of
their service territories where the cost of providing basic
service exceeds $36 per month. The CPUC establishes the
surcharge rate for each fund in an annual resolution based on
carrier claims and balance in the funds. The B Fund surcharge
currently is 0.45% of intrastate services, and the A Fund
surcharge is 0.0% of intrastate services.
Universal service support evolving with technologies - State and
federal universal service programs are structured to support
landline voice telephone service. However, the FCC has several
pending proceedings that propose significant transformation of
federal universal service programs to provide efficient,
targeted support for broadband and voice service, rather than
just voice service, as outlined in the FCC's National Broadband
Plan released in March 2010. According to the FCC, broadband
has transformed virtually every aspect of modern life - the
workplace, commerce, education, health care, government
services, and public safety, making universal access to
broadband a necessity in today's 21st century digital economy.
Therefore, the FCC's proposals would modify universal service
policies to promote investment in broadband facilities capable
of providing video, data and high-speed Internet access, as well
as voice service and would make changes as to how the recipient
of federal universal service support for serving high cost areas
is determined.
At the state level, the CPUC has taken initial steps to update
California's universal service programs. In November 2010, the
CPUC opened the door for wireless, VoIP, and other
non-traditional carriers to offer service to customers eligible
for the low-income program. The CPUC also is considering how to
expand the definition of "basic service" to include more than
landline voice service for purposes of the B Fund program. In
January 2011, the CPUC opened a proceeding that responds to a
recent FCC ruling that interconnected VoIP providers must
contribute to the federal programs and that states may require
VoIP contribution to state universal service programs. The FCC
recognized that as an ever-growing number of customers get voice
service from VoIP rather than landline providers, the funding
for universal service programs diminishes. The CPUC has
proposed requiring interconnected VoIP providers to contribute
to state universal service programs, although there is a
significant question whether the CPUC has sufficient authority
under state law to require this.
COMMENTS
1. Author's Purpose . According to the author, the purpose
of this bill is to ensure that California continues
programs that help every Californian get connected to the
telecommunications network at affordable rates in order to
increase the value of the network for all subscribers and
to ensure that these programs are appropriately modified to
reflect changes in technology and the telecommunications
marketplace.
2. VoIP Contribution . Stakeholders, including VoIP
providers, are in general agreement with the CPUC's
proposal to require VoIP contribution to state universal
service programs. But there is substantial disagreement
about whether the CPUC can require this contribution
through its regulatory authority over "telephone
corporations." Most stakeholders have advocated for
legislation granting the CPUC explicit authority for this
limited purpose. The Utility Reform Network, on the other
hand, argues that the CPUC should rely on existing
authority to require VoIP contribution, claiming it is "a
bad precedent to create a regulatory framework that would
require the Commission to come to the Legislature for
authority to adopt any requirements for VoIP customers."
This bill provides the CPUC explicit authority to require
VoIP contribution and expressly states that this shall not
be construed to enlarge or diminish any regulatory
authority over VoIP service providers under existing law,
thereby leaving open and taking no position on the question
of whether a VoIP provider is a telephone corporation for
any purpose, including being subject to service quality and
customer service regulation. This bill also includes an
urgency clause so that the authority to require VoIP
contribution is effective as soon as possible to support
CPUC action in the pending proceeding
3. Technical Correction . The section of the bill on page
3, lines 3 and 4 requiring VoIP providers to contribute to
state universal service programs refers to "contributions
from intrastate end users of interconnected Voice over
Internet Protocol" service. In order to be consistent with
the FCC's wording, the author and committee may wish to
consider amending the bill to instead refer to "intrastate
revenues of interconnected VoIP service providers."
4. FCC Action . This bill states legislative intent that
the CPUC participate in all proceedings of the FCC relating
to changes in universal service regulations and open
proceedings as necessary to consider conforming changes in
state programs. It also requires the CPUC to report to the
Legislature no later than October 1, 2012, on whether
changes in state law are required so that California's
programs are not inconsistent with federal law. Changes in
the federal program are significant to California not just
to avoid preemption but to maximize federal high-cost
support for California. Providing affordable service to
the most remote high-cost areas in rural California
requires support from both federal and state programs. The
report to the Legislature by October 2012 will allow
sufficient time for any statutory changes, if necessary,
when the program is up for renewal in 2013.
5. Related Legislation . SB 379 (Fuller) amends statement
of telecommunications policy to express support for
continuation of universal service support for the small
telephone companies that draw from the California High Cost
Fund A. AB 841 (Buchanan) is a spot bill the author intends
to amend to require the CPUC to require VoIP contribution
to state universal service programs.
POSITIONS
Sponsor:
Author
Support:
Frontier Communications
Regional Council of Rural Counties
Oppose:
The Utility Reform Network (unless amended)
Jacqueline Kinney
SB 3 Analysis
Hearing Date: April 5, 2011