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