III. Overview of Statutory Goals

In addition to striving to meet the goals adopted in the OIR, a new regulatory framework must comply with state and federal statutes and should endeavor to meet the policy goals and conform to the policy preferences incorporated into statutes. This section provides a brief overview of the major telecommunications requirements and policies incorporated into statutes that will guide our modification of telecommunications regulations.

A. State and Federal Statutes Encourage Reliance on Competition to Promote Broad Consumer Interests

California statutes express a clear desire to support competitive markets.120 State policies for telecommunications, in particular, are laid out in Public Utilities Code § 709. These policies are as follows:

(a) To continue our universal service commitment by assuring the continued affordability and widespread availability of high-quality telecommunications services to all Californians.

(b) To focus efforts on providing educational institutions, health care institutions, community-based organizations, and governmental institutions with access to advanced telecommunications services in recognition of their economic and societal impact.

(c) To encourage the development and deployment of new technologies and the equitable provision of services in a way that efficiently meets consumer need and encourages the ubiquitous availability of a wide choice of state-of-the-art services.

(d) To assist in bridging the "digital divide" by encouraging expanded access to state-of-the-art technologies for rural, inner-city, low-income, and disabled Californians.

(e) To promote economic growth, job creation, and the substantial social benefits that will result from the rapid implementation of advanced information and communications technologies by adequate long-term investment in the necessary infrastructure.

(f) To promote lower prices, broader consumer choice, and avoidance of anticompetitive conduct.

(g) To remove the barriers to open and competitive markets and promote fair product and price competition in a way that encourages greater efficiency, lower prices, and more consumer choice.

(h) To encourage fair treatment of consumers through provision of sufficient information for making informed choices, establishment of reasonable service quality standards, and establishment of processes for equitable resolution of billing and service problems.121

This detailed list of state policy objectives sets the goals for a telecommunications regulatory reform proceeding, such as this one.

In the same Public Utilities Code section that lists state goals for telecommunications, the California Legislature also provides direct guidance on the means regulators should employ to achieve these goals. Specifically, Public Utilities Code § 709.5 endorses a reliance on competitive markets to achieve these goals. According to the Public Utilities Code, "[i]t is the intent of the Legislature that all telecommunications markets subject to commission jurisdiction be opened to competition not later than January 1, 1997. The commission shall take steps to ensure that competition in telecommunications markets is fair and that the state's universal service policy is observed."122

Consistent with the Legislature's intent, the Commission, whenever possible, has relied on competition as a means to ensure that rates are "just and reasonable."123 For example, in reviewing whether to grant AT&T124 pricing flexibility for long distance services, the Commission concluded that "competition from the other IECs should ensure reasonable prices in these markets. If AT&T-C prices its services too high or if its service quality deteriorates, customers will have the incentive to switch to a lower-priced or better-quality carrier."125

Reliance on competition in telecommunications markets also is found in national laws and policies set by the FCC. The overarching purpose of the federal Telecommunications Act of 1996, as indicated by its title, is "[t]o promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies."126 The "deregulatory purpose"127 of this Act has been recognized by the FCC,128 federal courts,129 and state courts.130

Moreover, while it curtails state regulatory authority in some areas,131 the Telecommunications Act of 1996 grants states broad powers to adopt rules that promote competition:

Nothing . . . precludes a State from imposing requirements on a telecommunications carrier for intrastate services that are necessary to further competition in the provision of telephone exchange service or exchange access, as long as the State`s requirements are not inconsistent with this part [47 USCS §§ 251 et seq.] or the Commission`s regulations to implement this part. . . .132

Thus, the Telecommunications Act of 1996 endorses state legislation that relies on competition as the preferred means of ensuring consumer benefits in telecommunications markets.

In summary, state and federal telecommunications policies direct us to promote and rely upon competitive markets whenever possible. We, therefore, should seek to ensure that the regulatory framework that we adopt in this proceeding enables further competition in the telecommunications marketplace.

B. State and Federal Statutes Instruct Regulators to Adopt Competitively and Technologically Neutral Policies that Promote the Development of a Wide Variety of New Technologies and Services

California statutes also call for regulators to adopt technologically and competitively neutral policies that encourage increased access to and usage of advanced telecommunication services. Among the telecommunications policies enumerated in the Public Utilities Code, the California Legislature declares that the state shall "encourage the development and deployment of new technologies . . . in a way that efficiently meets consumer need and encourages the ubiquitous availability of a wide choice of state-of-the-art services."133

In an effort to bring advanced telecommunication services to all Californians, the Legislature orders the Commission "consider . . . [h]ow to encourage the timely and economic development of an advanced public communications infrastructure, which may include a variety of competitive providers."134 It declares that any new policies adopted as a result of this review should seek to achieve the following goals:

(1) To provide all citizens and businesses with access to the widest possible array of advanced communications services.

(2) To provide the state's educational and health care institutions with access to advanced communications services.

(3) To ensure cost-effective deployment of technology so as to protect ratepayers' interests and the affordability of telecommunications services.135

Here too the Public Utilities Code establishes that regulatory policies should encourage access to a wide choice of advanced telecommunication services.

Similar direction is found in statutory provisions regarding universal service. In Public Utilities Code § 871, the Legislature states that the "feasibility" of redefining universal telephone service to include advanced telecommunication services depends on the following considerations:

(1) Technological and competitive neutrality.

(2) Equitable distribution of the funding burden for redefined universal service . . . among all affected consumers and industries, thereby ensuring that regulated utilities' ratepayers do not bear a disproportionate share of funding responsibility.

(3) Benefits that justify the costs.136

The Legislature reiterates its intent that our policies encourage development of a wide variety of advanced telecommunication facilities and services.

C. Telecommunications Regulations Must Continue to Meet the Social Policies Embodied in Statutes

Even as we act to bring current regulations more in line with the policies supported by federal and state statutes and with the emerging realities of telecommunications markets, it is important to acknowledge that current telecommunications regulations also support major social policies. These social policies are grounded in state statutes, and are the basis for programs using large subsidies to achieve their purposes. Public Utilities Code § 709 declares that California shall "continue our universal service commitment by assuring the continued affordability and widespread availability of high-quality telecommunications services to all Californians."138

The major social programs embodied in telecommunications policies include the California LifeLine (LifeLine) program for low-income users of telecommunications services,139 a program to provide phone and calling assistance to the deaf and disabled community140 and two programs to subsidize the cost of basic service in high cost service areas.141 The Commission recently opened an investigation into the major public policy programs and described these programs as follows:

The California LifeLine 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 and disabled individuals. 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. . . .

The Deaf and Disabled Telecommunications Program began through the efforts of an employee volunteer program at Pacific Bell sometime prior to 1978. This volunteer group repaired and sometimes provided equipment to Pacific Bell's 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. . . .

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 supplemental 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 carriers would potentially be so high as to threaten the 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 and to provide subsidies in high cost areas served by large and mid-size 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.142

As this overview makes clear, these social programs have a significant impact on the telecommunications field. Each program is extensive, both in cost and numbers of participants.

Prudent policy requires that we consider the effect of any new regulations on these important public policy programs. We also will need to determine whether the scope and scale of these programs requires accommodations in the development of a new regulatory framework.

In conclusion, our statutory review indicates that we should consider the impact of any regulatory reform on our state's ability to (i) rely upon competition in the telecommunications marketplace; (ii) encourage development of a wide variety of new technologies and services; and (iii) support our state's public policy programs. We will reference and rely upon this statutory guidance in this decision's ensuing analysis.

120 The California Public Utilities Code states that "the essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, reasonable and just prices, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured." Cal. Pub. Util. Code § 8281(a).

121 Cal. Pub. Util. Code § 709.

122 Cal. Pub. Util. Code § 709.5(a).

123 Cal. Pub. Util. Code § 451 ("All charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service.").

124 This reference is to AT&T California, the long-distance carrier that subsequently merged with SBC California.

125 In the Matter of the Application of AT&T Communications of California, Inc. for Additional Regulatory Flexibility, D.93-02-010, 48 CPUC 2d 31 (1993). Similarly, in setting Zone of Rate Freedom for airport vans, the Commission commonly concludes that the "competitive transportation services will result in reasonable rates when considered with the ZORF authorized below." Application of Sacramento Metro Shuttle (PSC 1438) to redefine its zones and establish a Zone of Rate Freedom and individual fares for passenger stage service between zones in authorized service territory and Sacramento Metropolitan Airport, 92-10-016, 45 CPUC 2d 683 (1992).

126 47 U.S.C. pmbl..

127 Qwest Communs., Inc. v. City of Berkeley, 433 F.3d 1253, 1255 (9th Cir. 2006).

128 In the Matter of Implementation of the Local Competition Provision in the Telecommunications Act of 1996, 11 FCC Rcd 15499, ¶ 1 (1996) (First Report and Order) ("In the new regulatory regime, [the FCC] and the states remove the outdated barriers that protect monopolies from competition and affirmatively promote efficient competition using tools forged by Congress.").

129 See, e.g., Qwest, 433 F.3d at 1255 (declaring the purpose of the Telecommunications Act of 1996 "was to reduce regulation of telecommunications providers by creating a `procompetitive, deregulatory national policy framework'") (quoting H.R. Rep. No. 104-458 (1996) (Conf. Rep.)).

130 See, e.g., Wash. Indep. Tel. Ass'n v. Wash. Utils. & Transp. Comm'n, 149 Wn.2d 17, 20 (Wash. 2003) ("Updating the Communications Act of 1934 (the 1934 Act), the Telecommunications Act of 1996 aims to reduce regulation and enhance competition: `This law represents a vision of a telecommunications marketplace where the flexibility and innovation of competition replaces the heavy hand of regulation. It is based on the premise that technological changes will permit a flourishing of telecommunications carriers, engaged in head-to-head competition, resulting in a multitude of communications carriers and programmers being made available to the American consumer.'") (quoting Michael I. Meyerson, Ideas of the Marketplace: A Guide to the 1996 Telecommunications Act, 49 Fed. Comm. L.J. 251, 252 (1997)).

131 See, e.g., 47 U.S.C. § 332 (preempting states from regulating entry and rates of wireless carriers); 47 U.S.C. § 276 (preempting state regulation of payphone providers).

132 47 U.S.C. § 261.

133 Cal. Pub. Util. Code § 7099(c).

134 Cal. Pub. Util. Code § 882(c)(2).

135 Cal. Pub. Util. Code § 882.

136 Cal. Pub. Util. Code § 871.7(d).

137 § 706(a) of the Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (1996), reproduced in the notes under 47 U.S.C. § 157(a).

138 Cal. Pub. Util. Code § 709(a).

139 Cal. Pub. Util. Code §§ 871.5 et seq. California LifeLine was formerly known as Universal LifeLine Telephone Service.

140 Cal. Pub. Util. Code § 2881 et seq.

141 Cal. Pub. Util. Code § 739.3 et seq.

142 R.06-05-028 at 4-6.

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