3. Preliminary Scoping Memo

As required by Rule 7.1(d)⁷³ of the Commission's Rules of Practice and Procedure (Rules), this Order Instituting Rulemaking (OIR) includes a Preliminary Scoping Memo. In this Preliminary Scoping Memo, we describe the issues to be considered in this proceeding and the timetable for resolving the proceeding.

3.1. It is Proper to Assess Universal Service Surcharges on Interconnected VoIP Services

Our objective in this Rulemaking is modest: it is to make the funding for and contribution base of California's universal service programs technology neutral.⁷⁴ In our interim decision regarding our Telecommunications Public Policy Programs, we took steps to make the CTF "more competitively and technologically neutral."⁷⁵ The Commission has addressed and will continue to address the application of new technologies to meet its commitment to the principles of universal service and technology neutrality.⁷⁶

Based on this objective, and in the face of the rapid growth of IP-enabled voice services in California, we believe it appropriate to require all interconnected VoIP providers operating in California - apart from those meeting a de minimus exception -- to contribute to each of the California public purpose programs. Even prior to the FCC's November 2010 Declaratory Ruling, we were not alone in this belief. In a July 17, 2008, letter to then FCC Chairman Kevin Martin, AT&T argued that VoIP providers be required to contribute to State USFs.⁷⁷ The letter states that "the Commission should authorize State Commissions to impose Universal Service Contribution Requirements on VoIP providers."⁷⁸ AT&T further maintained that:

[T]here remain serious questions at the state level about the long-term sustainability of any provider-funded universal service model that does not include VoIP. Authorizing states to impose state universal contribution requirements on VoIP would help address this concern and thereby further the federal policy interest in enabling states to administer sustainable universal support mechanisms.⁷⁹

Given the support for imposing a state universal service obligation on VoIP providers from major industry providers, from the FCC in its Declaratory Ruling, and from California's own actions respecting VoIP and the collection of E-911 surcharges, we believe it appropriate for the Commission to take action at this time.

3.2. The Authority to Collect Universal Service Charges on Interconnected VoIP Service Providers

Based on prior FCC decisions and rulings and our own authority, we tentatively conclude that we may assess universal service surcharges on intrastate revenues of interconnected VoIP telephone services provided to residents and businesses in the State.

While the 1934 Communications Act generally grants the FCC exclusive jurisdiction over interstate (and international) communications, it leaves the regulation of intrastate communications to the states.⁸⁰ The Act permits states to "adopt regulations not inconsistent with the [FCC's] rules to preserve and advance universal service."⁸¹ In the Declaratory Ruling, the FCC chose not to "preempt states from imposing universal service contribution requirements on the future intrastate revenues of nomadic interconnected VoIP providers,"⁸² citing the Act:

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 the universal service support mechanisms.⁸³

In the Declaratory Ruling, the FCC placed two qualifications on state authority in this context:

1) The relevant state's contribution rules are consistent with the FCC's universal service contribution rules;

2) The state does not apply its contribution rules to intrastate interconnected VoIP revenues attributable to services provided in another state.⁸⁴

With respect to the issue of duplicative state universal service charge assessments, the Declaratory Ruling cites the example of wireless billings:

This issue of duplicative assessments is not one of first impression for states. Concern about potential double billing of intrastate revenues exists in the wireless context as well, because a wireless customer's principal place of use may be different from his or her billing address. Evidence in the record indicates that states have successfully resolved allocation of wireless intrastate revenues for purposes of state universal service contributions without the need for Commission intervention.⁸⁵

In addition to the FCC's conclusion that we are not federally preempted, we believe state law authorizes us to act. The Moore Universal Telephone Service Act was adopted in 1987 with the goal of offering high quality basic telephone service at affordable rates to the greatest number of citizens.⁸⁶ Pursuant to the Moore Act, the CPUC developed programs to assure that the statute's goal and objectives were met. These programs, now called the Universal Service Public Purpose Programs, require telephone corporations, as defined in section 234 of the Public Utilities Code, to contribute specific surcharges to each program fund.⁸⁷

A "telephone corporation" is defined as "every corporation or person owning, controlling, operating, or managing any telephone line for compensation within this state."⁸⁸ Further, "telephone line" includes "all conduits, ducts, poles, wires, cables, instruments, and appliances, and all other real estate, fixtures, and personal property owned, controlled, operated, or managed in connection with or to facilitate communication by telephone, whether such communication is had with or without the use of transmission wires."⁸⁹ For purposes of this proceeding, we find that this broad definition of "telephone corporation" includes interconnected VoIP service providers.⁹⁰

We therefore, tentatively conclude that this Commission has the authority to require interconnected VoIP service providers to satisfy contribution obligations to support our universal service public purpose programs. We seek comment on this tentative conclusion and whether we need to reach this conclusion in order to achieve our limited purposes here. Further, we tentatively conclude that interconnected VoIP service providers should be permitted to choose among the three options identified above for separating interconnected VoIP interstate/international revenues from California intrastate interconnected VoIP revenues and provide contributions to our public policy programs accordingly, and seek comment on this methodology.

3.3. Implementation Issues

In the VoIP Universal Service Order and in the Declaratory Ruling, the FCC noted that it had established the principle of competitive neutrality to guide the development of universal service programs.⁹¹ This principle was a driving factor in the decision to require interconnected VoIP providers to contribute to the support mechanisms.⁹²

As we have also observed, the FCC found it appropriate to extend universal service contribution obligations to classes of providers that benefit from universal service through their interconnection with the PSTN, such as VoIP providers.⁹³ Currently, VoIP providers are required to contribute to the federal USF on all of their interstate and international end-user revenues. To fulfill this obligation, interconnected VoIP providers may employ one of the three options already described for calculating revenues against which surcharges are assessed.⁹⁴

In this Rulemaking, we tentatively adopt a contribution methodology consistent with the FCC's orders and the Declaratory Ruling. For our purposes, all interconnected IP voice service providers earning California intrastate revenues shall contribute to our Universal Service programs using one of the FCC-approved options already outlined:

1) Use the interim safe harbor allocation factor set forth in the FCC's USF Contribution Order, 35.1% intrastate revenues;⁹⁵

2) Use actual intrastate revenues; and

3) Use an FCC-approved traffic study to identify intrastate traffic or any other formula that may be approved in any future FCC decision and authorized by this Commission.

VoIP service providers will be permitted to choose among these options for separating interconnected IP interstate/international voice revenues from California intrastate interconnected IP voice revenues, and to provide contributions to our public policy programs accordingly.

Additionally, the FCC determined that "a provider of interstate and international telecommunications whose annual universal service contribution is expected to be less than $10,000 is not required to contribute to the USF, or file a Telecommunications Reporting Worksheet unless it is required to contribute to other support and cost mechanisms. VoIP providers that meet this de minimus exemption need not contribute to the Fund."⁹⁶ We tentatively mirror the FCC's standard for reporting and remitting, and seek comment on this mirroring. If interconnected VoIP providers do not contribute to the federal USF under the FCC's de minimus criterion, they need not collect and remit California universal service surcharges for their interconnected VoIP revenues within this state. The Commission proposes to adopt these criteria pursuant to the Commission's state authority with respect to intrastate services.

We seek comment on two implementation questions:

· Given that the Commission requires explicit identification of surcharges on customer bills, should such explicit identification also apply to VoIP providers?

· Our California programs differ from federal programs. Therefore, we seek comment on whether VoIP providers should remit surcharges supporting our state programs, such as the DDTP, California Teleconnect Fund and California Advanced Services Fund, which differ from federal universal service programs.

3.4. Standards for Identification of VoIP Providers

3.4.1. FCC Reporting Requirements

The FCC requires that "[a]ll providers of interstate telecommunications within the United States must file an FCC Form 499-Q Telecommunications Reporting Worksheet."⁹⁷ Further, the FCC requires that providers "must file this Worksheet, and are subject to universal service contribution requirements, if they offer interstate telecommunications for a fee to the public even if only a narrow or limited class of users could utilize the services."⁹⁸ In the VoIP Universal Service Order, the FCC determined that "interconnected VoIP providers must file this Worksheet if they do not qualify for the de minimus exemption under the Commission's universal service rules."⁹⁹

The FCC compiles a database of the detailed contact and business information regarding each provider who files the required Worksheet.¹⁰⁰ The database is searchable by State/Jurisdiction where service is provided, by principle communications type (e.g., interconnected VoIP), etc., and is accessible to the public. Currently, there are some 275 interconnected VoIP providers registered with the FCC who also provide service within California.

3.4.2. Registration with the Board of Equalization

The California Board of Equalization (BOE) is charged with collecting surcharges to support the State's E-911 system. As of January 1, 2009, providers of VoIP services whose customers are able to access the "911" emergency system by utilizing the digits 9-1-1, are required to register with the BOE,¹⁰¹ and to remit 911 surcharges to the BOE.¹⁰²

3.4.3. CPUC Registration Requirement

Because interconnected VoIP providers connect to the PSTN and, for purposes of this proceeding, otherwise meet the definition of a "telephone corporation,"¹⁰³ we tentatively conclude that a simple registration with the Commission, such as that required for wireless providers, will suffice for our purposes in this Rulemaking. We seek comment on this tentative conclusion and the proposed VoIP Registration Form (see Appendix) by which we may implement this registration process.

⁷³ An order instituting rulemaking shall preliminarily determine the category and need for hearing, and shall attach a preliminary scoping memo. The preliminary determination is not appealable, but shall be confirmed or changed by assigned Commissioner's ruling pursuant to Rule 7.3, and such ruling as to the category is subject to appeal under Rule 7.6.

⁷⁴ See Pub, Util. Code § 871(d), § 876, § 879(a); see also 47 U.S.C. § 254(f), "State Authority: A State may adopt regulations not inconsistent with the [Federal Communications] 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."

⁷⁵ D.08-06-020 at 2.

⁷⁶ Id. at 5. The CPUC conducted a DDTP wireless equipment pilot program for those also eligible to receive LifeLine service, see also Resolution T-17089, To conduct a pilot of a program which offsets the costs of wireless equipment for California Telephone Access Program (CTAP)-certified pilot participants, who meet a certain low-income threshold, using Deaf and Disabled Telecommunications Program (DDTP) funds and to delegate authority to CPUC Executive Director to perform the required functions, including, but not limited to, entering into any necessary contracts, to execute and support the DDTP wireless equipment pilot (Cal P.U.C. May 3, 2007).

⁷⁷ In the Matter of IP-Enabled Services, Ex Parte Letter to Chairman Kevin Martin from AT&T, WC Docket No. 04-36 (Dated July 17, 2008). See: www.cpuc.ca.gov/PUC/Telco/Information+for+providing+service/VOIP+Providers.htm.

⁷⁸ Id. at 11.

⁷⁹ Id. at 12.

⁸⁰ FCC Amici Brief at 4, Qwest Corp. v. Scott, 380 F.3d 367, 370 (8^th Circuit); 47 U.S.C. § 152(b).

⁸¹ 47 U.S.C. § 254(f).

⁸² Declaratory Ruling at ¶12.

⁸³ 47 U.S.C. § 254(f).

⁸⁴ Declaratory Ruling at ¶11.

⁸⁵ Declaratory Ruling at ¶21.

⁸⁶ Pub. Util. Code § 871.

⁸⁷ See footnote 20, supra. See D.84-11-028. AB 1348.

⁸⁸ Pub. Util. Code § 234.

⁸⁹ Pub. Util. Code § 233.

⁹⁰ As we noted above, the FCC defines "interconnected" VoIP service as follows:
(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; and (4) the service offering permits users generally to receive calls that originate on the PSTN and to terminate calls to the PSTN. VoIP Universal Service Order at ¶24; Declaratory Ruling at ¶3 (47 C.F.R. § 9.3).

⁹¹ VoIP Universal Service Order at ¶37; Declaratory Ruling at ¶¶6 and 16.

⁹² VoIP Universal Service Order at ¶44; Declaratory Ruling at ¶22: "We do not believe that those policies [of encouraging the development of IP-based services and promoting the deployment of broadband infrastructure] are best advanced by giving one class of providers an unjustified regulatory advantage over its competitors..."

⁹³ VoIP Universal Service Order at ¶37; see also FCC's definition of interconnected VoIP service, E-911 Order at ¶24; Declaratory Ruling at ¶¶6 and 16.

⁹⁴ VoIP Universal Service Order at ¶¶52 and 53; Declaratory Ruling at ¶¶14, 17, and 19.

⁹⁵ The FCC percentage for the interstate portion is 64.9%; 35.1% represents the remaining portion that may be allocated to intrastate service.

⁹⁶ 47 U.S.C. § 254 (d). VoIP Universal Service Order ¶61.

⁹⁷ VoIP Universal Service Order, Appendix D, Telecommunications Reporting Worksheet, FCC Form 499-Q: Instructions for Completing the Quarterly Worksheet for Filing Contributions to Universal Service Support Mechanisms. Available at: http://www.fcc.gov/Forms/Form499-Q/499q.pdf.

⁹⁸ Id.

⁹⁹ Id.

¹⁰⁰ FCC Consumer and Governmental Affairs Bureau Website - Telecommunications Reporting Worksheet Form 499-A. Available at: http://fjallfoss.fcc.gov/cgb/form499/499a.cfm.

¹⁰¹ See SB 1040.

¹⁰² Id.

¹⁰³ Pub. Util. Code § 234. See footnote 78, Supra.