In a June 21 announcement, the Federal Communications Commission (FCC) said it—not Congress, mind you, but the FCC—was going to tax cellular and Internet phone companies on “only” a part of their total revenue: about 62 percent of a wireless phone company’s revenue, and about 35 percent of Internet phone companies that provide Voice over Internet Protocol (VoIP).
Here’s how FCC Chairman Kevin J. Martin put it in a statement that came out with the announcement: “We take an interim step today to ensure the stability of the fund by raising the wireless safe harbor and broadening the contribution base to include interconnected VoIP providers.”
The “fund” is the Universal Service Fund. First established with the Federal Communications Act of 1934, the fund required urban, then long-distance users to subsidize phone service to rural areas.
In 1996, when Congress revised the act to include cable, wireless and satellite advances, the universal service mandate was reaffirmed, and the taxes to support it were reaffirmed, as well.
But when 93.8 percent of households are served by telephone, how much more universal can service get?
This slush fund is so over-spent that it faces a $350 million shortfall—a shortfall blamed not on pork-barrel politics, but on the alleged erosion of revenues to the Fund, as new competitors (Internet telephony, cellular service) draw customers away from the service base the USF tax covers.
The tax originally designed to subsidize phone service to rural and other underserved areas keeps being reinvented to justify its existence: currently, as a slush fund for wiring schools, libraries, etc. to the Internet.
The FCC plan is a bit at odds with legislation approved by the House of Representatives in its telecom reform bill, which includes an amendment by Rep. Gil Gutknecht (R-MN) that grants power to states, not just the FCC, to decide terms under which VoIP is taxed.
As if that weren’t enough, Senate Commerce Committee Chairman Ted Stevens (R-AK) is moving his own telecom reform package, and is determined to use that vehicle to broaden and deepen the scope of USF taxes (Alaska being a highly rural state).
Rep. Fred Upton (R-MI), chairman of the subcommittee on telecom of the House Energy and Commerce Committee, wonders if there’s another way. “Is this subsidy still needed now that the telephone network has been built? Can the goal of universal service be better supported with more efficient technologies like wireless?”
The answer is yes, and the marketplace is adopting wireless for just this reason without government interference.