Calaveras Tel. Co. v. Pub. Utils. Comm'n

Decision Date20 December 2022
Docket NumberF083339
CourtCalifornia Court of Appeals Court of Appeals


ORIGINAL PROCEEDINGS; petition for writ of review. (Dec. Nos 21-04-005 &21-08-042)

BRB Law, Patrick M. Rosvall and Sarah J. Banola for Petitioners.

Arocles Aguilar, Mary McKenzie and Tovah Trimming for Respondent.

Lozeau Drury, Michael R. Lozeau; The Utility Reform Network and Ashley L. Salas for Real Party in Interest The Utility Reform Network.

No appearance for Real Parties in Interest Public Advocates Office of the Public Utilities Commission and Stephen Kalish


The Public Utilities Commission (the Commission or PUC) oversees the California High Cost Fund A program (CHCF-A), which provides subsidies to small, rural, independent telephone companies that provide local telephone service in rural and remote areas of California. The subsidies defray the high cost of providing service in such areas. More recently, the subsidies have helped the telephone companies invest in infrastructure capable of providing both regulated voice telephone service and unregulated broadband Internet access service. The fact a broadband-capable network can provide both types of service created a concern that the telephone companies could sell wholesale broadband service to affiliated companies at artificially low rates and the affiliated companies could profit by selling Internet access service at the retail level. In other words, subsidized infrastructure could be used to generate private, unregulated profits.

The Legislature addressed this concern by amending Public Utilities Code section 275.6,[1] the statute that governs the CHCF-A, to authorize the Commission to obtain information from the telephone companies about "revenues derived from the provision of unregulated internet access service by that [company] or its affiliate." (§ 275.6, subd (e)). Also, the Commission must ensure the CHCF-A subsidies are "not excessive." (§ 275.6, subd. (c)(7).) Relying on section 275.6, the Commission ordered the imputation of net positive retail broadband Internet access service revenues of the telephone companies and their affiliates (broadband imputation) in the calculation of the CHCF-A subsidies.

Ten small rural telephone companies that participate in CHCF-A subsidies filed this writ proceeding to nullify the Commission's broadband imputation order. They contend broadband imputation (1) is not authorized by section 275.6, (2) exceeds the authority granted to the Commission by other statutes and the California Constitution, (3) is preempted by federal law, and (4) is an unconstitutional taking of private property. As explained below, we reject these arguments.

Therefore, the telephone companies' request for a writ directing the Commission to nullify its broadband imputation order is denied.

The Parties

This original proceeding was brought on behalf of 10 small independent telephone companies and eight small Internet service providers (ISP) affiliated with those telephone companies. The telephone companies are Calaveras Telephone Company; Cal-Ore Telephone Co.; Ducor Telephone Company Foresthill Telephone Co.; Kerman Telephone Co.; Pinnacles Telephone Co.; The Ponderosa Telephone Co.; Sierra Telephone Company, Inc.; The Siskiyou Telephone Company; and Volcano Telephone Company. They are referred to collectively in this opinion as the "telephone companies."[2] The telephone companies are carriers of last resort that must fulfill all reasonable requests for telephone service within their service areas. (§ 275.6, subd. (b)(1).) As carriers of last resort, the telephone companies qualify for CHCF-A subsidies. (§ 275.6, subds. (a), (d).) The CHCF-A program is funded by surcharges assessed against all California telephone customers.

The telephone companies' affiliates that provide Internet access service are CalTel Connections; Cal-Ore Communications; Varcomm Broadband, Inc.; Audeamus LLC; Ponderosa Cablevision; Sierra Tel Internet; Golden Bear Broadband LLC; and Volcano Vision, Inc. The ISP affiliates do not participate in the CHCF-A program and the Commission does not regulate the rates they charge for Internet services.

The Commission is the respondent in this proceeding. The only real party in interest that answered the petition is The Utility Reform Network (TURN).

Universal Service Goal

A fundamental principle of our nation's telecommunications policy is ensuring the availability of high quality, affordable telephone service for all Americans. (Sen. Energy, Utilities and Communications Com., Analysis of Sen. Bill No. 379 (2011-2012 Reg. Sess.) as amended Aug. 20, 2012, p. 1 (Senate Utilities Analysis).) Achieving this goal in rural, remote and sparsely populated areas is difficult because building and maintaining the necessary infrastructure is expensive and economies of scale are limited. (Blanca Telephone Company v. Federal Communications Commission (10th Cir. 2021) 991 F.3d 1097, 1104-1105 (Blanca).) As a result, it is more expensive on a per customer basis to serve such areas. (Ibid.) To address these difficulties, federal and state subsidy programs have been developed to defray some of the cost of providing service.

Federal Program

In 1934, Congress adopted the Communications Act of 1934 (47 U.S.C. § 151 et seq.) and created the Federal Communications Commission (FCC). The FCC's purpose was to regulate interstate and foreign commerce in communication by wire and radio and make available, insofar as possible communication services with adequate facilities at reasonable charges. (47 U.S.C. § 151.)

In 1996, Congress updated that legislation by passing the Telecommunications Act (Pub. L. No. 104-104 (Feb. 8, 1996) 110 Stat. 56). The new act explicitly stated the policy that "[c]onsumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services ... reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas." (47 U.S.C. § 254, subd. (b)(3); see Blanca, supra, 991 F.3d at p. 1105.) Congress directed the FCC to make policies "for the preservation and advancement of universal service" and provided principles to guide that policy making. (47 U.S.C. § 254, subd. (b).)

Pursuant to Congress's directive, the FCC established a Universal Service Fund (USF), from which subsidies were disbursed for services provided and infrastructure built in rural, high-cost areas. (Tri-County Telephone Association, Inc. v. Federal Communications Commission (D.C. Cir. 2021) 999 F.3d 714, 717; see 47 C.F.R. Part 54 [universal service].) The rules for distributing the funds were established by the FCC. (47 U.S.C. § 254, subd. (k).) The USF and its successor are financed by mandatory contributions from telecommunications carriers. (47 U.S.C. § 254, subd. (d); 47 C.F.R. § 54.706 [contributions from entities that provide interstate telecommunications to the public].)

Another aspect of the 1996 Telecommunications Act is its distinction between telecommunication services, which are subject to Title II of the act, and information services, which are addressed in Title I of the act. (Mozilla Corporation v. Federal Communications Comm. (D.C. Cir. 2019) 940 F.3d 1, 17 (Mozilla).) Telecommunication services are given common carriage status, which subjects them to an array of statutory restrictions and requirements. (Ibid.) In contrast, information services are exempted from common carriage status and regulation. (Ibid.) In 2018, after a change of administrations, the FCC changed the classification of broadband Internet access service to an "information service" and, thus, exempted such service from utility-style regulation under Title II of the1996 Telecommunications Act. (Mozilla, supra, at p. 17.) This change in classification was upheld by District of Columbia Circuit in Mozilla. The court stated that the FCC "permissibly classified broadband Internet access as an 'information service' by virtue of the functionalities afforded by [domain name service] and caching."

(Mozilla, supra, at p. 35.) This classification is relevant to the telephone companies' contention that broadband imputation is preempted by federal law. (See pt. IV., post.) California Program

The California subsidy program relevant to this case is the CHCF-A. (See Calaveras Telephone Co. v. Public Utilities Com., supra, 39 Cal.App.5th at p. 976 ["CHCF-A is one of the state's universal service programs"].) The CHCF-A program was first established in 1987. At that time, federal and state laws and regulations promoted universal service by supporting access to landline voice telephone service. (Stats. 2011, ch. 695, § 1, subd. (a).)

As enacted in 2008, section 275.6 directed the Commission to "develop, implement, and maintain a suitable program to establish a fair and equitable local rate structure aided by universal service rate support to small independent telephone corporations that serve rural areas and are subject to rate-of-return regulation by the commission. The purpose of the program shall be to promote the goals of universal telephone service and to reduce any disparity in the rates charged by those companies." (Stats. 2008, ch. 342 § 2.) The 2008 version of the statute had a sunset date of January 1, 2013. (Stats. 2008, ch. 342, § 2; former § 275.6, subd. (d).) In 2011, the Legislature extended the sunset date to January 1,...

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