II. Scope of This Proceeding

A. Issues to be Addressed

SB 1712 has several explicit requirements for the required Commission proceeding both as to the subject matters to be investigated, overall policy considerations to be applied and directives as to the inclusiveness of participation from the widest range of interests within the states. Among the findings made by the Legislature in enacting SB 1712 are:

(a) The Moore Universal Telephone Service Act, enacted in 1987, was intended to offer high quality basic telephone service at affordable rates to the greatest number of California residents, and has become an important means of achieving universal service by making residential service affordable to low-income citizens through the creation of a lifeline class of service.

(b) Factors such as competition and technological innovation are resulting in the convergence of a variety of telecommunications technologies offering an expanded range of telecommunications services to users that incorporate voice, video, and data. These technologies have differing regulatory regimes and jurisdictions.

(c) It is the intent of the Legislature that the commission initiate a proceeding investigating the feasibility of redefining universal telephone service by incorporating two-way voice, video, and data service as components of basic service. It is the Legislature's further intent that, to the extent that the incorporation is feasible, that it promote equity of access to high-speed communications networks, the Internet, and other services to the extent that those services provide social benefits that include all of the following:

(1) Improving the quality of life among the residents of California.

(2) Expanding access to public and private resources for education, training, and commerce.

(3) Increasing access to public resources enhancing public health and safety.

(4) Assisting in bridging the "digital divide" through expanded access to new technologies by low-income, disabled, or otherwise disadvantaged Californians.

(5) Shifting traffic patterns by enabling telecommuting, thereby helping to improve air quality in all areas of the state and mitigating the need for highway expansion.

(d) For purposes of this section, the term "feasibility" means consistency with all of the following:

(1) Technological and competitive neutrality.

(2) Equitable distribution of the funding burden for redefined universal service as described in subdivision (c), 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. (Pub. Util. Code § 871.7, SB 1712 § 1.)

Objectives of the proceeding are to include all of the following:

(1) To investigate the feasibility of redefining universal service in light of current trends toward accelerated convergence of voice, video, and data, with an emphasis on the role of basic telecommunications and Internet services in the workplace, in education and workforce training, access to health care, and increased public safety.

(2) To evaluate the extent to which technological changes have reduced the relevance of existing regulatory regimes given their current segmentation based upon technology.

(3) To receive broad-based input from a cross-section of interested parties and make recommendations on whether video, data, and Internet service providers should be incorporated into an enhanced Universal Lifeline Service program, as specified, including relevant policy recommendations regarding regulatory and statutory changes and funding options that are consistent with the principles set forth in subdivision (c) of Section 871.7.

(4) To reevaluate prior definitions of basic service in a manner that will, to the extent feasible, effectively incorporate the latest technologies to provide all California residents with all of the following:

(A) Improved quality of life.

(B) Expanded access to public and private resources for education, training, and commerce,

(C) Increased access to public resources enhancing public health and safety.

(D) Assistance in bridging the "digital divide" through expanded access to new technologies by low income, disabled, or otherwise disadvantaged Californians.

(5) To assess projected costs of providing enhanced universal lifeline service in accordance with the intent of this article, and to delineate the subsidy support needed to maintain the redefined scope of universal service in a competitive market.

(6) To design and recommend an equitable and broad-based subsidy support mechanism for universal service in competitive markets in a manner that conforms with subdivision (c) of Section 871.7.

(7) To develop a process to periodically review and revise the definition of universal service to reflect new technologies and markets consistent with subdivision (c) of Section 871.7.

(8) To consider whether similar regulatory treatment for the provision of similar services is appropriate and feasible. (Pub. Util. Code § 883(b), SB 1712 § 2(b).)

We will also allow parties to recommend changes to the basic service definition in their comments, beyond those elements otherwise being considered in complying with SB 1712. Parties making such recommendations are urged to provide insight on the appropriateness of such changes utilizing, to the extent feasible, the criteria set forth in Appendix B, § 4.D.3. of D.96-10-066.

"3. In evaluating whether service elements should be added to or deleted from basic service the Commission will consider the following criteria:

a. the service is essential for participation in society;

b. a substantial majority, 65%, of residential customers subscribe to the service. Assess the following:

(1) availability of the service;

(2) the degree to which the service has been promoted by the carrier;

(3) the level of customer education which has been provided for the service;

(4) the communities which are presently being targeted for marketing and use of the service.

c. the qualitative and quantitative benefits of adding the service outweigh the costs;

d. availability of the service, or the number of subscribers would not increase without intervention."

In addition, we will allow parties to propose revisions to the California Teleconnect Fund (CTF) adopted in D.96-10-066. The CTF provides discounts for certain telecommunications services used by qualifying schools, libraries and community-based organizations. The CTF was designed, among other things, to "promote the development of a more advanced telecommunications infrastructure that will bring benefits to all Californians." (68 CPUC2d at 579.) As we consider expanding the definition of universal service, the Commission should consider modifications to the CTF as a supplemental or alternative means of addressing the goals identified in SB 1712.

We put parties on notice that this OIR will be the time and place for parties to propose any recommended changes to the rules adopted in D.96-10-066 regarding the definition of basic service and the CTF. The definition of basic service (App. B., Section 4) and the CTF (App. B., Section 8) will not be included as issues in the upcoming review (discussed in Section II.B. below) of other rules and programs adopted in D.96-10-066.

We will consider all of the above issues as the subjects of this proceeding. They are identified in Attachment C of this decision as a series of matters upon which comment will initially be sought. Depending on the comments received, the topics being reviewed may be modified and additional comment sought.

B. Excluded Issues

This OIR will not revisit the rules and programs adopted in D.96-10-066 other than those described above. Specifically, it will not review: (1) the cost model for the California High Cost Fund-B (CHCF-B) or the adopted rules for the CHCF-B (App. B, rule 6); (2) the specific rules for ULTS set forth in Appendix B, Rule 5 of D.96-10-066; ¹ and (3) Rules 7 (Universal Service Working Group) and 9 (Consumer Information) in Appendix B of D.96-10-066.

In order to provide a timely and thorough report to the legislature by January 1, 2002, as SB 1712 mandates, it is necessary to limit the scope of this OIR to the issues identified in SB 1712 regarding the potential expansion of the definition of universal service. We note that D.96-10-066 indicated an intent to review the CHCF-B three years after that decision. However, delays in implementing the funding mechanism and other intervening events have made it necessary to postpone the review of the CHCF-B. This OIR is not the appropriate proceeding to review the cost model on which the CHCF-B is based. As we noted in D.96-10-066, review of the inputs and assumptions in a proxy model is likely to be "time consuming and contentious." (68 CPUC2d at 632). The allotted time for this OIR does not permit inclusion of a review of the CHCF-B. We will initiate a separate proceeding to review the CHCF-B and to revisit other aspects of D.96-10-066.