7. Comments on Proposed Decision
The proposed decision (PD) of Commissioner Bohn in this matter was mailed to the parties in accordance with Section 311 of the Public Utilities Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. Opening comments were filed on October 18, 2010 by DRA, Greenlining, TURN, Disability, Rights Advocates jointly with National Consumer Law Center, AT&T, Verizon, SureWest, Frontier, the Small Local Exchange Carriers (Small Carriers) and Cox.
DRA commented that the PD did not go far enough toward extending the LifeLine program to wireless service and emphasized that unless and until the Commission resolves the issue of what a wireless "basic service" should consist of, a wireless Lifeline option cannot be created.
DRA supported the interim Lifeline rate caps as a reasonable compromise between uncontrolled rates and the current fixed rates. DRA, however, contended that the cap on carrier draws from the Fund should be set at each carrier's draw as of December 31, 2010, not at $11/customer/month after 2012. According to DRA, two years of unlimited carrier draws could lead to unchecked growth in the size of the Fund needed to compensate carriers for the difference between the capped LifeLine rate and their unlimited basic service rates, resulting in substantial increases to the surcharge in a difficult economic environment. DRA also opposed allowing carriers to receive reimbursements from the LifeLine Fund for administrative expenses because customer administration costs are an ordinary cost of doing business for all of a carrier's customers.
Greenlining opposed the PD because it fails to achieve Greenlining's overarching goals for this proceeding: (1) a LifeLine subsidy accessible for customers who prefer wireless service or other non-traditional telecommunications service, and (2) a reliably, affordably priced LifeLine rate.
Greenlining explained that while the Specific Support Amount may bring the possibility of wireless LifeLine closer to reality, too much work needs to be done to develop a framework under which wireless LifeLine could effectively operate. According to Greenlining, the Specific Support Amount is also inconsistent with the longstanding objective of the LifeLine program - providing affordable basic telecommunications service - by placing customers at "the mercy of market forces." Greenlining contended that once price restrictions for basic service for carriers regulated under URF are lifted in January 2011, the only thing to prevent escalating prices for basic service will be market competition and price of basic service could become unaffordable to many. Greenlining recommended that the price for basic service under the LifeLine program should not be left to market forces, and that the PD should be modified to include a price cap for basic service. Wireless LifeLine service, when offered, would have a different price cap. In any event, Greenlining recommended that the LifeLine rate be monitored by the Commission, in collaboration with the Low-Income Oversight Board.
Greenlining stated that it remains a strong proponent of providing flexibility in the LifeLine subsidy so that it may be applied to wireless service, and advocated for more guidance for Phase II of this proceeding including confirmation that any basic service subsidized by the LifeLine program must be affordable because wireless service "is swiftly becoming the new `basic' among the various communications options presented to consumers today."273 Greenlining also supported modifying the eligibility guidelines for the LifeLine program to 200% of the federal poverty level to make it consistent with the electric utility low income program.
Greenlining emphasized the any change in the LifeLine program will require extensive customer outreach and education to ensure that LifeLine recipients will be able to use the LifeLine subsidy to their best advantage. Specifically, Greenlining stated that the Specific Support Amount will allow Lifeline recipients to be able to bundle their basic telecommunications service with other services and that carriers should clearly inform LifeLine recipients that they are not required to choose more expensive bundles of services. Greenlining strongly supported giving LifeLine recipients the choice to apply the LifeLine subsidy to the telecommunications service of their choice, including wireless. The wireless LifeLine option, however, "must not be seen by carriers as an opportunity to upsell low income customers unfamiliar with the marketplace for wireless services" and create "a predatory communications crisis enabled by wireless LifeLine."274
TURN urged that the Commission to reject the PD and address the numerous errors and inconsistencies within the document. Specifically, TURN argued that the PD continues to reward carriers for raising basic rates by failing to cap subsidy amounts, and by ignoring the benefits that the LifeLine program provides carriers through the sale of non-basic services to LifeLine customers. TURN reiterated its proposal that both LifeLine rates and the carrier draw from the LifeLine fund be capped and allowed to adjust at the rate of CPI inflation, in contrast to the Specific Support approach adopted by the PD would reward carriers for increasing basic rates, which are "completely divorced from any cost basis."275 TURN also pointed out that the PD does not address the impact of basic rate geographic deaveraging on the objectives of LifeLine program. TURN also questioned the logic of requiring LifeLine customers to pay taxes on LifeLine services, thus increasing bills and threatening affordability, while at the same time making carriers whole for basic service price increases that have no demonstrated relationship to the carrier's underlying costs.
TURN focused much of its comments on the unresolved issues inherent in providing LifeLine subsidies for wireless services. TURN concluded that until these issues are fully resolved it is premature to include wireless carriers in the program.
The Disability Rights Advocates, jointly with the National Consumer Law Center, expressed several concerns with the PD. While not opposing the Commission's apparent objective of expanding the LifeLine program to include non-wireline forms of telecommunications, these parties stated that the Commission must address in a "comprehensive and orderly" fashion the "vexing" legal and procedural hurdles that have been long-pending in this proceeding.276 Specifically, the service quality standards for non-traditional providers and other issues put over until Phase II must be addressed before non-traditional providers can even decide whether to participate in the program. These parties explained that the affordability study "suffers from acute shortcomings" and should not be used as the evidentiary basis for proposed fundamental changes to the LifeLine program.277 These parties also shared TURN's concern that the PD's failure to cap subsidy amounts effectively rewards carriers for raising basic rates and risks increasing the size of the fund, but does nothing to ensure affordable service for LifeLine customers. They recommended that the Commission once again return to the drawing board and, based on accurate and up-to-date information, resolve the hard issues of service quality, fund size, and customer affordability before implementing any fundamental changes to the LifeLine program.278
AT&T generally supported the PD but contended that numerous clarifications were necessary to avoid unintended consequences that "restrict LifeLine participants from the benefits of true market pricing, require carriers to subsidize their LifeLine customers' benefits, restrict the full pricing flexibility rule for ILECs, or unnecessarily burden the fund with low LifeLine rates."279 AT&T focused on the once-a-year change to LifeLine rates as causing significant price changes for LifeLine customers and AT&T suggested that two or three changes per year to gradually increase the LifeLine price. AT&T also noted that the discount and reimbursement structure for connection and conversion charges should be modified. For the second LifeLine subsidized line authorized for DDTP customers, AT&T explained that the Federal LifeLine program does not supply a second subsidy so there would not be a second subsidy amount from the Federal program. AT&T also pointed out that the PD is inconsistent in its use of the basic service rate to be used for determining the support amount and indicated that Verizon's basic rate is currently the highest at $20.91. AT&T noted similar inconsistency for LifeLine rates in Extended Area Service exchanges.280 AT&T also supported retaining the two-year correction period for claims and reimbursement for carrier surcharges, and opposed placing additional information on the bill to prevent customer confusion.
Verizon California recommended several further improvements to the PD to ensure that the subsidy is properly targeted to achieve the goal of universal service without overly burdening other customers with fund surcharges. Verizon recommended including the Federal support amount in calculating the amount carriers' receive as a means to limit the cost of the California LifeLine program.281 Similarly, Verizon supported a LifeLine price floor equal to the current AT&T lifeline rate, $6.84, as a means to avoid inflating the cost of the LifeLine program during the two-year transition.282 Verizon also opposed setting the LifeLine rate based on the previous year's July 31 basic service price because carriers would be unable to charge LifeLine customers any price increases adopted in the ensuing year.
Frontier283 generally supported the direction of the PD but recommended a few changes. Rather than adopting a specific LifeLine rate for a year, Frontier suggested that the Commission adopt a range of prices to allow the pricing flexibility. Frontier stated that all carriers should be required to obtain ETC certification, and the effective date should be at least three months after the workshop report is completed to allow for adequate time to implement changes. A reconciliation process should be adopted for inconsistencies between the carrier LifeLine customer count and the third-party administrator, and Frontier's basic rate should be corrected to $17.85 from the incorrect amount shown in the PD of $16.85.
SureWest opposed the PD and recommended that the Commission adopt a set rate structure based on the data in the affordability study.284 SureWest questioned the PD's "fundamental premise" of extending the LifeLine Program to wireless services because the PD used an "empty statement to designed to support the outcome in the Proposed Decision" without any analysis of whether the new technologies "wills serve the public policy goal of reliably connecting low-income consumers to the telephone network."285 SureWest argued that "common sense" required that the differences between wireline and wireless service and the likely impact on the fund should be analyzed as part of the decision on "how to allocate valuable public subsidies."286 According to SureWest, if the Commission adopts a specific support amount, the Commission should use the actual highest priced basic service, $20.25, include administrative costs, and either allow carriers to charge a deposit or allow recovery of bad debt costs.287
The Small Local Exchange Carriers288 (Small Carriers) echoed SureWest's comments.
Cox generally supported the PD but contended that carriers should be authorized three changes in the amount received from the fund. First, carriers that do not have ETC certification should continue to receive the non-ETC make-up payments until January 1, 2013. Second, carriers should continue to receive full reimbursement for actual administrative costs. Third, carriers should not be required to meet billing line-item specifications as set forth in the PD.
Reply comments were filed on October 25, 2010, by DRA, Greenlining, TURN, National Consumer Law Center jointly with Disability Rights Advocates, Verizon, Small Carriers, SureWest, Frontier, AT&T, Cricket and Cox and T-Mobile.
DRA replied that, like Greenlining, TURN, the Disability Rights Advocates, and the National Consumer Law Center (NCLC), it finds that the PD lacks assurances that service will be affordable and sustainable for LifeLine customers after the rate cap expires. To provide a remedy, DRA recommended that should basic service rates continue to increase, the Commission should extend the LifeLine rate cap with small cost of living increases beyond the two years contemplated in the PD. DRA also too issue with LifeLine fund size needed to effectuate the changes the PD proposes. DRA predicted that the LifeLine fund size would likely see a dramatic increase as a result of adopting the SSA approach, allowing non-traditional carriers to participate in the LifeLine program, and expanding the LifeLine program to include data services for consumers that receive wireless equipment through the Commission's DDTP program. DRA observed that all of these changes would require that non-LifeLine customers pay higher surcharges, but the PD lacks any estimate of the impact on the non-LifeLine customers and on the surcharge rate itself.289 DRA agreed with TURN that the PD appears to continue to reward carriers for raising basic rates by failing to cap carrier subsidy draws DRA also noted that LifeLine carriers sell high-margin non-basic services to LifeLine customers. Therefore, DRA recommended that the Commission to freeze carrier per-line subsidy draws at their level as of December 31, 2010.
Greenlining supported TURN's mechanism to restrict the carrier draw on the LifeLine fund to the rate of inflation, and the small LECs similar mechanism for governing the price for LifeLine service, a set price that adjusts with the rate of inflation. Greenlining stated that such mechanisms are necessary, as the Proposed Decision does not provide any means of controlling the LifeLine rate or carrier draws once the transition period is over.290 Greenlining also restated that the workshops and Phase II must assure that the statutorily required affordability and high quality of service be maintained for nontraditional LifeLine carriers, and that these very challenging matters will require more workshops and time than included in the PD.
TURN, National Consumer Law Center and Disability Rights Advocates replied in opposition to the carriers' arguments that they must be made whole in real time as "predictable but ironic-the carriers want to have their `deregulation' cake of rate-setting flexibility while being rewarded with additional LifeLine revenues every time they raise basic rates."291 These parties claimed that the carriers will earn significant additional revenues off of the sale of additional services to LifeLine customers. These parties reiterated their recommendation that the Commission cap uniform statewide LifeLine rates and the carrier draw subject to a CPI-based inflation adjustment.
Verizon recommended that in adopting changes to the LifeLine program, the Commission should carefully evaluate the manner in which it structures subsidies to ensure that they serve the goals of affordability and increased subscribership for low-income consumers. Specifically, Verizon presented evidence that telephone service penetration increased despite decreased participation in the LifeLine program in recent years, and that controlling program size through prudent and targeted reforms must be a significant consideration in moving forward. Verizon showed that the overwhelming evidence is that telephone penetration levels are increasing, despite the fact that LifeLine participation levels are dropping. The data showed that despite a 40 percent decrease in LifeLine program participation, from 2006 to 2010, overall telephone penetration in California has increased.292 In short, Verizon concluded, these data indicate that consumers are obtaining telephone service at increasing levels without the benefit of the LifeLine program, and this trend of increasing telephone penetration is evident at even the lowest household income levels, despite declining LifeLine program participation.
Verizon opposed TURN's claim that the revenue of other products and services purchased by LifeLine subscribers should be included in capping the Specific Support Amount Verizon responded that TURN ignores Commission precedent and market reality because the fact that some LifeLine customers may choose to purchase other non-price regulated services is not a legitimate source of statutory funding to compensate carriers for the regulatory obligation to sell discounted basic service as required by Public Utilities Code Section 874.293
The Small Carriers replied that that opening comments raise a variety of policy, legal, evidentiary, and implementation issues that militate against adoption of the Proposed Decision in its current form. These carriers agreed with several of the comments from the consumer groups that the Specific Support Amount approach is not preferable for California's low-income consumers and that the proposed expansion of the LifeLine program to wireless and other alternative technologies is premature at best. The Small Carriers went on to state that if the PD is adopted, further changes are necessary to avoid customer confusion and unfairness to carriers who participate in the program, especially with regard to LifeLine-related administrative costs and bad debt, and that the schedule for implementation of the Phase I Decision needs to be clarified to ensure an orderly implementation.
The Small Carriers explained that expanding the LifeLine program to wireless providers and other alternative technologies will threaten the success of the current program, to the detriment of California consumers. The Small Carriers stated that a variety of significant differences in the pricing, functionality, and terms and conditions of wireless service that make it a mismatch for the LifeLine program and implicate important policies about how to direct scarce public resources toward the objectives that will best promote California's universal service policies amongst low income consumers. The Small Carriers concluded that opening up the program to new participants should not compromise the level of service provided to low-income consumers, nor should it put traditional providers at a competitive disadvantage by allowing their non-traditional competitors to avoid costly but important regulatory obligations.294
SureWest echoed the Small Carriers' reply comments and stated that allocating LifeLine subsidies to wireless providers and other alternative service providers would raise serious problems that will ultimately result in harm to low-income customers. SureWest agreed with various consumer groups that the PD does not sufficiently justify its Specific Support Amount proposal, and that the "Set Rate" approach has been dismissed unjustifiably. The Proposed Decision does not contain any projections of the actual fund size, nor participation in the program. Absent these projections, SureWest agreed with DRA that the Commission cannot be sure that the Specific Support Amount proposal will preserve a reasonable fund size. SureWest urged the Commission to reconsider whether the Affordability Study provided sufficient factual and policy support for the proposed Specific Support Amount. SureWest agreed with TURN'S opening comments setting forth a careful analysis of the methodological problems with the Specific Support Amount, and concluded that the current Affordability Study did not provide quantitative support for the Specific Support Amount.295
Frontier supports the direction of the PD and believes that the reforms proposed will improve the LifeLine program. However, Frontier supports holding additional workshops and another full round of comments to build the record and to fully address the many concerns expressed in comments. Frontier's primary concern with the PD is that it does not require ETC designation by all carriers who want to participate in the LifeLine Program.
AT&T generally supported the PD if modified as set forth in their opening comments. AT&T opposed proposals to limit a carrier's draw from the fund as anti-competitive and unfairly burdensome to carriers that have a higher proportion of LifeLine customers in their customer base. Such a cap, AT&T contended, necessarily forces each carrier to cover the unfunded benefit by spreading the additional cost over its non-LifeLine customers, to the extent competition would even allow such pricing. AT&T stated that as result, carriers that serve a higher proportion of LifeLine participants would experience a disproportionate upward pressure on prices.
Cricket agrees with AT&T that the PD should affirm that (i) the Commission's authority over alternative LifeLine providers will be limited to the administration of LifeLine benefits; (ii) that participation by alternative providers will not be a pretext for jurisdiction over quality of service or other disputes that are exclusively under the jurisdiction of the FCC; (iii) the Commission has no authority to regulate pricing or services; and (iv) audits shall be limited to the provider's administration of LifeLine benefits only.
Cox agreed with AT&T and Verizon that LifeLine subscribers should continue to pay AT&T's current LifeLine rate during the transition period based on Verizon's comments that the Affordability Study supports LifeLine subscribers paying more than $5.00 in that the median LifeLine bill is $29.10. Cox strongly recommended that the Commission revise the schedule to allow wireline carriers a minimum of six months from the date any new rules resulting from the implementation workshop are adopted. Cox also stated that carriers that are not presently designated as ETCs should continue to collect from the California LifeLine fund amounts that may be available to such carrier from both Federal and state LifeLine funds until the Commission approves such carrier's ETC advice letter. Cox also believes that the record does not clearly support the Commission adopting the proposal that LifeLine customers pay taxes. Finally, Cox opposed comments from consumer groups and stated that the record in this proceeding supports the Commission allowing wireless carriers to voluntarily participate in the LifeLine program without more time comments on service quality standards.
T-Mobile filed reply comments stating that setting the rate floor at $5.00 is inappropriate and anticompetitive. T-Mobile opposed tying the carrier reimbursement rate to the highest basic service price of an URF COLR in the state as "misguided and unduly burdensome on consumers who fund ULTS through their surcharges."296 Because basic service rates will soon be completely unregulated, California consumers would be required to fund a subsidy which could fluctuate in lock-step with changes to basic rates that are no longer necessarily cost-based or otherwise regulated by the Commission. T-Mobile concluded that the LifeLine program envisioned by the Moore Act contemplated regulated basic service rates provided by monopoly landline carriers and did not anticipate unregulated basic service prices. Moreover, at least for the next two years, the PD would provide LifeLine carriers with a subsidy for any difference between their basic service price and the maximum LifeLine rate of $6.84, and T-Mobile does not believe it is sound public policy to foist the cost of those types of subsidies on consumers. T-Mobile recommended a specific support amount set by a more objective standard such as average per consumer subsidy under the current fund program and not on the highest basic service rates in the state.297
The Commission has thoroughly considered the comments and reply comments supplied by the parties. Where warranted, the Proposed Decision has been modified in response to the comments and reply comments. Specifically, the PD has been modified to make the following changes in response to comments:
· We increase the Specific Support Amount to $11.50. Verizon recently raised their basic service rate to $20.91 and their rate now surpasses that of SureWest that we were using to calculate the $11 support amount.
· We change the description of the rate cap to be the greater of the current LifeLine rate for the customer or $6.84.
· We clarify that during the two year transition period, from the effective date of this decision until January 1, 2013, carriers may only charge a LifeLine customers a LifeLine rate up to $6.84 a month (for most customers), and may only receive a LifeLine subsidy up to the maximum Specific Support Amount.
· We modify the billing requirement so that the specific layout of the bill is up to the carrier as long as the full extent of the discount is shown somewhere on the bill.
· The LifeLine Program will continue to pay the fees and taxes applicable to the LifeLine service in addition to the Specific Support Amount.
Lastly, Disability Rights Advocates and National Consumer Law Center pointed out that this decision failed to address the May 2009 Motion by TURN and DRA to refer the matter to alternative dispute resolution (ADR).298 As pointed out by the Assigned Commissioner in her Ruling Denying the Motion, a significant share of the parties did not express support for initiating such a process at that late stage of the proceeding. We affirm that denial.
273 Greenlining Comments at .
274 Greenlining Opening Comments at .
275 TURN Opening Comments on the PD at 8.
276 The Disability Rights Advocates and National Consumer Law Center, Opening Comments on the PD at 2, 4, and 5.
277 Id. at 9.
278 Id. at 24.
279 AT&T Opening Comments on the PD at 2.
280 Id. at 9-10.
281 Verizon California Opening Comments on the PD at 2-3.
282 Id. at 4.
283 Citizens Telecommunications Company of California, d/b/a/ Frontier Communications of California, Frontier Communications West Coast, Inc., and Frontier Communications of the Southwest, Inc.
284 SureWest Opening Comments on the PD at 1.
285 Id. at 5.
286 Id. at 6.
287 Id. at 10-15.
288 Calaveras Telephone Company, Cal-Ore Telephone Co., Ducor Telephone Company, Foresthill Telephone Co., Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Co., Pinnacles Telephone Co., The Ponderosa Telephone Co., Sierra Telephone Company, Inc., The Siskiyou Telephone Company, Volcano Telephone Company and Winterhaven Telephone
Company.
289 DRA Reply Comments on the PD at 5.
290 Greenling Reply Comments on the PD at 2.
291 TURN, The National Consumer Law, and The Disability Rights Advocates Reply Comments on the PD at 1.
292 Verizon Reply Comments at 3.
293 Id. at 6.
294 Small Local Exchange Carriers' Reply Comments on the PD at 1-3.
295 SureWest Reply Comments on the PD at 2-4.
296 T-Mobile Reply Comments on the PD at 3-4.
297 Id. at 4.
298 October 18, 2010 Comments of DisabRA/TURN at 4.
