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On July 23, 2015, the Commission held its regularly-scheduled agenda meeting.  On the consent agenda, the Commission adopted a Decision modifying the CTF program goals and eligibility criteria, including a reduction of CTF discounts for voice services from 50% to 25%.  On the regular agenda, the Commission granted Comcast and Time Warner’s request to withdraw its merger application, subject to certain conditions.  These and other items of interest are discussed in further detail below.

CONSENT AGENDA

Decision Modifying CTF Program Goals and Elements (Item 3, approved on consent) – This Decision modifies the California Teleconnect Fund (“CTF”) and resolves Phase 1 and 2 proceeding issues by adopting restated program goals and eligibility criteria.  Significantly, CTF discounts will still be reduced from a 50% discount to a 25% discount.  This phase down of CTF discounts for voice services will take place during Fiscal Year 2016-17.

The restated program goals adopted by this Decision are as follows:  (1) advance universal service by providing discounted rates to qualifying schools, maintaining pre-school, kindergarten or any of the grades 1 to 12, inclusive, community colleges, libraries, hospitals, health clinics and community organizations; (2) bring every Californian direct access to advanced communications services in their local communities; (3) ensure high-speed internet connectivity for community CTF-eligible institutions at reasonable rates; and (4) increase direct access to high-speed internet in communities with lower rates of internet adoption and greater financial need.

The Decision affirms that schools, community colleges, libraries, hospitals and health clinics, and community based organizations (“CBOs”) remain eligible participants of the CTF program.  For schools, the Decision adopts the Federal E-rate eligibility criteria for private non-profits and retains a $50 million endowment cap.  For community colleges, the Decision eliminates the CTF budget cap.  Libraries remain categorically eligible without any changes to eligibility requirements.

However, the Decision significantly modifies the eligibility criteria for CBOs, as follows: (1) limiting CBO eligibility to those entities with revenues less than $5 million (from $50 million); (2) requiring a qualifying CBO to provide a qualifying service in a manner that constitutes 50% or more of a CBO’s mission; (3) requiring CBOs to provide services directly to individuals at specific geographic locations; (4) requiring a majority of members of the Board of Director to be members of the community the organization serves; and (5) eliminate discounts for purely administrative purposes.  For additional details regarding the proposed rules, please Appendix A of the Decision.

This Decision also adopts a sub-category of CBOs called “Health Care/Health Services,” and requires these entities to meet general CBO eligibility criteria, along with the following:  (1) the health care/health services CBO must be staffed by licensed medical personnel on site; and (2) the health care/health services CBO must accept Medicare and MediCal or provide services without charge or at a minimal fee.  The Decision also requires California Telehealth Network (“CTN”) members to individually qualify before receiving CTF discounts rather than being categorically eligible.  The Decision further directs that a Health Care/Health Services and CTN budget cap should be considered in Phase 3 of this proceeding.

The Decision also modifies the list of CTF-eligible services, identifying the following services as eligible:  (1) Digital Transmission Services; (2) Internet Access; (3) Wireless Internet Access; Voice Services; and (4) Functionally Equivalent services.  Further information regarding these services are available in Appendix B to the Decision.  These services will be updated on an annual basis through an administrative letter

A copy of the final Decision underlying this item is available at the following link.

$202,557 in CASF Approved for Frontier’s Petrolia Project (Item 14, approved on consent) – This Resolution approves funding in the amount of $202,557 from the California Advanced Services Fund to Citizens Telecommunications Company of California, Inc., a subsidiary of Frontier Communications Corporation (“Frontier”), for the upgrade of existing middle-mile infrastructure in Petrolia, California (“Petrolia Project”).  The CASF funding awarded will account for 60% of the total project costs, consistent with program rules.  Frontier is expected to invest $135,038 into this project.

The Petrolia Project will involve upgrading equipment on three existing microwave towers located in Petrolia on Branstetter Ridge and on Bunker Hill  The existing low-capacity microwave radios will be replaced by higher capacity microwave radios, which will be installed onto existing towers.  The microwave radio on the Branstetter Ridge tower will function as a signal repeater and Ethernet aggregation switches and associated technologies will be installed at the telephone switch centers.  The increased capacity offered by the installation of the new microwave radios will be run through new Ethernet aggregation switches, permitting efficient use of existing copper wire infrastructure.

The upgrades will enable Internet speeds of up to 25 Mbps download and 1.5 Mbps upload to approximately 138 households.  Frontier estimates that the take rate will be 75% of the total number of households in Petrolia and will include two public high schools in the community.

A copy of the final Resolution underlying this item is available at the following link.

Centerbridge Retroactively Authorized to Indirectly Acquire IPC Network Services (Item 31, approved on consent) – This Decision retroactively approves a transaction whereby Centerbridge Capital Partners II, L.P. (“Centerbridge”) acquires indirect control of IPC Network Services, Inc. (“IPC”).  IPC is a non-dominant interexchange carrier (“NDIEC”) that provides communications solutions to global trading enterprises by utilizing proprietary trading and communications equipment interconnected through resold private lines or IP-based transport services.  In California, IPC provides resold interexchange telephone services to non-residential customers in the service areas of Verizon, AT&T, Level 3, and XO Communications, Inc.  IPC does not serve residential customers.  Centerbridge is a private investment fund that has approximately $4.5 billion in committed capital and focuses on private equity and distressed investments.

IPC and Centerbridge entered an Agreement and Plan of Merger (“Merger Agreement”) dated December 1, 2014.  Pursuant to the Merger Agreement, Centerbridge would acquire indirect control of IPC by acquiring all or a majority of the equity and voting interests in IPC.  The closing of the transaction was scheduled for shortly after month-end January 2015.  Based on discussions  and guidance provided by the Communications Division, IPC and Centerbridge believed that Commission approval could have been obtained through the filing of an advice letter, which was submitted on December 10, 2014.  On January 15, 2015, the Communications Division noticed the applicants that a formal application would be required.  At this time, the Applicants had already established their schedule for closing, which included debt financing.  Nevertheless, a formal application was filed on January 22, 2015.  The Decision concludes that given this procedural history, it is appropriate to grant retroactive approval since the delay was due to the circumstances beyond the applicants’ control and ultimately the approval has the “same effect as if done earlier.”

The Decision further concludes that the transfer promises improved services for California consumers, and that Centerbridge possesses the financial and technical skills necessary to direct IPC’s telecommunications services in California.

A copy of the Proposed Decision underlying this item is available at the following link.

Air Voice Authorized to Expand Service in the Small LEC Territories (Item 24, approved on Consent) – This Resolution grants Air Voice Wireless, LLC’s (“Air Voice”) request to expand its ETC-designated service area statewide, including the Small LECs’ territories, and to be exempt from the Zip+4 requirement.

A copy of the Draft Resolution underlying this item is available at the following link.

REGULAR AGENDA

Comcast’s Motion to Withdraw Merger Application Granted (Item 59 approved 5-0, Items 57, 57a, withdrawn) – This Decision grants the motion of Comcast Corporation (“Comcast”), Time Warner Cable Inc. (“Time Warner”), Time Warner Cable Information Services (California), LLC (“TWCIS”), Bright House Networks Information Services (California), LLC (“Bright House”), and Charter Fiberlink CA-CCO, LLC to withdraw their merger applications A.14-04-013 and A.14-06-012.  This Decision grants the motion subject to certain conditions, as described below.

In April 2014, Comcast, Time Warner, TWIS, and Bright  House filed an application for approval of the transfer of control of TWCIS and Bright House to Comcast.  Related to this transaction, Comcast, TWCIS, and Charter Fiberlink filed an application on June 17, 2014 to transfer a limited number of business customers and associated regulated assets of Charter Fiberlink to TWCIS.  These applications were subsequently consolidated.  A proposed decision was later issued that would have granted approval of the transactions, subject to conditions intended to mitigate significant public interest concerns that would result from the proposed merger.  An alternate was also issued by Commissioner Florio, which would have denied the merger based on the finding that the merger would not be in the public interest.  Neither the proposed decision or alternate had been adopted before Comcast announced that it was no longer pursuing the merger.

Following Comcast’s announcement and the withdrawal of the transaction at the FCC, the Joint Applicants filed a motion to withdraw their applications.  This Decision grants the motion, subject to the following conditions: (1) all documents that are a part of the proceeding shall be preserved and made available for use in relevant future proceedings; (2) the Joint Applicants have stipulated that they will not object to intervenors seeking reasonable compensation for the contribution to these proceedings.  The Decision also declines to order the joint Applicants to pay the fees incurred by the Office of Ratepayer’s expert during this proceeding.

A copy of the Proposed Decision granting the motion to withdraw is available at the following link.

A copy of the Proposed Decision approving the merger transaction is available at the following link.

A copy of the Alternate approving the merger transaction is available at the following link.

HELD AGENDA

Proposed Settlement in Complaint Proceeding Against AT&T’s Basic Service and Lifeline Rates (Item 18, held until 8/27/15) – This Decision would approve a settlement agreement between The Utility Reform Network (“TURN”), Pacific Bell Telephone Company d/b/a AT&T California (“AT&T”), and The Center for Accessible Technology (“CforAT”) resolving issues relating to TURN’s complaint against AT&T.  The complaint alleged that AT&T’s rates for basic service, flat and measured, were not “just and reasonable” and requested that the Commission reduce AT&T’s current rates for basic service as an interim measure, conduct an investigation to set rates at “just and reasonable” levels, and conduct and industry-wide review on the status of competition in California.

The terms of the settlement agreement are as follows: (1) AT&T will freeze its rates for Basic Flat Rate local exchange service, Basic Measured Rate local exchange service, LifeLine Flat Rate local exchange service, and LifeLine Measured Rate local exchange service through their current rates through December 31, 2015; (2) beginning January 1, 2016, AT&T will have the right to raise its rates for each of the Listed Services by no more than a total of $3.00 over five years (until December 31, 2020), and for each separate service not to increase rates by more than $1.00 in any given year in the five year period; (3) as of January 1, 2021, the price caps established by the settlement will expire and AT&T will have the same pricing authority regarding the listed services as it had prior to entering the settlement; and (4) no party to the settlement will initiate or join an action before the CPUC addressing the reasonableness of AT&T’s rates for the Listed Services any earlier than January 1, 2021.

This settlement was opposed by ORA, who argues that AT&T has the highest rates for the Listed Services, the rates have increased faster than the rate of inflation, the rates are not connected in any way to the cost of providing service, and the rate increases have not resulted in proportionate customer losses.  The Proposed Decision would reject ORA’s arguments, explaining that the Commission decoupled rates from cost of service and awarded AT&T and other ILECs the right to set rates without regard to the factors enumerated by ORA.  Further, the Proposed Decision would conclude that the facts as alleged by ORA would actually support approval of the settlement, as it would freeze rates and place caps on rate increases.

A copy of the Proposed Decision underlying this item is available at the following link.

Proposed Decision Regarding Deferral of Infrastructure Network Study of AT&T and Verizon (Items 58 and 58a, held until 8/13/15) – This Proposed Decision would defer the examination of the networks of AT&T California and Verizon California Inc. ordered in Decision (D.) 13-03-023 until the Commission rules on the proposed service quality rule changes and penalties under consideration in the Service Quality Proceeding, Rulemaking (R.) 11-12-001.  The Proposed Decision explains that penalty mechanisms being contemplated in the Service Quality, if adopted, would provide significant incentives for telephone corporations to improve service quality to a level that meets the Commission’s General Order 133-C minimum service quality measure standards.  For these reasons, the Proposed Decision would determine that the network study may not be necessary.

Recently, Commissioner Sandoval and Florio issued an alternate, which would affirm the need for the network study and would order the staff to take steps to complete the study.  The Alternate would conclude that the need for the study has “not lessened,” as demonstrated by the absence of any significant improvement in AT&T’s and Verizon’s recent service quality performance.  The Alternate asserts that there is no evidence on which to conclude that the study is no longer needed and that the “carriers’ poor performance suggests that there may be more systemic problems at root.”  The Alternate also disagrees with the Proposed Decisions finding that the potential adoption of penalties would justify the deferral of network evaluations.

A copy of the of Proposed Decision underlying this item is available at the following link.

A copy of the alternate underlying this item is available at the following link.

TracFone’s Request for ETC Designation (Item 2, held until 8/13/15) – This Draft Resolution would conditionally grant the request of TracFone Wireless, Inc. dba SafeLink Wireless (“TracFone”) to be designated as a Eligible Telecommunications Carrier and a California LifeLine Provider throughout California, excluding Tribal Lands.

TracFone first sought ETC designation in 2008, but its initial request was denied on the grounds that it would not be in the public interest since TracFone refused to collect and remit public purpose surcharges.  The Commission’s investigation into TracFone’s practices was subsequently resolved in January 2014, when the Commission approved a decision fining TracFone $24 million.  Although TracFone filed an application for rehearing of the decision, it has since remitted payment for the fine and is currently in good standing as to all payments for user fees and public purpose program surcharges.

The Draft Resolution would approve three wireless service plans that provide a free or discounted handset and no cost activation fee: (1) a no charge unlimited minutes and texts plan; (2) a $27.60 plan with unlimited minutes and texts, and 2.5 GB data at 4G speed; and (3) a $17.60 plan with unlimited minutes and texts, and 1 GB data at 4G speeds.

The Draft Resolution would further direct TracFone to: (1) comply with all applicable state and consumer protection and service quality standard requirements; (2) submit all federal and state required annual compliance reports; (3) provide marketing materials to the CPUC for review prior to distribution and publication; (4) comply with CPUC User Fee and public purpose program surcharge requirements; and (5) submit its certificate of approval from USAC to the Communications Division Director.

A copy of the Draft Resolution underlying this item is available at the following link.

Proposed Decision to Close Proceeding to Adopt Rules to Add Speech Generating Devices to DDTP  (Item 19, held until 8/13/15) – This Proposed Decision would close proceeding R.13-03-008, which was initiated to adopt rules to add Speech Generating Devices (“SGD”) to the Deaf and Disabled Telecommunications Program.  The Commission had adopted rules, guidelines, and procedures governing the access to and distribution of SGPs and other devices in December 23, 2013 in D.13-12-054.  However, this proceeding remained open in order to determine whether further guidance was required in the administration of the program, whether exemptions or expedited procedures should be added to the rules, and to assess the sufficiency of funding.  For over a year since D.13-12-054 has been adopted, the Communications Division staff has administered the SGD program and resolved specific concerns as they have arisen without a need for a ruling or decision in a formal proceeding.  Accordingly, the Proposed Decision would conclude that the staff has developed an informal set of guidelines and policies governing the administration of the SGD program in a timely and efficient manner.  As a result, the Proposed Decision would conclude it is appropriate to close this proceeding.

A copy of the proposed decision underlying this item is available at the following link.

COMMISSIONER REPORTS

Commissioner Sandoval gave a brief presentation on recent Public Participation Hearings (“PPHs”) that she attended in relation to the Frontier/Verizon transaction.  She explained that PPHs have been held in Garberville, Weitchpec, Hoopa, Orleans, and Clarement.  She emphasized that these visits highlighted the reality that the lack of robust internet in areas like Weitchpec and Orleans created limits on basic services, including access to telemedicine and the ability to sustain a restaurant.  She also noted that she attended the Claremont PPH, and that there were many customers who were very happy with their FiOS, but that there were also complaints about outages, dial tone loss, and other quality of service issues.

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Should you have any questions about the above items or the underlying proceedings in which they arose, please do not hesitate to contact us.

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