*October 28, 2022 Update: On October 20, 2022, the CPUC unanimously approved a revised proposed decision. The final decision contains two important changes: (1) it moves the implementation date from January 1, 2023 to April 1, 2023; and (2) it clarifies that Centrex lines and private branch exchange ("PBX") lines are access lines.

On September 2, 2022, the California Public Utilities Commission (CPUC) released a Proposed Decision (PD) in its ongoing Surcharge Reform rulemaking (R.21-03-002). The PD, if adopted, will fundamentally overhaul the surcharge mechanism that funds California's Universal Service Public Purpose Programs (PPPs). Today, the PPP surcharges are revenue-based end-user surcharges assessed by carriers on intrastate telecommunications services sold in California and collected as a percentage of an end user's telecommunications bill. The new mechanism instead will assess surcharges based on the number of active "access lines" a carrier operates and assess each subscriber the same per-line surcharge because the PD finds that, even though the number of telecommunications service subscribers have increased over the past 10 years, PPP surcharge revenues have decreased by more than half.

The new surcharge mechanism will apply to providers of Voice over Internet Protocol (VoIP), wireless, and traditional telephone services. The CPUC approved the PD on October 20, 2022, with the two significant changes noted above.

The following are the key takeaways from the PD.

Effective Date. The new surcharge mechanism will become effective on April January 1, 2023, so voice providers in California have a short window – approximately six months – to revise their California billing systems.

Interim Surcharge Fee. The PD adopts an initial interim surcharge fee of $1.11 per access line that will take effect on April January 1, 2023, but the fee is expected to increase in the future.

Access Line Definition. The PD defines an "access line" as "a wire or wireless connection that provides a real-time two-way voice telecommunications service or VoIP service to or from any device utilized by an end-user, regardless of technology, which is associated with a 10-digit NPA-NXX number or other unique identifier and has a service address or Place of Primary Use in California." The PD further explains that the "number of access lines a service provider provides to an end-user shall be deemed equal to the number of inbound or outbound two-way communications by any technology that the end-user can maintain at the same time as provisioned by the service provider's service." There is no cap on the number of access lines at any location.

CPUC User Fee. The PD does not change the CPUC's user fee funding mechanism; it will continue to be revenue-based until the CPUC completes Phase 2 of this proceeding and considers "aligning or combining the user fee mechanism with the new access line-based PPP surcharge mechanism" or changes are made to the user fee governing statutes.

Exempt Customers. The PD exempts LifeLine subscribers and incarcerated individuals from paying the PPP surcharge and the CPUC user fee.

Exempt Services. The PD acknowledges that the CPUC cannot impose the PPP surcharges on broadband/Internet, voicemail, or text messaging services because the Federal Communications Commission has classified these as Title I information services, thereby removing them from inclusion in intrastate revenue calculations and limiting the number of services and amount of revenues contributing to state universal service programs.

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The PD is part of Phase 1 of the Surcharge Reform rulemaking. Phase 2 will focus on "reviewing the reasonableness of the fees, taxes, and surcharges, charges that may appear on a customer's bill," which will include consideration of user fees collected by carriers from end-users.

There will be no more changes to the decision so California VoIP, wireless, and telephone carriers should plan to implement changes to their billing systems effective April January 1, 2023.

Please contact DWT if you have questions about the PD or the CPUC's Surcharge Reform rulemaking.