7. Assignment of Proceeding

Rachelle B. Chong is the assigned Commissioner and Thomas R. Pulsifer is the assigned ALJ in this proceeding.

Findings of Fact

1. Pursuant to D.07-09-020, parties were provided notice and opportunity to comment as to the merits and manner by which a mechanism could be implemented for eligible parties to qualify for funding to deploy broadband facilities in regions of California that are not currently being served, or that are underserved.

2. Ubiquitous deployment of broadband holds tremendous opportunities for consumers, technology providers, and content providers, and is important to the continued health and economic development in California.

3. Promoting deployment of additional broadband services within areas of California that are underserved or not served at all is consistent with universal service policies aimed at enhancing deployment of advanced services and bridging the "digital divide" as articulated in Pub. Util. Code §§ 709(c) and (d).

4. The creation of a California Advanced Services Fund would provide an effective tool to promote additional broadband services in regions that are not served or are underserved consistent with Pub. Util. Code §§ 709(c) and (d).

5. The California Advanced Services Fund will complement the CHCF-B, and help to promote universal service goals, but will not divert or transfer CHCF-B funds as the CASF funds collection will be collected separately from the CHCF-B.

6. The funding of broadband infrastructure in areas where there may be market failure may be the best way to take into account dramatic advances in telecommunications and information technologies and services, while ensuring the continued effectiveness of the universal service policies set forth by the Legislature.

7. Broadband deployment in California has a direct impact on economic output and employment.

8. A 0.25% surcharge for CHCF-B for 2008 is projected to provide a balance greater than 2.5 times the monthly payment rate at the end of 2008, and will provide sufficient funds for CHCF-B purposes in 2008.

9. Surcharge amounts are continuously evaluated and adjusted at least annually, and a revision to the surcharge attributable to the CHCF-B may occur in 2009 to ensure continued sufficiency of CHCF-B funds.

10. The 0.5% CHCF-B surcharge should be redesignated to gather funds for both the CHCF-B and the CASF. Carriers are granted the discretion to use the same surcharge line on customer bills for both the CHCF-B and the CASF so long as that surcharge description reflects both funds, or alternatively, carriers have the discretion to create a new surcharge line just for the CASF. In the future, the Commission could require a separate CASF surcharge but we find it is not necessary at this time as the CHCF-B mechanism is available, works well, and is the least cost alternative.

11. The programs covered by Section 270, et. seq. cover a myriad of topics and issues. The Commission has taken both formal and informal actions to adapt the programs to changed circumstances due to advances in technology and other factors have led to changes, including expansions of the programs since they were created.

12. The Commission has authority under Article XII of the California Constitution and Pub. Util. Code including § 701 to establish the California Advanced Services Fund.

13. Providing funding for deployment of broadband facilities in unserved and underserved areas of California is necessary to meet the objectives of universal service.

14. Legislative direction recognizes that broadband services are and will be used to deliver universal telephone service now and in the future.

15. The Legislature and Governor have both clearly proclaimed the importance of high-quality telecommunications and advanced information and communication technologies.

16. All funds will be collected and appropriated consistent with Legislative direction related to existing universal service programs.

17. An amendment to the Pub. Util. Code § 270 to add the California Advanced Services Fund to those handled by the State Treasury is appropriate.

18. A new section within Chapter 1.5 of the Public Utilities Code to provide specific direction to carriers for remitting CASF collections and use of the funds by the Commission is appropriate.

19. Legislation is not necessary to begin the collection of funds by carriers nor is it necessary to begin the process within the Commission to receive and evaluate proposed bids for CASF purposes.

20. It is appropriate to dedicate limited funding into the deployment of broadband facilities in unserved and underserved areas of California.

21. The California Advanced Services Fund will accelerate broadband deployment in California more rapidly than market forces alone.

22. The initial allocation to the California Advanced Services Fund of $100 million is a reasonable amount to promote the goals set forth in this order. The $100 million is to be collected using a 0.25% surcharge allocation over approximately a two year period beginning on January 1, 2008

23. The submission of funding proposals to the Director of the Commission's Communications Division would be an appropriate procedural vehicle for seeking CASF funding support for a proposed area that is currently unserved or underserved by broadband services.

24. Commission staff will hold a workshop to develop the application process, and final evaluation criteria, with the final evaluation criteria, and funding request template to be approved by a Commission resolution

25. The initial deadline for the submission of proposals by parties seeking CASF awards will be of June 2, 2008.

26. California Advanced Services Fund allocations shall be limited to a "telephone corporation" as defined under Pub. Util. Code § 234.

27. For an adequate basis to evaluate CASF proposals, it reasonable to require each proposed project to provide the following data to the Commission, for each proposed broadband project, subject to appropriate confidentiality provisions:

a. Description of the provider's current broadband infrastructure and map of current service area by census block group;

b. Description of proposed broadband project plan for which CASF funding is being requested, including download and upload speed capabilities of proposed facilities. Minimum benchmark speed standards shall be 3 MBPS download and 1 MBPS upload.

c. Geographic locations by census block group where broadband facilities will be deployed. Boundaries of the specific area to be served by the project, with map by census block group, along with a verifiable showing that the area is unserved or underserved;

d. Estimated number of potential new broadband subscribers.

e. Schedule for deployment, with commitment to complete build out within 18-24 months of the grant of the application. Schedule shall identify major construction milestones that can be verified by Commission staff.

f. Proposed budget for the project, with a detailed breakdown of cost elements, and including source, amount, and availability of matching funds to be supplied by applicant, and the CASF funds requested. At least 60% matching funds must be supplied by applicant.

g. Proposed retail price per MBPS for new broadband service.

h. Period of commitment to offer broadband services to all households within the service area of the project, and

i. Financial qualifications to meet commitments.

28. Recipients must also offer a basic voice service to customers within the service area of the broadband deployment subject to the CASF award.

29. For purposes of awards of California Advanced Services Fund support, we expand the definition of qualifying "basic service" to include any form of voice-grade service, including that offered through a wireless or VoIP service.

30. A single broadband project shall consist of facilities designed to serve a group of contiguous CBGs (or portions of CBGs, where applicable) in which service is to be offered.

31. The following definition is reasonable to adopt as the benchmark for evaluating applications, and as a threshold for defining whether an area is unserved or underserved by broadband facilities. If an area is not served by any form of broadband, such that internet connectivity is available only through dial-up service, that area is unserved. Where area is served by broadband, but where no facilities-based provider offers service at speeds of at least 3 MBPS download and 1 MBPS upload, that area is considered underserved.

32. A broadband project must be completed within 24 months to receive California Advanced Services Fund awards.

33. Adequate assurance of the applicant's financial qualifications sufficient to assure the Commission of its ability to complete the project shall be submitted with the application or obtained by the Commission prior to the award of any project under the California Advanced Services Fund.

34. California Advanced Services Fund awards will not be restricted only to those areas currently designated as "high cost" for purposes of basic service support.

35. We shall not restrict the eligible areas for California Advanced Services Fund awards only to the major ILEC service territories currently covered by the B-Fund.

36. As a condition of receiving a California Advanced Services Fund award, the recipient should, for a five-year period, offer broadband service to any residential household or small commercial business within the service territory covered by the deployment.

37. Evaluation of requests will consider the prices at which applicants propose to offer broadband service and award will be conditioned on the applicant honoring voluntary pricing commitments.

38. California Advanced Services awards will only be provided for authorized capital projects on approved broadband deployment projects, and shall not be used to pay for general operating or maintenance expenses.

39. Administration of the disbursement of California Advanced Services Funds is delegated to the Commission Staff to be administered consistent with the payment schedules and conditions herein.

40. California Advanced Services Fund recipients will be subject to specific audit or related verification requirements to verify that funds are spent in accordance with Commission requirements.

Conclusions of Law

1. Existing statutes provide the requisite authority for the Commission to support funding of broadband deployment under the approach adopted in this order.

2. Encouraging deployment of broadband through a CASF program will help to promote universal service goals, but is not a diversion or transfer from the CHCF-B to a separate fund.

3. Article XII of the California Constitution and the Pub. Util. Code, including § 701, provide sufficient legal authority for the Commission to establish the California Advanced Services Fund.

4. Limited funding for deployment of broadband facilities in unserved and underserved areas of California is necessary to meet the objectives of universal service and is within the prescribed purpose of the Pub. Util. Code.

5. The Legislature and Governor have found the availability of high-quality telecommunications and advanced information and communication technologies important for the future prosperity of California.

6. The funds to be used by the CASF will be collected as part of the redesignated CHCF-B and CASF surcharge beginning on January 1, 2008. Carriers may use the same surcharge line on customer bills for both the CHCF-B and CASF.

7. Pub. Util. Code §§ 270(b) and 270(c) do not prohibit the expansion of existing programs.

8. The CASF is not a transfer or diversion of funds to another fund or entity but is the creation of a new program.

9. An amendment to the Pub. Util. Code § 270 to add the California Advanced Services Fund to those handled by the State Treasury is appropriate.

10. A new section within Chapter 1.5 of the Public Utilities Code to provide specific direction to carriers for remitting CASF collections and use of the funds by the Commission is appropriate.

11. Legislation is not necessary to begin the collection of funds by carriers through use of the current surcharge mechanism, as ordered below, nor is legislation necessary to begin the process within the Commission to receive and evaluate proposed bids for CASF purposes.

12. California Advanced Services Fund allocations shall be limited to a "telephone corporation" as defined under Pub. Util. Code § 234.

13. The definition of qualifying "basic service" for the purposes of the California Advanced Services Fund only is modified to include any form of voice-grade service, including that offered through a wireless or VoIP service.

14. Subject to the final evaluation criteria, the Commission may award California Advanced Services Fund support to any certificated entity that proposes to build broadband infrastructure anywhere in the state.

15. The criteria for evaluation and selection of CASF proposals should be competitively neutral.

INTERIM ORDER

IT IS ORDERED that:

1. An allocation of $100 million is hereby designated for support of broadband deployment projects in accordance with the principles and processes under the "California Advanced Services Fund" (CASF) program, as adopted herewith.

2. On and after January 1, 2008, this CASF allocation shall be collected using the same surcharge mechanism as the CHCF-B, with the collected funds allocated half to the CASF and half to the CHCF-B.

3. This program shall be funded through the California Advanced Services Fund, and will be set initially at $ 50 million per year,

a. All telecommunications carriers are required to charge all end users, the California Advanced Services Fund surcharge, as set by the Commission, except for ULTS billings, coin-sent paid calling, debit card messages, one-way radio paging, usage charges to COPTs, customers receiving services under existing contracts, and directory advertising.

b. The California Advanced Services Fund surcharge is set at 0.25%, and shall be collected from end users beginning with the billing cycle that begins on January 1, 2008. All telecommunications carriers shall each establish a memorandum account tracking system for recording collections of the 0.25% surcharge revenues applicable to the CASF beginning January 1, 2008. The CASF memorandum account shall accrue monthly interest on the accumulated balance at the applicable short-term commercial paper rate.

c. The California Advanced Services Fund surcharge may appear as a separate line item on a customer's bill or may be combined with the CHCF-B surcharge in 2008 and 2009 if the CHCF-B line item is renamed to reflect both the CHCF-B and the CASF.

d. Effective with the billing cycle that begins January 1, 2008, wherever the surcharge line items are explained by the telecommunications carriers, all telecommunications carriers shall describe that a portion of the line item is being directed toward the CHCF-B and a portion toward the CASF.

e. The Communications Division shall monitor the estimate of the size of the fund and shall inform the Commission as to whether any adjustments are needed in accordance with the text of this decision.

4. All revenues collected by telephone corporations in rates authorized by the Commission to fund the CASF program shall be submitted pursuant to a schedule established by the Commission. All revenues collected prior to the issuance of the schedule by the Commission shall be held by the telephone corporations and accounted for the in the CASF memorandum account, together with accrued interest. Upon the issuance of the schedule by the Commission, or other Commission directive, all revenues collected and any associated interest shall be transferred to the State Controller for deposit.

5. A process is hereby adopted for the submission of proposals by qualified telephone corporations, as set forth in the ordering paragraphs below, to seek funding available through the California Advanced Services Fund,

6. Eligible parties are hereby authorized to submit proposals to the attention of the Director of the Communications Division, due on June 2, 2008, to request funding for broadband deployment in accordance with the standards, and selection criteria set forth in this order.

7. A separate showing shall be required for each proposed broadband project. For this purpose, a single broadband project is defined as deployment encompassing a single contiguous group of CBGs (or portions of CBGs, as applicable). Parties may seek funding for more than one project within a single submission, but must provide separate supporting documentation for each project.

8. Responses to funding requests shall be due 30 business days after receipt by the Communications Division, except that responses that present a counteroffer to meet the proposed broadband commitment under different terms shall be due 45 business days after the proposal is submitted.

9. CASF funding proposals submitted after June 2, 2008 will be accepted, but will be reviewed under a lower priority, and subject to the availability of remaining CASF funds funding is approved for project proposals that meet the June 2, 2008 deadline.

10. Requests for CASF awards and disbursement of funds for that purpose shall be made pursuant to the standards and criteria adopted herein.

11. Consistent with the timelines discussed in Finding of Fact 25, Communications Division staff shall convene a technical workshop at which parties will be provided the opportunity to give input on the development of scoring criteria. Following the workshop, further guidance will be provided to parties concerning how specific selection criteria will be scored.

12. The Commission shall approve the final criteria and project proposal template to be used to evaluate and award CASF funds in a resolution. The scoring criteria shall include consideration of ranking for "uneconomic" areas that are less likely to be served without public funds. The approved criteria and scoring standards shall be made public in time for parties to take them into account in preparing their proposals. Individual awards of CASF funding shall also be authorized by separate Commission resolution.

13. CASF funding shall be limited to entities with a certificate of public convenience and necessity (CPCN) that qualify as a "telephone corporation" as defined under Pub. Util. Code § 234, except that wireless carriers registered with the Commission need not obtain a CPCN to qualify for CASF funding.

14. If an entity has an application pending for approval of a CPCN application to provide service as a "telephone corporation," the entity may submit a request for a CASF award subject to subsequent approval of the CPCN to provide service as a "telephone corporation."

15. CASF funding may be provided to a consortium as long as the lead financial agent for the consortium is an entity with a CPCN.

16. For purposes of qualifying for a CASF award, an eligible "telephone corporation" must also make available voice grade service along with the proposed provision of broadband. Any such voice service offering must, at minimum, meet FCC standards for E-911 service and battery back-up supply.

17. Each party seeking CASF funding shall bear the responsibility to assess whether a proposed project is in an area that is currently not being served based on the standards adopted herein. In the event that a party erroneously asserts that a proposed project will cover an area that is currently unserved, opposing parties will have the opportunity to challenge such assertions by filing responses to the application.

18. As a condition of receiving a CASF award, the recipient must make a commitment for a five-year period to offer broadband service to any residential household or small commercial customer within the service territory covered by the deployment. Any voluntary broadband pricing commitments shall be made available to customers on a stand-alone basis.

19. CASF recipients will be subject to specific audit or related verification requirements to verify that funds are spent in accordance with Commission requirements.

20. An initial disbursement of 25% of the total CASF award shall be made upon Applicant's submission to Commission staff of a progress report, with supporting documentation showing that Applicant has completed 25% of the total approved broadband project. Supporting documentation shall be provided in the form of invoices, and other relevant documentation, showing the expenditures incurred for the project. Staff may require additional supporting information or verification from the applicant as a basis for disbursement of CASF funds.

21. Subsequent CASF disbursements shall be made only upon a recipient's submissions of documentation showing completion of 50%, 75% and 100%, respectively, of the total project costs, including engineering, planning, and material procurement costs. A project completion report shall be required before the final payment installment is made.

22. Failure to comply with the conditions of approval of any CASF award, or to complete the broadband project in accordance with the terms of approval granted by the Commission, shall constitute grounds warranting forfeiture of some or all of the CASF award and reimbursement of such award to the Commission.

This order is effective today.

Dated December 20, 2007, at San Francisco, California.

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