BILL ANALYSIS 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 994 - Wright Hearing
Date: June 13, 2000 A
As Amended: June 12, 2000 FISCAL B
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DESCRIPTION
Current law limits the types of charges that can be
included in the telephone bill to communications-related
products and services, along with non-communications
products and services as approved by the California Public
Utilities Commission (CPUC). This limitation sunsets on
January 1, 2001.
This bill extends that sunset until July 1, 2001.
Current law encourages the deployment of universal
telephone service in rural areas through a subsidy program
for small independent telephone corporations. This program
sunsets on January 1, 2001.
This bill extends that sunset until January 1, 2005.
This bill requires the CPUC to prepare a report on the
feasibility of establishing rural telephone cooperatives to
promote rural telephone service in California.
BACKGROUND
Telephone Service Billing . Responding to increasing
complaints about the unauthorized inclusion of charges on a
customer's telephone bill (also known as "cramming"), the
Legislature in 1998 restricted the types of charges which
could be included on the bill. Under the law, a telephone
bill may only contain charges for communications-related
goods and services. The statute also permitted the CPUC to
permit non-communications related goods and services to be
included with the telephone bill but as a separate page.
These restrictions sunset on January 1, 2001.
Existing law sets up a variety of consumer protections for
goods and services billed through the telephone bill which
are not subject to the sunset provision noted above. These
protections include precluding a phone company from
shutting off service for non-payment of a non-telephone
related services, clear labeling of additional charges,
creation of a toll-free customer care number, and a
rebuttable presumption that a charge which hasn't been
verified by the seller was not authorized.
Rural Telephone Service Subsidy. California has 21
incumbent local telephone companies, but the two largest -
Pacific Bell and GTE - serve about 98% of the telephones in
the state. The remaining companies serve predominantly
rural areas and as part of California's ongoing commitment
to universal service, the Legislature created a program to
subsidize telephone service provided by the 17 smallest of
these telephone companies. The subsidy stemmed from the
recognition that it's more expensive for these companies to
serve small, relatively sparsely populated rural areas than
it is for Pacific Bell or GTE to serve large, more densely
populated urban and suburban areas. The goal of the
subsidy program is to ensure that basic telephone rates for
these telephone companies does not exceed 150% of Pacific
Bell's rate.
This subsidy is paid for by all telephone ratepayers via a
surcharge on their telephone bills. Those monies go into a
fund known as the California High Cost Fund - A (CHCF-A).
For the last four years, the surcharge level has been zero
because the program's expenses have been paid for out of
the balance collected in prior years. This year, seven
telephone companies are to receive $6.9 million from
CHCF-A. In 1999, the total cost of the program was $4.9
million.
Recipients of CHCF-A Funding for 2000
Cal-Ore Telephone Company
Citizens Telecommunications Company of Tuolumne
Ducor Telephone Company
Sierra Telephone Company
Siskiyou Telephone Company
Ponderosa Telephone Company
Volcano Telephone Company
Telephone Cooperative Study . "Cooperatives" are
consumer-owned businesses created to take advantage of
scale and scope economies for the provision of specified
goods and services to members and, potentially,
non-members. Electric cooperatives have been successfully
formed to take advantage of the members aggregated buying
power to obtain discounts and services.
This bill requires the CPUC to investigate rural telephone
cooperatives as a means of providing service to rural
California and to report to the Legislature by January 1,
2002. The State Auditor estimates that 112,000 people, or
3% of the rural population, live in areas where traditional
phone service isn't offered. The author would like to
investigate whether telephone cooperatives are a viable way
for these unserved to obtain service. No telephone
cooperatives exist in California, though the National
Telephone Cooperative Association estimates that 2 million
residents are served by telephone cooperatives in other
states.
QUESTIONS
1.Should the 6-month sunset extension proposed by this bill
relative to telephone service billing be extended to 12
or 24 months?
2.Should the CPUC be required to conduct a study relative
to whether rural telephone customers would be well served
by a telephone cooperative?
COMMENTS
1)Protections Against Cramming . Consumer protection
problems have consistently plagued the telephone industry
over the past decade and "cramming" has been at the top
of the CPUC's list of consumer complaints.
The rise in wireless communications has opened new,
creative uses for telecommunications devices. In Europe,
cellular telephones can communicate with vending machines
to operate much like a debit card, with the charge
appearing on the customer's cellular bill. Of course,
these new creative ways to pay for products also open up
new creative opportunities for fraud and consumer abuse.
The challenge to the CPUC is to establish strong consumer
protections while not stifling efforts to respond to
consumer needs and demands.
The CPUC has a proceeding underway to establish consumer
protections if and when the law limiting the charges that
can be placed on a telephone bill expires. Presumably,
the CPUC's proceeding will be completed and the
protections it would like to see enacted will be in place
by the time the July 1, 2001, sunset in this bill takes
effect. The author and Committee may wish to consider
whether a six-month extension of the sunset is
appropriate or whether a 12- or 24-month sunset would be
more appropriate.
2)Rural Telephone Service . The rural telephone service
subsidy statutes require the Legislative Analyst to
submit a report on the state's universal telephone
service programs in conjunction with its report on the
2000-01 Budget Bill. That report has not been prepared
and is not in the process of being prepared. Such a
report would be useful in light of state and federal
policies encouraging competition in telephone service,
given that the current program was crafted in a
pre-competition era. The author and committee may wish
to consider updating the reporting requirement to ensure
that report is delivered in time for the 2001-02 budget
year.
3)Related Legislation . AB 1825 (Strom-Martin) creates the
Rural Telecommunications Infrastructure Task Force and
establishes a grant program. That bill is scheduled to
be heard by this committee on June 27, 2000.
ASSEMBLY VOTES
Assembly Utilities & Commerce Committee(9-0)*
Assembly Appropriations Committee (21-0)*
Assembly Floor (76-0)*
* These votes were based on a prior version of this bill
which only included language related to the telephone
cooperative segment of the measure.
POSITIONS
Sponsor:
Author
Support:
California Telephone Association
GTE California Incorporated
Office of Ratepayer Advocates
Oppose:
None on file.
Randy Chinn
AB 994 Analysis
Hearing Date: June 13, 2000