6. Assignment of Proceeding

Geoffrey Brown is the Assigned Commissioner and Karen Jones is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. FONES4ALL's pilot project includes reimbursement for marketing and outreach efforts.

2. Pub. Util. Code § 871.5(d) requires the Commission to implement a universal service program "without competitive consequences for the telecommunications industry in California."

3. Section 253(b) of the Telecommunications Act of 1996 requires that states implement universal service programs on a "competitively neutral basis."

4. FONES4ALL's pilot project is only available to CLECs; the option is not available to ILECs.

5. The best way to market ULTS in a competitive environment is through a single entity so that no one carrier is advantaged by marketing activities.

6. A Commission-selected marketing contractor would operate in a competitively neutral manner and would have no incentive to steer prospective ULTS participants toward a particular carrier.

7. A Commission-selected marketing contractor does not stand to profit by encouraging ULTS customers to switch from one carrier to another.

8. The safeguards proposed by FONES4ALL do not address the major problem areas of its pilot project.

9. Any monitoring system set up to ensure that carriers are not abusing the rules of the pilot project could prove to be more costly than the benefits received, since the Commission would need additional staff to perform the monitoring function.

10. If the financial incentive is significant, a carrier could decide to sign up ineligible consumers, in the interest of its own bottom line.

11. FONES4ALL's pilot project has $13 million in incentives for CLECs to thwart the rules and attempt to garner a significant share of the project budget.

12. CLEC marketing efforts could prove to be duplicative if various CLECs focus on the same target population.

13. Having CLECs market ULTS service is duplicative of marketing efforts by the Commission-selected marketing contractor.

14. Resolution T-16591 gives clear guidelines of the ULTS-related costs that carriers may recover.

15. It could be costly and time consuming for a small CLEC to perform time and motion studies of the incremental costs of various functions attributed to the ULTS program.

16. Calculating an average cost factor based on the average for all 21 ILECs has the benefit of including the experience of both small and large ILECs.

17. For FY 2002-2003, the cost factor is set at $1.85 per ULTS customer per month.

18. Giving CLECs a choice in the method for claiming ULTS administrative expenses eliminates CLECs' concerns about the difficulties of measuring their incremental costs of providing ULTS service.

19. Use of the cost factor will serve to simplify the process for both CLECs that take the cost factor option, as well as the TD, which is charged with reviewing the reasonableness of carrier claims.

20. The magnitude of any monitoring/enforcement program instituted to monitor fraud and abuse associated with the "Finder's Fee" proposal would be an enormous strain on Commission resources, and probably not worth the effort.

21. The "Finder's Fee" proposal suffers from the same lack of adequate safeguards as FONES4ALL's pilot project.

22. The automatic enrollment proposal has potential but further examination is needed.

23. The Commission's rules prohibit disconnection of basic telephone service for failure to pay long distance charges.

Conclusions of Law

1. FONES4ALL's pilot project violates § 253(b) of the Telecommunications Act of 1996.

2. FONES4ALL's pilot project violates § 871.5(d) of the Public Utilities Code.

3. ULTS marketing, in order to be competitively neutral, should be conducted by an organization that has no vested interest in a customer's choice of carrier.

4. ULTS marketing should be the exclusive providence of the Commission-selected marketing contractor.

5. CLECs should have the option of using the cost factor developed by the Commission, rather than calculating their incremental costs as delineated in T-16591.

6. Information on the Commission's rules for disconnection due to non-payment of long distance balances should be included in the outreach information supplied by the marketing contractor.

ORDER

IT IS ORDERED that:

1. FONES4ALL's amended petition to modify Decision 98-10-028 is hereby denied.

2. Within 15 days of the effective date of this order, the Telecommunications Division (TD) shall report to the parties in Rulemaking (R.) 98-09-005 on its progress in implementing the contracts for marketing Universal Lifeline Telephone Service (ULTS).

3. For the current fiscal year on a going-forward basis, a Competitive Local Exchange Carrier (CLEC) may opt to receive the $1.85 per ULTS customer per month for their reimbursement of incremental operating expenses. Any CLEC that elects to exercise this option shall notify TD within 30 days of the effective date of this order.

4. For pending claims for administrative expenses for prior fiscal years, a Competitive Local Exchange Carrier (CLEC) may opt to receive the $1.85 per ULTS customer per month for their reimbursement of incremental operating expenses. Any CLEC that elects to exercise this option shall notify TD within 30 days of the effective date of this order.

5. By April 15, 2003 and each year thereafter, TD shall adjust the cost factor to be applied in the coming Fiscal Year (FY) based on the incremental operating expense claimed by the Incumbent Local Exchange Carriers during the previous calendar year and the formula identified in Section 8.13.1 of General Order (GO) 153.

6. Beginning in FY 2003-2004, each Competitive Local Exchange Carriers must notify TD before the FY begins if it chooses to receive its incremental operating expense based on the cost factor developed by TD.

7. GO 153 shall be modified as shown in Appendix A to implement this change in the reimbursement process for ULTS claims.

8. TD shall include a requirement in the ULTS marketing contract that the Commission-selected marketing contractor include information on the Commission's disconnection policy for non-payment of long distance charges in its written outreach materials.

9. TD shall include a requirement in the ULTS marketing contract that the marketing contractor train all of the Community Based Organizations involved in its outreach effort about the Commission's disconnection policy.

10. The June 4, 2002 motion of the Universal Lifeline Telephone Service Administrative Committee to accept late-filed comments, is hereby granted.

11. The June 5, 2002 motion of I-Trax, Inc. to accept late-filed comments, is hereby granted.

12. The November 19, 2001 appeal by FONES4ALL of the Administrative Law Judge Ruling requiring FONES4ALL to submit information relevant to its petition to modify D.00-10-028, is hereby denied.

13. The December 19, 2001 motion of FONES4ALL for confidential treatment of its cost and line account information, is hereby granted.

This order is effective today.

Dated January 16, 2003, at San Francisco, California.

APPENDIX A

GENERAL ORDER 153

The following sections are added to General Order 153:

8.13 For the recovery of incremental operating expenses, a competitive local exchange carrier (CLEC) has the option of receiving its reimbursement based on a cost-factor developed by TD. Once this option is exercised, it shall remain in effect for the entire fiscal year (FY).

8.13.1 This cost-factor shall be determined by the average incremental operating expense per customer per month excluding any zero claims filed by the ILECs and approved by TD.

8.13.2 For Fiscal Year (FY) 2002-2003, the cost-factor is set at $1.85 per ULTS customer per month. By April 15, 2003 and each year thereafter, TD shall adjust this cost-factor to be applied in the coming FY based on the incremental operating expenses claimed by the ILECs during the previous calendar year and the formula identified in Section 8.13.1 of this General Order.

8.13.3 Each CLC must notify TD before the FY begins if it chooses to receive its incremental operating expenses based on this cost-factor.

Instructions for the ULTS Report and Claim Form

(END OF APPENDIX A)

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