BILL ANALYSIS                                                                                                                                                                                                              1
          1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                            MARTHA M. ESCUTIA, CHAIRWOMAN
          

          SB 396 -  Battin                                  Hearing Date:   
          April 19, 2005             S
          As Amended:         April 7, 2005            FISCAL       B
                                                                        
                                                                        3
                                                                        9
                                                                        6

                                      DESCRIPTION
           

           Current law  requires telephone rates to be fair and reasonable.   
          The California Public Utilities Commission (CPUC) is authorized  
          to regulate rates for intrastate telephone service.

           Current regulation  , in the form of  CPUC Decision 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  requires the CPUC to report to the Legislature, by  
          July 1, 2007, on the impact of toll call pricing in the  
          Coachella Valley, whether additional steps are necessary to  
          encourage innovative pricing, and related matters.

           The bill  repeals its provisions on January 1, 2008.

                                      BACKGROUND
           
          EAS is a telephone service authorized in certain designated  
          communities which extends the geographic reach of a local  
          toll-free calling area.  Generally, the service territories of  
          the local telephone carriers are divided into local exchanges.   
          Each local exchange has a point designated as a rate center  
          which is used to measure the distance of calls for billing  
          purposes.  For incumbent local exchange carriers (ILECs), the  
          prescribed distance is 12 miles.  If the rate centers are  
          greater than 12 miles apart, the calls between such exchanges  
          are toll calls.  EAS allows customers in one exchange to extend  
          the toll-free local calling area into another exchange whose  











          rate center is more then 12 miles away.

          EAS routes have traditionally been established through formal  
          complaint cases filed by customers seeking to extend their 12  
          mile local calling area when those customers can't reach a  
          reasonable range of essential services within their existing  
          toll-free local calling area.  These essential services include  
          police, fire, medical care, legal services, schools, banking and  
          shopping.  













































          The CPUC has traditionally considered several criteria in  
          deciding whether to authorize an EAS route.  In general, these  
          criteria include whether: (1) a community of interest exists  
          between the affected local exchange and areas beyond the  
          existing toll-free calling area, (2) there is customer support  
          for extending the area of service, and (3) the EAS route can be  
          implemented with reasonable rates.

          SB 1553 (Battin, 2002) was substantially similar to SB 396, as  
          it also required the CPUC to examine the impact of toll call  
          pricing in the Coachella Valley.  SB 1553 was approved by this  
          committee on a 5-0 vote, but was vetoed by Governor Davis,  
          asserting it was an unnecessary, costly ($200,000), piecemeal  
          approach to an issue of statewide significance. 

                                       COMMENTS
           
          IntraLATA toll competition was instituted on January 1, 1995,  
          whereby both business and residential customers could choose  
          from among multiple carriers to carry their intraLATA calls,  
          reducing the toll costs customers face for calls beyond their  
          local calling area.  Concurrent with the institution of  
          intraLATA competition, the toll rates of Pacific Bell (now SBC)  
          and GTE California (now Verizon) were significantly reduced by  
          the CPUC.  Today, many interexchange carriers offer intraLATA  
          toll calling plans at competitive rates.  AT&T, MCI and Sprint  
          offer residential optional calling plans that include intraLATA  
          toll rates of no more then $.05 per minute for calls made within  
          California.  These companies also provide a bundled package,  
          which means that all telephone services are all packed into one  
          low flat rate per month.

          Supporters of this bill feel EAS meets essential calling needs  
          that are not adequately addressed by any other service  
          alternative.  EAS routes are necessary in situations where  
          services that are essential to a community are not located  
          within the boundaries of a local telephone exchange.  People who  
          live in rural communities where there are no schools, no doctors  
          and no county offices must conduct essential daily activities in  
          other communities.  Without EAS, residents of such small  
          communities would routinely have to place toll calls to reach  
          local services, including schools, doctors, city and county  
          departments, hospitals and emergency services.  











          Opponents of this bill agrue that, in the current competitive  
          market, EAS is no longer necessary and should be either  
          grandfathered or phased out over time.  Parties in favor of  
          grandfathering or phasing out EAS argue that EAS has become an  
          anachronism which had a valid role in the era prior to the  
          advent of competition.  These parties argue that since the  
          institution of intraLATA toll competition in 1995, customers  
          increasingly have access to alternative calling plans from  
          competing intraLATA providers and should no longer require EAS  
          routes.  Given the cost inequities and administrative burdens  
          involved in adjudicating and establishing EAS routes, these  
          parties argue that no new EAS routes are needed or should be  
          approved.

          This bill would have the CPUC address (and re-address) toll rate  
          and toll competition issues in a piecemeal fashion.   
          Importantly, the issues facing the Coachella Valley may not be  
          unique to that community because population and economic changes  
          affect many parts of the state and because competition has not  
          necessarily progressed uniformly across urban, suburban and  
          rural areas.  Because many communities may be facing situations  
          like that in the Coachella Valley, it may be more efficient to  
          consider the issues identified in the bill on a statewide basis.  
           While a statewide approach would potentially involve a larger,  
          more complex proceeding, it would avoid potentially numerous  
          separate proceedings addressing the same or similar issues in a  
          piecemeal fashion.

                                       POSITIONS
           
           Sponsor:
           
          Author

           Support:
           
          Office of Ratepayer Advocates

           Oppose:
           
          None on file

          


































          Randy Chinn/Melanie Gutierrez 
          SB 396 Analysis
          Hearing Date:  April 19, 2005