These programs are referred to as the California High-Cost A-Fund and the California High-Cost B-Fund. Their existence helps compel the PUC to meet its stated goal of universal telephone service to all Californians, along with competition in the residential telephone service arena.

The A-Fund provides a source of supplemental revenues to 17 small, rural local telephone companies. Up until 2007, the A-Fund provided them with approximately $37 million in annual subsidies through a 0.21 percent surcharge on telephone bills; that surcharge was reduced to 0.13 percent on Jan. 1. In any case, the subsidy is used to cap residential telephone rates for these companies at not more than 150 percent of the rate charged to residential customers in urban areas.

The B-Fund provides subsidies to telephone carriers of last resort for providing basic local service to residential customers in high-cost areas that are currently served by larger companies (Pacific Bell, Verizon California Inc., Citizens Telecommunications of California and Surewest).

A “carrier of last resort” is obligated to serve customers within its service area – even those in very high-cost areas. The purpose of the subsidies, among other reasons, is to keep basic telephone service affordable in rural and high cost areas and to encourage competition. In 2007, this subsidy provided these companies with approximately $434 million funded by a 2.7 percent surcharge on telephone bills (this surcharge was also reduced, to 0.25 percent, effective Jan. 1 of this year).

The whole of Humboldt, Lake and Mendocino Counties are considered B-Fund areas, as are parts of Napa, Solano and Sonoma counties.

The problem is that both of the high-cost funds are set to expire on January 1, 2009. If they do, many Californians are likely to experience extreme increases in their residential telephone rates.

In fact, people across the North Coast shouldn’t be surprised if their bill for basic phone service doubles or triples after Jan. 1, 2009, when the telecommunications industry is deregulated. For example, according to the PUC, a resident of Humboldt County’s basic phone service costs $68.64 per month, but the customer only pays a rate of $11 a month. The B-Fund pays the rest of the cost of service.

Without an extension of the B-Fund, customers can expect to pay the entire $68.64 on their own. The amount could be higher, depending how much AT&T or Verizon choose to charge for basic phone service next January. And services that customers used to receive for free, such as free incoming calls, free calls to 800 numbers and free access to call 911, could all become things that they are charged for – at a cost that is unregulated.

That’s because in August 2006, the PUC decided that there should be no regulation of rates for telephone services, no examination of costs of service, and no profit regulation on previously-regulated phone companies. In essence, the commission deregulated all telephone rates, allowing rural prices to change independently of urban rates. However, the deregulation of basic service was delayed until 2009, pending an examination (by the PUC) of the high cost fund programs. All other services were deregulated in 2007. If the excessive increases in these services are any indication of what’s to come, folks in rural areas where there is no competition for basic services should be prepared for the worst.

Since 2007, caller ID rates have increased 62 percent, call waiting rates have increased 86 percent, unlisted numbers rates have increased 346 percent, and directory assistance has increased 226 percent.

I introduced Senate Bill 780 to ensure that rural/high cost residents in my Senate district would not be subjected to exorbitant residential telephone rates. SB 780 will extend the A & B funds, and will require the PUC to conduct an affordability study of basic phone rates and factors affecting affordability.

The PUC continues to report statistics about subscribership and universal service, but has not undertaken any analysis, since 2004, of the factors which cause service to become unaffordable for customers. My bill requires the PUC to report the findings of its affordability study to the Legislature by July 1, 2010. And it will enable the Legislature to examine the cost/rates of basic phone service and determine if the rates are affordable or excessive and take the appropriate action.

SB 780 expresses my desire that the high-cost programs be extended, and that they address the continued need for affordable basic telephone service in rural and high-cost areas of the state, particularly where telecommunications competition is limited, and without diminishing the key components of what customers expect as ‘basic telephone service.’

Patricia Wiggins represents California’s 2nd Senate District, made up of portions or all of Humboldt, Lake, Mendocino, Napa, Solano and Sonoma counties.

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