2. Background

When the Commission adopted its universal service policy, chiefly in Decision (D.) 96-10-066, circuit-switched wireline telephone service was the main telephone service used by California households.⁵ Wireless service had not been widely adopted nor had the Internet become a technological staple of everyday life. During the past decade, the telecommunications industry has experienced advances in technology, shifts in the competitive markets, and major changes in service and price structures.

2.1. Transition to IP-Enabled Voice Services

Of increasing importance among these recent changes in technology is the migration of voice service away from the circuit-switched platform, to routed or soft-switched "packetized" telephone transmission relying on the IP. IP represents another language for arranging the digital bit-stream of telephone calls. With IP, the network routes a call over different network pathways maintained by the carrier or carriers carrying the voice service, not over one sustained circuit, and as a consequence the network's voice delivery is more efficient and less expensive to provision.⁶ All voice services, along with other network services, are now transitioning to this increasingly common transmission protocol as a converged network is adapted to carry voice, data, and video bits seamlessly from the point of view of the consumer.

The transition of telephone voice service by telephone service providers from switched circuit technology to what the FCC has called "interconnected IP" voice service is accelerating. As we noted in our June 2008 Report to the California Legislature on Residential Telephone Subscribership and Universal Service, "[p]hone service provided via Voice over Internet Protocol, or VoIP, has quickly been gaining popularity with consumers, especially cable provided VoIP. We estimate there are approximately 1 million current VoIP users in California alone."⁷ More recent FCC Form 477 data indicate that there are, as of December 2008, some 2.5 million VoIP users in the state, of which approximately 2 million are residential subscribers.⁸ Absent inclusion of intrastate revenues of interconnected VoIP providers in the contribution base, California's universal service programs could be at financial risk in the not-too-distant future.

As the FCC has observed:

The IP-enabled services marketplace is the latest new frontier of our nation's communications landscape. As such, new entrants and existing stakeholders are rushing to bring
IP-enabled facilities and services to this market, relying on new technologies to provide a quickly evolving list of service features and functionalities.⁹

The FCC has noted that:

The number of VoIP subscribers in the United States has grown significantly in recent years, and we expect that trend to continue. At the same time, the USF contribution base has been shrinking, and the contribution factor has risen considerably as a result.¹⁰

As a consequence, the FCC has issued Orders requiring VoIP providers to contribute to the federal USF.¹¹

As early as July of 2007, we had recognized "that new communications services, not currently subject to surcharges to fund these [public purpose] programs, such as internet-based telephone service, may undermine the funding mechanism as customers migrate to other providers."¹² While we found then that no party had "identified significant, near-term threats to the current intrastate surcharge methodology,"¹³ nevertheless, we anticipated FCC proceedings "to consider changes to the funding mechanism for federal programs."¹⁴ We resolved, out of an abundance of caution, to reassess our "position as necessary to ensure adequate funding for these important programs."¹⁵

The need for changes to universal service programs has become apparent as new and established carriers have deployed "interconnected IP-based" voice services more extensively. For example, Comcast California has discontinued its traditional voice services -- largely circuit-switched and inherited from earlier acquisitions -- in favor of VoIP or "digital voice."¹⁶ All Comcast's voice customers are now served by the company's brand of VoIP. So too with Time Warner Cable's California voice services where a similar mass migration has occurred.¹⁷

But these changes pale in comparison to the number of consumers who would be served by VoIP when AT&T and Verizon migrate their customers to IP-based phone service, as they are expected to do. AT&T, the State's largest incumbent local exchange carrier, with over 12 million access lines, is experiencing a decline in demand for its traditional circuit-switched wireline voice services, and is expanding availability of its U-verse service, a managed IP-based service delivered over AT&T's expanding fiber-to-the-node network where voice service makes the smallest bandwidth demand on this converged IP-based platform.¹⁸ Further, Verizon offers Digital Voice service in conjunction with its Fiber Optic Service (FiOS) deployment. "The service transmits phone calls using Internet protocols, as cable telephone services do."¹⁹ As with other telecommunications carriers, Verizon has experienced a shift in demand from its traditional circuit-switched service to IP-enabled voice, data and video services.²⁰

2.2. Universal Service Goals and Support Obligations

Our longstanding goal of universal service ensures that consumers have access to basic voice service that is both affordable and ubiquitously available. The California Legislature has codified this policy, finding that as more citizens are connected to the network, the value of the network grows. Thus, it has been a longstanding commitment of the federal and state governments to promote universal service.²¹ The United States Congress first made universal service a basic goal of telecommunications policy with the passage of the Communications Act of 1934 (1934 Act).²²

In 1983, the California Legislature enacted the Moore Universal Telephone Service Act with the goal of providing high quality basic telephone service at affordable rates to the greatest number of California citizens.²³ This Commission implemented these objectives when it authorized the first explicit universal service policy for California in D.84-11-028.²⁴

In 1994, the Commission opened a proceeding which produced rules governing a competitive local exchange telephone market. The rules went into effect in 1996. Concurrent with the Commission's action, the Legislature, acknowledging the increasing competition in telecommunications markets, required the Commission to examine the current and future place of universal service in the State, including how universal service should work in newly competitive markets.²⁵

In the Telecommunications Act of 1996 (1996 Act), Congress directed the FCC and the states to take the steps necessary to establish support mechanisms to ensure the delivery of affordable telecommunications service to all Americans in a changing competitive environment.²⁶ This was the first major overhaul of United States telecommunications policy in nearly 62 years and it modified earlier telecommunications legislation, primarily the Act of 1934. The 1996 Act formalized the FCC's practice of providing universal service support for "telecommunications services" in high-cost areas and for low-income
end-users, and added a universal service program for libraries, schools, and public health facilities.²⁷ The 1996 Act also defined the nature of "universal service" as "an evolving level of telecommunications services" that takes into account advances in telecommunications. The 1996 Act further accommodates the financial stature of the service provider by creating a de minimus contribution exception for entities providing interstate and international telecommunications, which the FCC has set at $10,000 or less.²⁸

Section 254 (f) of the Act addresses state universal service and state authority:

A State may adopt regulations not inconsistent with the Commission's rules to preserve and advance universal service. Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State. A State may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms.

A working group of FCC and state public utility commission officials, the Federal-State Joint Board on Universal Service, was charged with establishing specific, predictable, and sufficient support mechanisms to preserve and advance universal service.²⁹ In addition, in section 254(b), Congress provided a list of principles upon which the FCC was to base its policies for the preservation and advancement of universal service.³⁰ Among those stated policy objectives are the principles related to support mechanisms, including the following:

· All providers of telecommunications services should contribute in an equitable and nondiscriminatory manner;³¹

· Federal and state support mechanisms must be specific, predictable and sufficient to preserve and advance universal service;³² and

· Any other principles as the Joint Board and the FCC determine are necessary and appropriate.³³

The FCC used this last principle to add a competitive neutrality requirement, an acknowledgement that technology would continue to change.³⁴

Also in 1996, at the behest of the Legislature, the CPUC opened a proceeding to examine the current and future definitions of universal service.³⁵ That proceeding resulted in D.96-10-066, in which the Commission created additional universal service programs, defined basic service, and reaffirmed the Commission's universal service goals.³⁶ Additionally, the Commission established the policy that customers' bills for telecommunications services explicitly identify surcharges assessed.³⁷

To comply with these statutory objectives, the Commission has implemented a total of five universal service programs. For each of the five programs, telephone corporations are required to collect from customers a surcharge which is calculated as a percentage of each customer's charges for intrastate services.³⁸ These universal service programs include the following:

· California LifeLine, established in 1984,³⁹ provides discounted basic telephone service to low-income households as a means to achieve universal.

· The California Teleconnect Fund (CTF), established in compliance with Assembly Bill (AB) 3643, provides discounts on selected telecommunications services to qualified entities.⁴⁰

· The Deaf and Disabled Telecommunications Program (DDTP) was originally created by CPUC decision and then codified in P.U. Code § 2881 et seq. Other legislation was added to the Code, ultimately creating four separate programs to provide equipment and services to Californians who are deaf, hard of hearing, or otherwise disabled. The California Relay Service is a component of the DDTP.

· The California High Cost Funds provide a source of supplemental revenues to Local Exchange Carriers (LECs) who are Carriers of Last Resort and whose basic exchange access line service rates would otherwise be increased to levels that would threaten universal service.⁴¹ In
D.96-10-066, the Commission identified two programs for the purpose of determining universal service subsidy support; the California High-Cost Fund A (CHCF-A) for the State's small LECs, and the California High-Cost
Fund-B (CHCF-B) for the mid-size and large LECs.

· The California Advance Services Fund (CASF) supports the deployment of broadband facilities and service to unserved and underserved areas of the State.⁴² The Legislature codified the CASF in 2008.⁴³

The current surcharge rates for the Public Purpose Programs are:⁴⁴

LLifeline 1.150%

DDTP 0.20%

CHCF-A 0.00%

CHCF-B 0.450%

CASF 0.00%

CTF 0.079%

Total 1.879%

Currently the CPUC has no requirement in place for VoIP providers to contribute to these universal service programs. While some VoIP providers are currently contributing on a voluntary basis, including Time Warner and Comcast,⁴⁵ others are not. This status quo is not competitively neutral and threatens continued funding for these programs as providers move toward offering IP-based voice services.

2.3. Regulatory Status of VoIP

This Rulemaking follows a series of decisions at federal and state levels regarding the treatment of VoIP providers in the context of universal service support. As the industry transitions to these IP-based applications, regulation must be reviewed to ensure that universal service and other public purpose programs remain appropriately funded in a competitively-neutral manner.

The FCC's Declaratory Ruling of November 5, 2010, has removed uncertainty as to whether the FCC has preempted the States from requiring interconnected VoIP providers, including nomadic interconnected VoIP providers, to contribute to state universal service programs. The Declaratory Ruling was in response to a petition from the Nebraska and Kansas state commissions asking for a declaratory ruling that "states are not preempted from imposing universal service contribution requirements on `the future intrastate revenues' of nomadic interconnected VoIP providers."⁴⁶ As the FCC notes in the Declaratory Ruling, it has extended certain common carrier obligations to interconnected VoIP service providers, including the obligation to contribute to the federal USF.⁴⁷

The FCC announced its regulatory treatment of VoIP in the E-911 Order in June of 2005. Since that Rulemaking, the FCC's actual treatment of VoIP services for purposes of funding emergency and universal service programs has changed even though its regulatory classification of the IP-enabled services has not. In practice then, the FCC has dropped the hands-off approach to VoIP service that it had previously taken, without explicitly determining if VoIP service providers should otherwise be regulated or how VoIP services should be classified.⁴⁸ The Declaratory Ruling does not depart from this approach.

The FCC concluded it had authority to impose E-911 requirements on interconnected VoIP providers under the broad regulatory authority conferred by Title I of the 1934 Communications Act, which applies to "all interstate and foreign communications by wire or radio . . . ."⁴⁹ The FCC stated that it had not decided whether interconnected VoIP services are telecommunications or information services. Thus, the FCC analyzed the issues under its Title I ancillary jurisdiction to encompass both types of services.⁵⁰

In its E-911 Order, the FCC adopted rules requiring providers of interconnected VoIP service to supply enhanced 911 (E-911) capabilities to their customers.⁵¹ The FCC defined "interconnected VoIP service" using the following criteria: (1) the service enables real-time, two-way voice communications; (2) the service requires a broadband connection from the user's location; (3) the service requires IP-compatible customer premises equipment (CPE); and (4) the service offering permits users generally to receive calls that originate on the public switched telephone network (PSTN) and to terminate calls to the PSTN.⁵² The FCC determined that interconnectedness of "interconnected VoIP service" was crucial because it permits users to receive calls from and terminate calls to the PSTN.⁵³

The E-911 Order applies to all interconnected VoIP providers, both "nomadic"⁵⁴ and "fixed."⁵⁵ The FCC noted that the implementation challenges faced by "nomadic" or "portable" VoIP service providers were similar to obstacles faced by wireless carriers in implementing E-911.⁵⁶ The FCC duly emphasized that it was not making a determination as to whether interconnected VoIP services should be considered telecommunications services or information services.

Meanwhile, in June of 2006, this Commission, as noted above, concluded it was premature to assess our regulatory role over VoIP service, given that the FCC still had not formally acted to clarify the status of interconnected VoIP services as either telecommunications services or information services within the framework of the 1996 Act.⁵⁷ Shortly thereafter, in the VoIP Universal Service Order, issued on June 27, 2006, the FCC established universal service contribution obligations for providers of interconnected VoIP services.⁵⁸ The FCC found that interconnected VoIP service providers offer interstate voice communications and therefore should be subject to the FCC's mandatory and permissive authority derived from Section 254 of the 1996 Act.⁵⁹ The FCC found that requiring contribution from interconnected VoIP providers was in the public interest for two reasons: first, VoIP services benefit from universal service through their interconnection with the PSTN;⁶⁰ and second, the principle of competitive neutrality requires that universal service should "neither unfairly advantage nor disadvantage one provider over another, and neither unfairly favor nor disfavor one technology over another."⁶¹ As the FCC further noted, interconnected VoIP service is increasingly used to replace analog voice service.⁶²

To implement the order, the FCC determined that interconnected VoIP providers must report and contribute to the USF on all of their interstate and international end-user revenues.⁶³ To determine such interstate and international revenues, the FCC gave interconnected VoIP providers three options: (1) they may use the interim safe harbor established in the order (64.9% - representing a reasonable percentage of revenue that can be attributed to interstate traffic); (2) they may report their actual interstate revenues and contribute accordingly; or (3) they may rely on traffic studies, subject to the conditions described in the order.⁶⁴

The interim safe harbor was intended to be a convenient alternative for interconnected VoIP providers to use when they cannot accurately determine the exact percentage of revenue generated by their interstate/international traffic. In such cases, the FCC determined it was reasonable to assume that 64.9% of total revenue could be attributed to revenue derived from interstate and international service.⁶⁵ Conversely, should a provider claim that its interstate/international service is less than 64.9%, it can provide the FCC with a traffic study showing the actual percentage of revenue attributable to that service.⁶⁶

Until the Declaratory Ruling, the FCC had remained officially silent on the states' ability to assess a universal service surcharge on the intrastate portion of revenues derived from interconnected VoIP service. At the same time, in establishing a safe harbor provision, the FCC made highly visible the residual percentage of revenue from calls that could be allocated to the intrastate jurisdiction on a default basis.⁶⁷ This safe harbor provision allows the states to adopt that same percentage in order to calculate state USF surcharges. Indeed, this proved to be crucial to the reasoning in the Declaratory Ruling:

While the Interim Contribution Methodology Order did not address the subject of preemption, its establishment of a mechanism for separating interstate and intrastate revenues in the specific context of universal service contribution requirements has important implications for our preemption analysis in this proceeding. Now that the Commission has shown that it is possible to separate the interstate and intrastate revenues of interconnected VoIP providers for purposes of calculating universal service contributions, we find no basis at this time to preempt states from imposing universal service contribution obligations on providers of nomadic interconnected VoIP service that have entered the market, so long as state contribution requirements are not inconsistent with the federal contribution rules and policies governing interconnected VoIP service.⁶⁸

The FCC went on to conclude that "the application of state universal service contribution requirements to interconnected VoIP providers does not conflict with federal policies, and could, in fact, promote them." That is because interconnected VoIP providers benefit from state USFs, just as they benefit from the federal USF. Their customers "value the ability to place calls to and to receive calls from users of the PSTN."⁶⁹ And the FCC again recognized the importance of the "principle of competitive neutrality."⁷⁰

2.4. E-911 Surcharges

Similar to the treatment of VoIP described above, both the FCC and California have decided it is appropriate to collect 911 surcharges from VoIP service providers. In 2008, the California Legislature enacted SB 1040 to amend the Emergency Telephone Users (911) Surcharge Act to extend 911 surcharges to VoIP services as of January 1, 2009.⁷¹ This Bill requires those entities providing VoIP services whose customers are able to access the "911" emergency system by utilizing the digits 9-1-1, to collect the 911 surcharge from all customers located in California. The service supplier may elect to use one of the following optional methods for each type of service it provides: 1) books and records used in the course of business, 2) traffic or call pattern studies of service provided to customers within California, or 3) the FCC's VoIP Safe Harbor factor.⁷²

⁵ Rulemaking on the Commission's Own Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643; Investigation on the Commission's Own Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643,
R.95-01-020/Investigation (I.) 95-01-021 (October 25, 1996). In D.06-06-010, the Commission closed I.04-02-007, ruling that "we find we need not establish a regulatory framework for Voice over Internet Protocol telephony (VoIP)... at this time."

⁶ An accessible discussion of circuit-switching and how it differs from routed calls using IP-based packet technologies can be found Newton's Telecom Dictionary, 24^th Updated and Expanded Edition (New York: Flatiron Publishing, 2008): "circuit switching," "IP telephony," "Voice over IP."

⁷ "Residential Telephone Subscribership and Universal Service," Report to the California Legislature in Accordance with California Public Utilities Code Section 873 (Cal. P.U.C. June 2008) at 13.

⁸ FCC, "Trends in Telephone Service," September 2010, Table 8.5.

⁹ IP-Enabled Services Proceeding, First Report and Notice of Proposed Rulemaking
(WC Docket No. 04-36) (2005) 20 FCC Rcd 10245 at ¶4. (E-911 Order.)

¹⁰ VoIP Universal Service Order at ¶34.

¹¹ In its recent Declaratory Ruling, the FCC notes that it "has issued several orders addressing the regulatory obligations of VoIP providers in a variety of areas. Of particular relevance to this proceeding, the Commission in 2006 adopted rules requiring interconnected VoIP providers to contribute to the federal USF. Declaratory Ruling, ¶6. Citing earlier rulings, the FCC explained that "interconnected VoIP providers, like other contributors, `benefit from universal service because much of the appeal of their services to consumers derive from the ability to place calls to and receive calls from the PSTN [Public Switched Telephone Network].'" [Citing Interim Contribution Methodology Order, 21 FCC Red at 7540-41, ¶43.] The FCC added, "... requiring interconnected VoIP providers to contribute to universal service would promote the `principle of competitive neutrality' by `reduc[ing] the possibility that carriers with universal service obligations will compete directly with providers without such obligations.'" [Citing Id. at 7541, ¶44.]

¹² Rulemaking on the Commission's Own Motion to Review the Telecommunications Public Policy Programs, R.06-05-028, Scoping Memo and Ruling of Assigned Commissioner and Administrative Law Judge Determining the Scope, Schedule, and Need for Hearing in this Proceeding (Cal. P.U.C. July 13, 2007) at 3. (Scoping Memo.)

¹³ Id.

¹⁴ Id.

¹⁵ Id.

¹⁶ See Application of Comcast Phone of California, LLC (U5698 C) for Authority to Discontinue Telecommunications Services in the State of California, Application (A.)
07-11-014, Opinion Addressing Application of Comcast Phone of California, LLC for Authority to Discontinue Telecommunications Services in the State of California for Comcast's mass migration of customers from its circuit-switched service, D.08-04-042 (Cal. P.U.C. November 20, 2007).

¹⁷ See Application of Time Warner Cable Information Services (California), LLC (U6874C) For Authority to Discontinue Telecommunications Services in the State of California, A.07-07-010, Opinion Addressing Application of Time Warner Cable Information Services, LLC for Authority to Discontinue Telecommunications Services in the State of California for Time Warner's mass migration of customers away from circuit-switched telephony, D.08-02-006 (Cal. P.U.C. February 14, 2008).

¹⁸ AT&T Investor Briefing, Fourth Quarter 2008 available at: http://www.att.com/Investor/Financial/ Earning_Info/docs/4Q_08_IB_FINAL.pdf. In its most recent Investor Briefing, AT&T noted: "In the third quarter [2010], AT&T posted a decline in total consumer revenue connections due primarily to expected declines in traditional voice access lines, partially offset by increases in broadband,
U-verse TV and VoIP (Voice over Internet Protocol) connections. Combined wireline consumer TV and broadband connections increased by 343,000 in the third quarter and 1.3 million over the past four quarters. AT&T U-verse Voice connections increased by 166,000 in the quarter and 759,000 over the past four quarters. Total consumer revenue connections at the end of the third quarter were 43.7 million, compared with 45.7 million at the end of the third quarter of 2009 and 44.3 million at the end of the second quarter of 2010."

¹⁹ See Verizon's Investor Quarterly, Fourth Quarter, 2008, January 27, 2009 at 17 available at: http://investor.verizon.com/financial/quarterly/vz/4Q2008/4Q08Bulletin.pdf?t=633716980161047881. (Verizon's Investor Quarterly 4^th Quarter 2008.) See also Todd Spangler, "FiOS to Raise Its Voice - Verizon Plans to Widely Roll Out Internet-Based Phone Service in Early 2009," Multichannel News, December 12, 2008. Available at: http://www.multichannel. com/article/print/160706-FiOS_to_Raise_Its_Voice.php. (FiOS to Raise Its Voice.)

²⁰ FiOS to Raise Its Voice. Todd Spangler states that Verizon has seen a 12% decline in the number of its residential access lines in one year (2007-2008). This is confirmed in Verizon's Investor Quarterly 4^th Quarter 2008 at 17. For the most recent reporting quarter, Verizon had a 8.5% decline year-over-year in residential and business switched access lines. http://investor.verizon.com/financial/quarterly/vz/3Q2010/3Q10Bulletin.pdf?t=634248242683446808.

²¹ See Cal. Pub. Util. Code § 709 (Pub. Util. Code); 47 U.S.C. § 151, § 254. See also D.08-06-020.

²² Section 1 of the 1934 Act indicates that the FCC was created "[f]or the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges . . . ." 47 U.S.C. § 151 (as amended).

²³ Pub. Util. Code § 871. Assembly Bill (AB) 1348, repealed and reenacted in 1987 by
AB 386, Stats. 1987, Chap. 163, Sec. 2. The Commission previously had initiated a "universal service" policy by decision, with costs embedded in basic rates. The Legislature refined that program, and expressly authorized the Commission to fund it through application of an all-end user surcharge on intrastate billings.

²⁴ Investigation on the Commission's Own Motion into the Method of Implementation of the Moore Universal Telephone Service Act, Order Instituting Investigation
83-11-015, Opinion on Establishing a General Order for Administration of the Moore Act, D.84-11-028, 16 CPUC 2d 381 (November 7, 1984).

²⁵ See Pub. Util. Code § 709.2 and § 709.5.

²⁶ 47 U.S.C. § 254.

²⁷ Id.

²⁸ De Minimus Exception, 47 U.S.C. § 254 (d); C.F.R. 54.708; VoIP Universal Service Order ¶61.

²⁹ 47 U.S.C. § 254.

³⁰ 47 U.S.C. § 254(b)(1)-(7).

³¹ Id. at (b)(4).

³² Id. at (b)(5).

³³ Id. at (b)(7).

³⁴ Declaratory Ruling ¶6 at 4.

³⁵ California AB 3643 (Stats. 1994, Chap. 278).

³⁶ See D.96-10-066, which outlined the following objectives: Available and affordable basic telephone service to all Californians regardless of geography, language, culture, ethnicity, physical characteristics or income differences; choice among competitive telecommunications providers; access to new services and technologies as they become available in order to avoid inferior access to information by some groups; and sufficient information to make informed telephone service choices.

³⁷ See D.96-10-066 at 6.

³⁸ See Pub. Util. Code § 270 et seq.

³⁹ See D.84-11-028; (AB 1348, Chapter 1143, Statutes 1983) (AB 1348). The Moore Universal Telephone Service Act was codified as Pub. Util. Code § 871 et seq.

⁴⁰ AB 3643 (Chap. 278, Stat. 1994); see also D.96-10-066.

⁴¹ California High Cost Funds were originally identified to support medium and small rural-LECs, whereas large LECs costs and rates were averaged. For a history of funding universal service and the establishment of the original High-Cost Fund, see re Pacific Bell, D.88-07-022, Order Restructuring Local Exchange Telephone Rates and Redistributing Revenues, for a Net Zero Effect on Revenues (Cal P.U.C. July 8, 1988), as modified by
D.91-05-016 and D.91-09-042, and Pacific Telephone and Telegraph Company, D.85-06-115, Third Interim Opinion Addressing Access Charges Assessable to Interexchange Telephone Carriers by Local Carriers and the Risk of Bypass as a Result of the Level of Access Charges Established (Cal P.U.C. June 12, 1985), as modified by D.88-07-022, D.88-12-044, and D.91-09-042.

⁴² Order Instituting Rulemaking into the Review of the California High Cost Fund B Program, D.07-12-054, Interim Opinion Implementing California Advanced Services Fund (Cal. P.U.C. June 29, 2006).

⁴³ Senate Bill (SB) 1193 (2008), codifying the CASF.

⁴⁴ Commission mandated telecommunications all-end-user surcharges are here: http://www.cpuc.ca.gov/PUC/Telco/Consumer+Information/surcharges.htm.

⁴⁵ See footnotes 16 and 17, supra.

⁴⁶ Declaratory Ruling at ¶1, quoting the Amendment to the Petition of Nebraska Public Service Commission and Kansas Corporation Commission, WC Docket 06-122 at 1 (Sept. 14, 2010, amending the Petition of the Nebraska Public Service Commission and Kansas Corporation Commission for Declaratory Ruling, or, in the Alternative, Adoption of Rule Declaring State USFs May Assess Nomadic VoIP Intrastate Revenues, WC Docket 06-122 (July 16, 2009)). The amendment modified the original petition by dropping the request that assessments be retroactive. "Because the amended petition seeks a declaratory ruling with prospective only effect and does not present the question of retroactivity, we need not and do not reach that question in this Declaratory Ruling." Declaratory Ruling, ¶1, footnote 1.

⁴⁷ Declaratory Ruling at ¶6. The FCC cites the following: IP-Enabled Services; 911 Requirements for IP-Enabled Service Providers, WC Docket Nos. 04-36, 05-196, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005) (VoIP E-911 Order) (E-911), aff'd, Nuvio Corp. v. FCC, 473 F.3d 302 (D.C. Cir. 2006); Communications Assistance for Law Enforcement Act and Broadband Access and Services, ET Docket
No. 04-295, First Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14989 (2005) (assistance for law enforcement); IP-Enabled Services, WC Docket No. 04-36, Report and Order, 22 FCC Rcd 11275 (2007) (disability access); Implementation of the Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer Proprietary Network Information and Other Customer Information, CC Docket No. 96-115, Report and Order and Further Notice of Proposed Rulemaking, 22 FCC Rcd 6927 (2007) (customer privacy); Telephone Number Requirements for IP-Enabled Services Providers, WC Docket No. 07-243, Report and Order, Declaratory Ruling, Order on Remand, and Notice of Proposed Rulemaking, 22 FCC Rcd 19531 (2007) (local number portability and numbering administration); IP-Enabled Services, WC Docket No. 04-36, Report and Order, 24 FCC Rcd 6039 (2009) (discontinuance notifications).

⁴⁸ To date, the FCC maintains that it has not determined whether VoIP service is to be classified as an information service or a telecommunication service. See In the Matter of IP-Enabled Services, NPRM, WC Dkt. No. 04-36, rel. March 10, 2004.

⁴⁹ 47 U.S.C. § 152 (a). See also E-911 Order at ¶26.

⁵⁰ Ancillary jurisdiction may be employed when Title I of the Act gives the FCC subject matter jurisdiction over the service to be regulated, and the assertion of jurisdiction is "reasonably ancillary to the effective performance of [the FCC's] various responsibilities." United States v. Southwestern Cable Co. (1968) 392 U.S. 157, 178. The FCC found that both predicates for ancillary jurisdiction were satisfied in the instant case. E-911 Order at ¶27. Comcast v. FCC did not address the adequacy of the FCC's ancillary jurisdiction for purposes of universal service. Comcast v. FCC, U.S. Court of Appeals for the District of Columbia Circuit, April 6, 2010.

http://pacer.cadc.uscourts.gov/common/opinions/201004/08-1291-1238302.pdf.

⁵¹ E-911 Order at ¶¶12, 13, and 24.

⁵² Id. at ¶24. The FCC repeats this definition in the Declaratory Ruling at ¶3. 47 C.F.R.
§ 9.3.

⁵³ Id. at ¶¶23 and 24; see also Nebraska Public Service Commission, on its own motion, seeking to establish guidelines for administration of the Nebraska Universal Service Fund, App. No. NUSF-1, Prog. No. 18 at 8 (April 17, 2007) (NPSC USF Order).

⁵⁴ A nomadic VoIP customer can use the service by connecting with a broadband internet connection anywhere in the world to place a call; fixed means that the call is associated with a particular physical location and equipment tethered to that location. Minnesota P.U.C. v. FCC (8^th Cir. 2007), 483 F.3d 570, 575 (Minnesota P.U.C. v. FCC).

⁵⁵ Fixed VoIP service describes the use of the same technology, but in a way where the service is used from a fixed location. Id. "A fixed interconnected VoIP service can be used at only one location, whereas a nomadic interconnected service may be used at multiple locations." Declaratory Ruling at ¶3.

⁵⁶ E-911 Order at ¶25.

⁵⁷ See D.06-06-010 at 3.

⁵⁸ See generally VoIP Universal Service Order.

⁵⁹ Id. See footnote 30, supra, and Declaratory Ruling at ¶4.

⁶⁰ VoIP Universal Service Order at ¶2.

⁶¹ VoIP Universal Service Order at ¶44.

⁶² Communications Assistance for Law Enforcement Act and Broadband Access and Services, First Report and Order and Notice of Proposed Rulemaking (ET Docket No. 04-295) (2005) 20 FCC Rcd 14989 at ¶42 (CALEA order).

⁶³ See VoIP Universal Service Order.

⁶⁴ VoIP Universal Service Order at ¶¶52 and 53; Declaratory Ruling at ¶7 and ¶14.

⁶⁵ VoIP Universal Service Order at ¶53.

⁶⁶ Id. at ¶54.

⁶⁷ See Id. at ¶¶52-57. As noted above, we follow the definition of interconnected VoIP service as provided by the FCC in E-911 Order at ¶24 (47 C.F.R. § 9.3) and repeated in the Declaratory Ruling: "Interconnected VoIP service is one we define for purposes of the present Order as bearing the following characteristics: (1) the service enables
real-time, two-way voice communications; (2) the service requires a broadband connection from the user's location; (3) the service requires IP-compatible CPE; and
(4) the service offering permits users generally to receive calls that originate on the PSTN and to terminate calls to the PSTN." (Emphasis in the original; footnotes omitted.) Declaratory Ruling at ¶3.

⁶⁸ Declaratory Ruling at ¶15.

⁶⁹ Id. at ¶16.

⁷⁰ Id.

⁷¹ California, SB 1040 (2008), Emergency Telephone Users Surcharge Act (SB 1040); see California Revenue and Taxation Code § 41020.

⁷² California Revenue and Taxation Code § 41020.