III. Description and Funding of the Telecommunications Public Policy Programs

To comply with statutory requirements and achieve universal service goals, over the years the Commission has implemented six Telecommunications Public Policy Programs. Each of the programs has a unique target customer group and goals so each program is designed differently. An overview of each program is set out below. The funding mechanism, however, for all the programs is basically the same, with the exception of the Payphone Program.

Five of the programs are funded by an all-end-user surcharge, which is a percentage applied to customers' intrastate-billed services appearing on their monthly telephone bills, other than LifeLine services. The surcharge levels are updated as needed to ensure adequate funding for the individual program, and are based on the total funding requirement divided by the projected intrastate revenue subject to the surcharge. The Payphone Program is funded by a surcharge on each payphone access line.

A. California LifeLine

The California LifeLine³ Program was established in 1984 (D.84-11-028) to comply with the Moore Universal Telephone Service Act, Pub. Util. Code §§ 871-884. It is a means to achieve the public policy goal of providing affordable basic residential telephone service to low-income households. The program is currently funded by a 1.29% surcharge on the intrastate service of telephone service subscribers. There is no cap on the surcharge level. The LifeLine fiscal year 2005-06 budget is $277.4 million and the fiscal year 2006-07 budget is $290 million.

B. Deaf and Disabled Telecommunications Program

The Deaf and Disabled Telecommunications Program began through the efforts of an employee volunteer program at Pacific Bell Telephone Company, a local telephone carrier now known as AT&T - California, sometime prior to 1978. This volunteer group repaired and sometimes provided equipment to hearing impaired customers. In 1978, the Commission issued Resolution T-9865 authorizing Pacific Bell to revise its tariffs to allow a special rate of $14.00 per month for a display terminal to certified deaf customers. Subsequent Commission resolutions and Decision 90642 (1979) modified and expanded the program ultimately resulting in the first steps toward formally establishing a program to provide specialized, supplemental equipment to hearing-impaired customers at subsidized rates.

In 1981, the Legislature enacted Pub. Util. Code § 2881, which currently governs the program. The program is comprised of two components: The California Telecommunications Access Project, which lends equipment to eligible customers; and the California Relay Service, which enables eligible customers to use relay service to access the telecommunications network. The current surcharge for the program is 0.27% and cannot exceed one half of one percent. The fiscal year 2005-06 budget is $66.8 million and the fiscal year 2006-07 budget is $69 million.

C. California Teleconnect Fund

The Commission established the Teleconnect Fund in D.96-10-066 to provide discounted basic and advanced services to schools, libraries, qualifying hospitals and health facilities, and community-based organizations. Subsequent resolutions and legislation have expanded and modified the program to increase benefits, expand the number of eligible hospitals, and create a one-time discount on installation cost for advanced services. The Teleconnect Fund is capped at $55 million per year, but, if necessary, can be raised by staff recommendation via a Commission resolution at any time. The current program surcharge is 0.130%. The fiscal year 2005-06 budget is $ 20.3 million and the fiscal year 2006-07 budget is $22 million.

D. California High Cost Fund A and B

The California High Cost Fund A was created by D.88-07-022 to comply with Pub. Util. Code § 739.3, and is a source of revenue to small local exchange carriers serving high-cost areas of the state. Without this revenue, the basic exchange access line rates charged by the small local carriers would potentially be so high as to threaten the universal service goal of available, affordable service to all California citizens. The current surcharge for the A Fund is 0.21%. The fiscal year 2005-06 budget is $42.7 million and the fiscal year 2006-07 budget is $58.8 million.

The California High Cost Fund B was established by D.96-10-066 to comply with Pub. Util. Code § 739.3. It provides subsidies in high cost areas served by large and mid-sized incumbent local exchange carriers. Formerly, these carriers used internal subsidies between low-cost-to-serve areas and high-cost-to-serve areas and subsidies from non-basic services to fund the cost of meeting the state's universal service goals of available, affordable service throughout California. The current B Fund surcharge is 2.0% and the fiscal year 2005-06 budget is $447.1 million and the fiscal year 2006-07 budget is $ 434.6 million.

Only the funding mechanism for these California High Cost Funds A and B will be reviewed in this proceeding, due to the similarities to funding mechanisms used by the other programs. High Cost Funds A and B programmatic review will take place in a separate docket.

E. Payphone Programs

Since 1990, the Commission has had two public policy programs for payphones. In D.90-06-018, the Commission established a Public Policy Payphone Program with the purpose of providing payphones to the general public in the interest of public health, safety, and welfare at locations where there would otherwise not be a payphone. The Public Policy Payphone Program has been funded by a monthly surcharge assessed on each payphone access line, but the Commission has not received any requests for funding.⁴ Consequently, by Resolution T-16590, the Commission reduced the Payphone Program surcharge from a rate of $0.08 per line per month to zero, effective December 1, 2001, and where it remains today.

In 1990, the Commission established the Payphone Enforcement Program to enforce tariffs, rules and regulations such as signage requirements, rate caps for local, long distance, and directory assistance calls by inspecting pay telephones. The program is funded by a monthly surcharge assessed on each payphone access line, which is currently set at $0.25. The fiscal year 2005-2006 budget is $786,000.

³ California LifeLine was formerly known as Universal LifeLine Telephone Service

⁴ The number of payphone access lines statewide is decreasing significantly:

	2002	2003	2004	2005	2006-April
Total	231,106	205,477	187,105	170,614	136,003