ALJ/KAJ/tcg Mailed 1/21/2003

Decision 03-01-035 January 16, 2003

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission's Own Motion to Consider Modifications to the Universal Lifeline Telephone Service Program and General Order 153.

Rulemaking 98-09-005 (Filed September 3, 1998)

OPINION DENYING FONES4ALL'S AMENDED PETITION
TO MODIFY DECISION 00-10-028 AND MODIFYING
ULTS ADMINISTRATIVE EXPENSE PROCESS

TABLE OF CONTENTS

Title Page

OPINION DENYING FONES4ALL'S AMENDED PETITION
TO MODIFY DECISION 00-10-028 AND MODIFYING ULTS
ADMINISTRATIVE EXPENSE PROCESS 1

1. Summary 2

2. Background 3

3. FONES4ALL's Proposal 7

3.1 Parties' Positions 10

3.2 Discussion 17

3.2.1 ULTS Marketing Program 17

3.2.2 Recovery of Administrative Costs 26

4. Other issues raised in ACR 33

4.1 "Finder's Fee" Proposal 33

4.2 Auto Enrollment Proposal 36

4.3 Rules for disconnection due to non-payment of long
distance balances 38

5. Comments on Draft Decision 39

6. Assignment of Proceeding 39

Findings of Fact 39

Conclusions of Law 42

ORDER 42

Appendix A - General Order 153

OPINION DENYING FONES4ALL'S AMENDED PETITION
TO MODIFY DECISION 00-10-028 AND MODIFYING
ULTS ADMINISTRATIVE EXPENSE PROCESS

1. Summary

We renew our commitment to ensuring that our state's low-income residential subscribers have access to affordable telephone service, through the Universal Lifeline Telephone Service (ULTS) program. Currently, approximately 3.7 million Californians¹ receive the ULTS discount offered under the program, but we have yet to reach our goal of a 95% penetration rate for each residential customer group. The issue before us is how best to reach those households that currently are without basic telephone service. We are well aware that marketing of ULTS service is a key element to reaching the unserved.

We analyze and reject FONES4ALL's proposal that would compensate Competitive Local Exchange Carriers (CLECs) for marketing of the ULTS program. We reject FONES4ALL's proposal because it violates the requirements of § 253(b) of the Telecommunications Act of 1996 (Act) and § 871.5(d) of the Public Utilities Code. Both Federal and State law mandate that universal service programs be conducted in a "competitively neutral manner." Having individual carriers market on their own behalf violates those requirements.

We also reject FONES4ALL's proposal on policy grounds. While FONES4ALL has developed some safeguards as part of its pilot project, those safeguards are inadequate to prevent carrier abuse. Carriers could be compensated for "churn"² rather than for getting new customers on the network. The pilot project could also encourage carriers to sign up ineligible customers, in order to receive the higher reimbursement amount. We find that it would be costly and, potentially invasive of the privacy rights of ULTS customers, for the Commission to attempt to monitor the activities of carriers to identify and eliminate program abuses.

We conclude that industry-wide ULTS marketing through a single entity is the appropriate vehicle for a coordinated, competitively neutral way to reach potential ULTS customers. We believe that a centralized marketing effort conducted by a contractor selected by the Commission, will prove to be the most effective and cost-efficient way to market ULTS service.

We recognize that FONES4ALL raises a legitimate issue, namely that it may prove to be costly and time-consuming for small CLECs to perform the detailed incremental cost studies necessary to bill for particular functions relating to the ULTS program. Instead we set an annual cost factor per ULTS customer ($1.85/customer per month for fiscal year 2002-2003) and allow CLECs the option of using the cost factor or of calculating their incremental costs. This simplifies the reimbursement process for both CLECs and for the Telecommunications Division.