BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 1553 - Battin Hearing Date:
April 9, 2002 S
As Introduced: February 20, 2002 FISCAL B
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DESCRIPTION
Current law requires telephone rates to be fair and reasonable.
The California Public Utilities Commission (CPUC) is authorized
to regulate rates for telephone calls within the state.
Existing CPUC Decision Number 98-06-075 prohibits the filing of
new complaints to establish new Extended Area Service (EAS)
routes in the state that extend the geographic reach of local
toll-free telephone calls.
This bill overrides that CPUC decision and requires the CPUC to
allow the filing of complaint cases seeking to establish new EAS
routes within the state.
BACKGROUND
Most residential telephone service allows for calls within a
local calling area to be made without an extra charge. That
area is known as the "local exchange." Within each local
exchange is a point known as the "rate center." If the rate
centers for two local exchanges are within 12 miles of each
other, then the cost for calls between those two exchanges is
also included in the monthly rate for local service. (For
purposes of this discussion, the calling customer is a
residential customer with unlimited local calling, the most
common residential service. This bill does not effect rates for
calls by business customers, residential customers with measured
local usage, or wireless customers.) The area comprised of the
exchanges between which the customer can call without extra
charge is known as the "local calling area." Calls between
local exchanges that are more than 12 miles between rate centers
are billed as toll calls.
The CPUC has considered extending the 12 mile limit, which would
broaden the area in which calls can be made without extra
charge, in cases where customers can't reach a reasonable range
of essential services within the local calling area. Essential
services include police, fire, medical care, legal services,
schools, banking, and shopping. Areas where the CPUC has
extended the 12 mile limit are known as Extended Area Service
(EAS) routes. Creating a new EAS route lets certain local
callers avoid paying toll charges, but that "benefit" is paid
for by the remaining ratepayers generally.
On January 1, 1995, the CPUC opened the market for
short-distance toll calls to competition. (The market for
long-distance toll calls, also known as inter-LATA calls, had
been opened earlier.) This market has been very competitive
with the large long-distance companies like AT&T, MCI WorldCom,
and Sprint competing with the established local companies like
SBC Pacific Bell and Verizon. Because the market was
competitive, the CPUC concluded that creating additional EAS
routes wasn't necessary because the competitive pressures would
reduce the cost of toll calls, making it unnecessary to reduce
the price of those calls by regulation. Therefore, in June
1998, the CPUC declared a moratorium on the creation of new EAS
routes. (The mechanism to enforce the moratorium was to
establish a policy denying acceptance of any complaint seeking a
new EAS route.) This bill overrides the CPUC's declared
moratorium and requires the CPUC to consider petitions from
customers who want to see new EAS routes be established.
COMMENTS
1.Does competition work? The question of whether the
competitive markets are working in the telecommunications
industry is the subject of much debate, especially when it
comes to local telephone service and high speed Internet
access.
However, it seems clear that the market for short-distance
toll calls is very competitive with many different providers
offering service in a variety of packages. From the plain
vanilla "10 cents/minute" offering to the "$4.95/month at 7
cents/minute during peak times and 5 cents/off peak" or the
"no extra charge for toll calls" offerings of some wireless
carriers, competitors seem to be providing customers with
meaningful, albeit often complicated, choices. Prices have
declined, too, starting in 1995 when the CPUC lowered the
prices that SBC Pacific Bell and Verizon could charge, though
prices seem to have bottomed out.
2.Stepping in where competition doesn't work . While competition
for short-distance toll calls is evident, the customer
benefits of competition aren't always equal. That's why the
Legislature and the CPUC have stepped in to try and provide
equity in some cases, such as policies that mandate universal
service and rate equality. These policies encouraged
telecommunications service in rural areas and ensured that
rural rates were similar with, if not equal to, urban rates.
Those regulatory policies clash with the competitive goal of
profit maximization and the desire to price a service at
whatever the market will bear or withdraw service where it's
not sufficiently profitable.
3.Cost shifting . As noted in the "Background" section, creating
new EAS routes will certainly provide a benefit to certain
customers, but that benefit will have to be paid for by other
ratepayers throughout the state. While this measure doesn't
require the CPUC to create any new EAS routes, it would
require the CPUC to review and respond customer requests to
create EAS routes and any approved EAS route would result in
costs being shifted from one group of ratepayers to another
group of ratepayers.
4.Overriding the CPUC . CPUC Decision Number 98-06-075 prohibits
the filing of new complaints to establish new EAS routes. If
the CPUC wanted to allow complaints seeking an EAS route to be
filed so it could approve an EAS route, it could simply vote
to reverse its 1998 decision. Since the CPUC hasn't done
that, it could be argued that it doesn't have any desire to
create new EAS routes. Therefore, it's unclear what benefit
exists to overriding the CPUC's Decisions Number 98-06-075.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Randy Chinn
SB 1553 Analysis
Hearing Date: April 9, 2002