II. Background

A. The FCC's Lifeline/Linkup Order

On June 22, 2004, the FCC released the Lifeline/Link-Up Order (Lifeline Order or Order) modifying the requirements for eligible telecommunications carriers (ETCs) to receive federal Lifeline/Link-Up funds. At the present time, all of the state's incumbent local exchange carriers (ILECs) are ETCs and entitled to federal Lifeline/Link-Up funds.

The Federal Lifeline program provides low-income customers with discounts of up to $10.00 from the monthly cost of telephone service for a single telephone line in their principal residence.³ The Federal Link-Up program provides low-income customers with 50% discounts, to a maximum of $30.00, from the initial costs of installing telephone service.⁴

Under the FCC rules, states and territories have the authority to establish their own Lifeline/Link-Up programs that provide additional support to low-income consumers that incorporate the unique characteristics of each state. Some states and territories, however, have elected to use the federal criteria as their default standard. These are known as "federal default states." We have established our own program in California, the ULTS program.

In its Order, the FCC expands the list of means-tested programs eligible under the federal program-based criteria and amends the federal default eligibility criteria to include an income-based criterion. Furthermore, the Order requires all states, like California, that operate their own income-based Lifeline programs to document low-income customers' income qualification for their income-based program.

Currently, California's ULTS is a $570 million program. Of this amount, approximately $330 million is financed by federal Lifeline/Link-Up funds and $240 million is from an all-end-user surcharge assessed on consumers' intrastate telephone bills. California, however, could lose the $330 million of federal Lifeline/Link-Up funds if California does not implement the FCC's new program eligibility requirements.

B. Implementation of FCC's Order

We issued our Order Instituting Rulemaking (OIR) on December 2, 2004 and established a schedule for the conduct of the proceeding. Opening Comments were filed on January 21, 2005,⁵ and Reply Comments, on February 1 and 4, 2005.⁶ The steps we have taken here, once implemented, will move the state toward compliance with the requirements of the FCC's Lifeline/Link-Up Order.

C. Implementation Timeline

In their Opening Comments, three parties (SBC, Surewest and the Small LECs) indicate that numerous sections of Report 04-87 pertaining to certification and verification remain at the Office of Management and Budget and have not been published in the Federal Register to date. According to those parties, the one-year compliance requirement has not technically begun to run. SBC states that California may have additional time to implement and commence its certification and verification processes. SBC recommends that the Commission confirm the timeline for compliance to determine the correct timeframe for implementing all changes to the ULTS program.

Staff from the Telecommunications Division (TD) contacted the FCC for clarification, and the result was DA 05-262 in WC Docket No. 03-109, issued by Mark G. Seifert, Assistant Chief, Telecommunications Access Policy, Wireline Competition Bureau at the FCC. In his brief Erratum released January 31, 2005, Appendix A of the Lifeline Order is corrected to replace the phrase "By one year from the effective date of these rules," with "On June 22, 2005." The FCC's Erratum makes clear the FCC's target implementation date. We were aware of that date when we released our OIR.⁷

Our staff has had several conversations with the FCC and on March 22, 2005, filed a Petition for Extension of Time until March 1, 2006, to meet the deadline. The extension is necessary because we need additional time to get a TPA in place using the state's contracting process. We will instruct staff to continue dialogues with the FCC over the coming months and keep the FCC apprised of our progress.

Several parties express concern that the Commission should take all steps necessary to ensure continued federal funding. We have done so. As a first step, we reviewed our implementation timeline in the OIR and have shortened that time considerably. We have also made a commitment to make periodic status reports to the FCC. We believe that these steps will convince the FCC to grant us an extension.

Some parties encourage the Commission to slow the process of this proceeding, by bifurcating the proceeding. The first decision would give a very general framework, with specific details to be ironed out in workshops, and approved by later Commission decision. We do not have the luxury of operating at a leisurely pace in this proceeding. Fortunately, parties have provided comments with creative solutions that enable us to move forward and make definitive decisions on the big issues before us.

Shortly after we approve this order, the TD will convene a series of workshops to deal with some outstanding issues that need to be resolved before they can start the lengthy state process to obtain a TPA. TD cannot begin the bid
process until all the major issues have been resolved, and the sooner we begin the contracting process, the sooner we will have a contractor in place.

Following is the revised timeline for implementation of the FCC's Lifeline/Link-Up Order:

Date	Events
4/7/2005	Commission adopts decision
4/20-21/2005, 4/27, if needed	TD conducts workshop seeking input and comments on implementation of Commission order
5/13/2005	TD issues Request for Proposal for the role of certifying agent
6/8/2005	TD conducts workshop revising/updating General Order (GO) 153 consistent with Commission orders
8/1/2005	Parties file comments on workshop report
8/10/2005	Commission submits contract to Department of General Services (DGS) for approval
8/23/2005	ALJ issues draft decision adopting revised GO 153 and resolving miscellaneous implementation issues
9/2/2005	Certifying Agent contract approved by DGS
9/19/2005	Certifying Agent contract begins
9/22/2005	Commission adopts decision approving revisions to GO 153 and resolving miscellaneous implementation issues
1/1/2006	Kickoff of the new certification/verification process by all parties including the certifying agent, carriers and consumers

D. Scope of Proceeding

Some parties (LIF, Greenlining, MCI) criticize the scope of the rulemaking for being too narrow and propose a more comprehensive review of the state's universal service program. They urge the Commission to broaden the scope of this rulemaking or to initiate a new rulemaking to address issues of changes in technology and other issues. We reiterate our statement in the OIR that initiated this proceeding, namely, that this proceeding is necessarily narrow in scope. It is our goal to ensure that the state does not lose $330 million in federal funds. This is not the forum for a through reexamination of the current program.

We agree that a more comprehensive review of our program is overdue, and will consider issuing a new rulemaking in the near future.