9. The Universal Lifeline Surcharge Set Forth
in Pub. Util. Code §§ 871 et seq. Applies to
TracFone's Prepaid Wireless Services

CPSD asserts that TracFone violated §§ 871 et seq. and related Commission decisions by failing to remit the universal lifeline surcharge.74 TracFone responds that the surcharge is not applicable to its prepaid wireless service and, as a result, it has no obligation to remit the surcharge. For the reasons set forth below, we find that the surcharge applies to TracFone's services and that TracFone is ultimately responsible for payment of this surcharge.

Our analysis starts with statutory law. Section 871 et seq., known as the Moore Universal Telephone Service Act, creates the statutory framework for the universal lifeline surcharge, providing, in pertinent part, that "The furnishing of lifeline telephone service is in the public interest and should be supported fairly and equitably by every telephone corporation ...."75

TracFone asserts it is not responsible for the universal lifeline surcharge because, first, the statute delegates to the Commission authority to define, among other things, who has to pay the surcharge and the types of services applicable to the surcharge and, second, based on this authority, the Commission has adopted exclusions that extend to wireless prepaid calls.76 CPSD asserts that the language of §§ 871 et seq. is clear -- all telecommunication services, including prepaid wireless, are subject to the surcharge under the statutory language, unless specifically excluded by the Commission.77 To resolve the parties' conflicting interpretation of the statute, we turn to the rules of statutory construction.

As noted above, it is well-established that in examining and interpreting the words of a statute, courts are guided by the plain meaning of the statutory language and courts will adopt a literal interpretation unless it is repugnant to the obvious purpose of the statute.78 The plain language of the statute does not specifically identify either the types of public utilities that must collect the surcharges or the types of utility services to which the surcharges apply.

The statute, instead, provides the Commission with the authority to implement the program79 and to develop a funding mechanism for the program.80 As such, we find that the statutory language does not fully address the question of whether TracFone is subject to the surcharge. As suggested by TracFone, the statute delegates to the Commission the authority to decide these matters. Accordingly, we now turn to the decisions of the Commission implementing funding for the surcharge for further guidance on the question of whether TracFone is obligated to pay this surcharge.

The first Commission decision to implement the funding for the universal lifeline surcharge was D.84-04-053.81 In D.84-04-053, the Commission clarified that the purpose of the surcharge is to provide affordable local telephone service for the needy, the invalid, the elderly, and rural customers and, in describing its responsibilities under statutory law, the Commission found that the statute mandated the Commission to establish a subsidized telephone service and to fund the subsidized service with what the Commission described as a "limited tax on suppliers of intrastate telecommunications service."82 Importantly, for purpose of the issues presented here, the Commission further found that its responsibility to establish a funding mechanism reasonably included the identification of the services subject to the surcharge.83 Accordingly, in this 1984 decision, the Commission made it clear that it acted within its authority under the statute when deciding the types of public utilities or the specific utility services subject to the surcharge.

In addressing this matter further, the Commission in 1984 determined that all interLATA intrastate telecommunication services were subject to the surcharge. In 1984, the Commission also acknowledged that it had the discretion under statutory law to apply the surcharge more broadly to all intrastate services. The Commission would later expand the scope of telecommunication services subject to the surcharge84 but, at least in 1984, no need existed for a broader application because the then-incumbent local exchange carriers provided their own subsidized local service to lower income customers.85 D.84-11-028 also served to adopt Commission's GO 153, where the Commission described the services subject to the surcharge as "suppliers of intrastate interLATA telecommunications services."86

Since the Commission's initial implementation order in 1984, the types of telecommunication services subject to the surcharge have evolved as technology has changed. In D.94-09-065, issued approximately 10 years later, the Commission extended the application of the surcharge to include all intraLATA services and other services, stating that the surcharge applied to "All end-users of every [Local Exchange Carrier] LEC, [Interexchange Carrier] IEC, cellular, and paging company in the state, including basic exchange customers...."87 The Commission explicitly included cellular service, such as TracFone's, as one of the services subject to the surcharge. The Commission confirmed this determination in D.96-10-066.88

Thus, based on the language in D.94-09-065 and D.96-10-066 pertaining to cellular service, we find that the surcharge applies to TracFone's cellular service, unless one of the exceptions discussed below applies.

In D.94-09-065, the Commission adopted certain exceptions to the application of the surcharge.89 The exceptions included coin-sent paid calling, one-way radio paging, Universal Lifeline Telephone Service (ULTS) billing, and then-existing contracts.90 Our discussion here will focus on the "coin-sent paid calling" and the later adopted "debit card" exceptions because TracFone's argument first relies upon an analogy between the coin-sent paid calling services (excepted in D.94-09-065) and its wireless prepaid services,91 and then focuses on another exception adopted a few years later in 1996, the debit card exemption.92 These exceptions are memorialized in the Commission's GO 153.93 As a result, we also address GO 153 below.

TracFone asserts that that the coin-sent paid calling exception supports the exception of its wireless service from the application of the surcharge because, in D.94-09-065, D.96-10-066, and GO 153, the Commission intended to draw a distinction between revenue derived from billed services and revenue derived from unbilled services, including services such as its prepaid wireless service.94 TracFone's argument rests, in part, on the Commission's statement in D.94-09-065 that "[i]t is reasonable to exempt from the surcharge coin-sent paid calling, because no bills are rendered for those calls."95 TracFone reasons that, because its prepaid wireless services are similar to coin-sent paid calling and the later-adopted debit card exception in that no bills are rendered for any of these services, its prepaid wireless services are exempt from the surcharge as well.96

The Commission did, as TracFone points out, refer to the non-billed nature of the coin-sent paid calls in adopting this exemption in D.94-09-065.97 However, we find no support in our prior decisions for TracFone's assertion that the Commission intended in 1994 to draw a distinction for purposes of applying the surcharge between intrastate revenue derived from billed services and intrastate revenue derived from unbilled services.

To evaluate the strength of TracFone's argument which rests, in part, on D.94-09-065, we first turn to the Commission's description in this 1994 decision of the scope of the customer base subject to the surcharge. The Commission describes the scope of its preferred customer base as the "widest possible customer base" and stated that narrowly applying the surcharge would be unfair to competitors.98 In seeking to act consistent with the Commission's preferred "widest possible" scope for the customer base, we find TracFone's argument unconvincing that the Commission intended the coin-sent paid calling exception to extend to all unbilled or prepaid services. If the Commission intended such a result regarding "unbilled" services, the Commission would have simply stated that intent.

We find that the Commission carved out a single exception and stated its intent to apply the surcharge to a broad billing base. TracFone's interpretation of the Commission language in D.94-09-065 to apply to all unbilled services is based on conjecture and not consistent with Commission's explicit directives in that decision to broadly apply the surcharge.

Furthermore, TracFone's reliance on the Commission's coin-sent paid calling exemption to exempt all unbilled service leads to absurd results. For instance, a carrier or customer could arrange for paying for all its telecommunication service without bills simply to avoid the surcharge. While TracFone asserts it did not engage in such conduct,99 such a strategy would diminish the scope of the customer base, a result directly contrary to the Commission's intention of avoiding a narrowly applied surcharge. We seek to interpret Commission decisions to avoid absurd result.

TracFone relies on the later-adopted debit card calling exemption to bolster its argument that the Commission intended to exempt all unbilled services from the surcharge. The debit card exemption first appeared in D.96-10-066.100 At that time, the Commission provided no explanation for the rationale for this additional exemption.101 Nevertheless, TracFone argues that the Commission's rationale for exempting debit card services is that no bills are rendered for these calls.102 We disagree with TracFone's conclusion.

While the Commission in D.94-09-065 provided some, albeit minimal, insight into the rationale for the coin-sent paid exclusion as being related to the absence of billed services, it provided no rationale for the debit card exclusion which was first announced in D.96-10-066. 103 As such, in the absence of any statements by the Commission on this topic, TracFone's assertion that the debit card exemption is within TracFone's rationale - no bills - for the coin-sent paid calling exemption fails.

Moreover, in the absence of explicit Commission rationale for the debit card exemption, TracFone's assertions that the Commission intended to include its prepaid wireless services within the debit card exception is also unconvincing. As TracFone points out, similarities exist between its prepaid wireless service and debit card service but differences exist as well. Regarding the similarities, TracFone states that:

TracFone airtime cards are debit cards, and in all critical respects, operate in the same manner as other providers' debit cards. (Footnote omitted.) Most importantly, like all debit card services, TracFone's prepaid wireless is not a service for which bills are sent to the consumer subsequent to use. As explained above, the lack of billing subsequent to use is the only salient feature of debit cards identified by the Commission in carving out the exclusion for coin-sent paid telephone calls (coin in box) and debit card calls in 10.5.1.3 of GO 153.104

TracFone also points out that its prepaid services are sold at the same retail vendors of many debit card services.105 Regarding the differences, TracFone acknowledges that its services are sold with a handset (a phone) and each handset is assigned a telephone number to use with its prepaid airtime.106 In addition, unlike debit cards, which can be used from any phone, TracFone's wireless prepaid cards only function from a TracFone handset.107

TracFone concludes that the similarities justify its reliance on the debit card exception as the basis for the same exemption for its prepaid wireless service. We disagree. The differences between the two types of services are material. As noted above, TracFone's prepaid wireless services include a telephone number and must be used with a TracFone handset. Essentially, the result is equivalent to a dial tone access and a full service telephone offering. In comparison, debit cards provide a very limited type of telecommunications service. As such, TracFone's service fails to fall within the debit card exemption to the universal lifeline surcharge.

For all these reasons, we find that the universal lifeline surcharge set forth in §§ 871 et seq. and related Commission decisions applies to TracFone's prepaid wireless services, and that TracFone acted unlawfully by failing to pay this surcharge.

TracFone claims that, even if the universal lifeline surcharge applies to its prepaid wireless services, that its customers, not TracFone, are ultimately responsible for payment. TracFone's argument rests on D.94-09-065. TracFone claims that in this 1994 decision, the Commission adopted a shift from the telecommunication carriers being responsible for the funding of the surcharge to end-users being responsible for this funding.108 TracFone argues that, based on this shift in 1994 to end-user responsibility, the surcharge cannot apply to its prepaid service because there is "no way to collect the end-user surcharge"109 from the customer without a physical bill of some sort. Essentially, TracFone argues that the Commission needs to collect these amounts from the customers because TracFone is unable to.

TracFone does not provide a specific quote nor does TracFone cite to a conclusion of law from D.94-09-065 to support its assertion that the Commission adopted a shift for responsibility of the surcharge from the telecommunication carriers to end users. Instead, TracFone bases its argument on the Commission's discussion in D.94-09-065 on preserving the future funding of certain surcharges,110 including ULTS, as the scope of the billing base changes under the newly authorized competition in the local exchange market.111 TracFone points to the language in GO 153 to support its conclusion.112 CPSD points to different language pointing to the opposite conclusions.113

The issue presented here for resolution is whether carriers or customers have ultimate responsibility for ensuring that the surcharge is paid. This question is slightly different than the question posed by TracFone. TracFone questions whether, from an administrative perspective, the surcharge is calculated based on a customer's usage and paid for by the customer (and subsequently remitted by the carrier) or whether the surcharge is calculated based on the carrier's total intrastate revenues and paid for and remitted by the carrier. For the reasons presented below, we find that, regardless of how the surcharge is calculated, collected, and remitted, the carrier, not the customer, is ultimately responsible for payment of the surcharge.

Neither GO 153 nor the Commission decisions are dispositive on the question of ultimate responsibility for the surcharge. Instead, we look to the language of the statutes and find the utility is ultimately responsible for ensuring payment of the proper surcharge amount. It is the utility, not customers, over whom the Commission exerts jurisdiction. We find that the Legislature did not intend to extend the Commission's jurisdiction to include all utility customers in the event of failure to pay surcharges and, as a result, we conclude that ultimate responsibly for payment of the surcharge must necessarily rest with the utility. TracFone supports its position by citing to D.94-09-065, GO 153 and actions by the Federal Communication Commission. However, TracFone's arguments fail to address the central issue here - ultimate responsibility for payment of the surcharge. Instead, TracFone addresses administrative matters that have no bearing on the question of TracFone's ultimate responsibility regarding the surcharge.

For these reasons, we find that, regardless of how the Commission designed the actual administration of the collection and remittance of this surcharge, TracFone is ultimately responsible for ensuring the payment of the surcharge to the appropriate fund; not customers. TracFone's failure to pay the universal lifeline surcharge is a violation of state law and Commission decisions, including, §§ 871 et seq.

74 The briefs filed by CPSD and TracFone address all of the Commission surcharges at issue in this proceeding concurrently and collectively refers to these surcharges as the public purpose program surcharges. The discussion below focuses solely on §§ 871 et seq. In subsequent sections of this decision, we address the remaining public purpose program surcharges at issue in this proceeding. They are addressed individually here because the statutory language, while similar, is not always exactly same.

75 § 871.5(d).

76 TracFone opening brief at 21-23: "From our review of the statutes creating the California public purpose programs, however, it is clear that there is no specific legislative mandate on how the public programs are to be funded."

77 CPSD opening brief at 11-12: "The law is clear: all telephone corporations have this duty." (Italics in original.)

78 &_butType=3&_butStat=2&_butNum=1&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=1&_startdoc=1&wchp=dGLbVzk-zSkAb&_md5=a2d939b12004f96fdbfb4cf5fdfd35fa" target="_top">Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.

79 § 871.5(d): "...the commission, in administering the lifeline telephone service program, should implement the program in a way that is equitable, nondiscriminatory, and without competitive consequences for the telecommunications industry in California."

80 § 879.5: "...the commission shall issue its initial order adopting required rates and funding requirements not later than October 31, 1987...."

81 D.84-04-053 implemented the Moore Universal Telephone Service Act (Assembly Bill 1348, ch. 1143, Stats. 1983) which became law in September 1983 and described the Act as the legislature's response to potential increases in telephone bills due to the breakup of American Telephone and Telegraph Company's Bell System.

82 D.84-04-053, 1984 Cal. PUC LEXIS 1314 *1.

83 Id. *3.

84 Id. *22-24: "The Act defines intrastate telecommunications service as primarily service for which there is a toll charge plus certain limited telecommunications between exchanges. From information filed with us by the telephone companies, primarily Pacific Bell, General Telephone, and Continental, it appears that Moore Act services can be financed with a tax on only interLATA intrastate services plus intrastate services not defined by LATA boundaries. During the first year, however, we will set the tax at the maximum 4% so that we can be reasonably assured the program will support itself. We recognize that we may later have to include intraLATA intrastate services if the tax does not generate enough to fund the program."

85 D.84-04-053, 1984 Cal. PUC LEXIS 1314 *22-24.

86 Id. 897 *6-7.

87 Id. 681.

88 Id. 1046 *289.

89 D.94-09-065, 1994 Cal. PUC LEXIS 681 *131.

90 Id.

91 TracFone opening brief at 26-29.

92 D.96-10-066, 1996 Cal PUC LEXIS 1046 *289.

93 D.84-11-028, 1984 Cal. PUC LEXIS 897.

94 TracFone opening brief at 25.

95 TracFone opening brief at 29, quoting from D.94-09-065, 1994 Cal. PUC LEXIS 681 *130-131.

96 Id. at 26-29.

97 No similar statement was made in adopting the debit card exemption. The debit card exemption is discussed in more detail herein.

98 D.94-09-065, Conclusion of Law 230, 1994 Cal. PUC LEXIS 681 (Part Two) *130, *192-193.

99 TracFone reply brief at 35; Exhibit TR-111, 14-15; Pollak explains that TracFone did not structure its business to avoid surcharges.

100 D.96-10-066, 1996 Cal PUC LEXIS 1046 *289.

101 Id.

102 TracFone opening brief at 26.

103 D.96-10-066, 1996 Cal PUC LEXIS 1046 *289.

104 TracFone opening brief at 34.

105 Id. at 35.

106 Id.

107 Id. at 35 and fn. 114; CPSD opening brief at 19-21.

108 TracFone opening brief at 26.

109 Id.

110 Exhibit TR-105; TracFone opening brief at 26.

111 D.94-09-065, 1994 Cal. PUC LEXIS 168 *124-132.

112 TracFone opening brief at 28.

113 CPSD opening brief at 12-13.

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