California Needs to Rein in the California Public Utilities Commission

Today in California's FlashReport, Digital Liberty's Katie McAuliffe writes that to really rein in California Lifeline subsidies legislators should pass not only AB 1407, but also AB 300.  In this way, more advanced services will be able to offer the subsidy without increasing the size of the fund, and there will be a proper method of collection for pre-paid phone services.

In an attempt to squeeze more money out of the telecom sector, the CPUC is ordering the wireless prepaid provider TracFone to pay nearly $25 million to cover charges they previously thought their company was exempt from. TracFone is a debit service that is prepaid and therefore isn’t subject to the same fees and charges that other telecom providers would be.

 "TracFone does not operate lines of communication in the manner that traditional telephone operators do. Rather than owning cell towers and transmission lines, TracFone purchases the right to use and operate portions of cell towers and transmission lines owned by traditional telephone companies. Customers purchase handsets along with prepaid service for fixed amounts. After the purchase of debit services, there is no other interaction with consumers. TracFone has no way of knowing whether its customers are making intrastate or interstate calls."

The CPUC is now seeking to move the goal posts by trying to retroactively collect taxes from TraceFone. In 2003, the CPUC told TracFone that they were exempt from fees, such as those on intrastate calls, but changed their mind in 2008 after TracFone applied to provide service for low-income customers. Given California’s fiscal situation, it shouldn’t come as a big surprise that they are trying to collect more money.
 
"One of the problems is that California has a state Universal Service Fund in addition to the Federal Universal Service Fund. The CPUC has set up eligibility criteria geared towards wireline based services, so it was not until March 2011 that any wireless service was able to offer low-income California residents lifeline based services."
 
In an attempt to rein in the CPUC, the California legislature has introduced AB1407 which would cap the amount the CPUC can tax telecom providers. As of now the CPUC has no legislative oversight, so passing AB1407 would be a welcome development. However, if the California legislature wants to really tackle this issue they would be wise to include AB 300 along with AB 1407, which establishes a point of sales collection method for California Universal Service. Without AB300, the proposed legislation lacks teeth and would otherwise be less effective.
 
Reforming the CPUC is a worthwhile pursuit and one the California legislature should continue. Protecting consumers and providers from predatory behavior, like that exhibited by the CPUC, should remain a top priority. Allowing them to get away with charging outrageous fees with no accountability is nothing short of an insult to the citizens of California.