Concerns Raised FCC Will Impose a ‘Tax’ on Internet Access
Recent news reports suggesting that the FCC may levy a new “tax” on Internet service are sparking a wave of negative reaction from both free market-oriented and public interest groups. Free Press has had longstanding concerns. On Tuesday, the free-market Heartland Institute joined in. But it remains unclear at this point how much support there is at the FCC for contribution reform or a move to broaden the program to place a fee on retail Internet access service.
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FCC Commissioner Robert McDowell, a leading advocate of contribution reform, said in a recent interview he supports broadening the contribution base, but also sees the wisdom of waiting for some industry discussions aimed at developing broader consensus (CD Aug 23 p1), as proposed by major industry players in their comments to the FCC (CD Aug 8 p1).
The possibility that the FCC could impose a “tax” on the Internet was picked up in several publications in recent days, led by The Hill, widely read on Capitol Hill, which reported “FCC eyes tax on Internet service.” One industry official concerned about contribution reform said the Hill story in particular had “gone viral” in recent days. “You never quite know when someone is going to take something and whether they're going to demagogue it or not,” said a former FCC official who has followed the issue closely. “None of this is well suited to resolution in a political season."
"Our concern is that a fee on consumer broadband Internet access would disproportionately impact the very groups that are still on the wrong side of the digital divide,” said Derek Turner, Free Press research director, in an interview Tuesday. “To you and I, an extra dollar on our broadband [bill] may make us wince, but we're not going to not subscribe. But to consumers who have a lot less means ... on the margins, a dollar or two increase can literally lead to millions of consumers either dropping or not adopting broadband service."
Free Press has urged the FCC to do a cost-benefit analysis of the effects of expanding the program to cover broadband before changing how contributions are assessed, Turner said. “The commission has to balance the needs to have a stable funding source for the program, against the very goals of the program itself, which is increasing adoption,” he said. Free Press’s position isn’t that different from that of Verizon, which said in its initial comments the FCC “should study the issue before you impose a tax,” he said. Without more consensus, Turner said the FCC appears unlikely to move forward this year on contribution reform.
The Heartland Institute weighed in with statements from four of its policy experts (http://xrl.us/bnnieb). “Whether you call it the Universal Service Fund or the Connect America Fund, it’s still a massive subsidy mechanism based on 50-year-old notions about the cost of rural telecommunications,” said Policy Adviser Steven Titch.
Asked about the institute’s stand, Director of Research Sam Karnick said the FCC should do away with the USF entirely. “It is entirely unnecessary in the current day, and should be replaced with nothing,” Karnick said by email. “It is a tax on all telecom customers that is used to subsidy [sic] certain companies. Those businesses are then beholden to government for their very existence. That is neither necessary nor salutary. The government should stop taking this money from telecom consumers altogether, not rework it into another tax-and-spend scheme."
The Independent Telephone and Telecommunications Alliance supports expanding the contribution base to include broadband Internet access services, said President Genny Morelli. But ITTA doesn’t feel that the obligation for broadband providers to contribute would be a tax. “It’s part of your obligation as a communications service provider to pay into the Universal Service Fund because universal service benefits all Americans,” she said. “It benefits the communications industry generally. ‘Tax’ has a pejorative connotation.” Those opposed to expanding the base to broadband might be taking their cues from the recent debate about whether the individual health mandate was a tax, she said. “Maybe they think that that will make it less palatable politically."
Asked whether the FCC is considering a tax on broadband, FCC Director of Communications Tammy Sun released the following statement: “While the commission is considering a number of proposals from stakeholders, the chairman has been clear that proposals for reform must safeguard core commission objectives, including in particular promoting broadband adoption.” The commission’s April notice of proposed rulemaking on contribution reform stated that “although assessing additional providers and services might expand the contribution base and affect the relative obligations of who contributes, nothing we propose in this section or anywhere else in this Notice will affect the total amount of contributions collected or the overall size of the Fund. The size of the Fund is determined by demand projections, independent of how contributions are assessed."
Capitol Hill has started to weigh in as well. “The FCC has not made a decision on how to reform contributions to the universal service fund system but as the system shifts to subsidizing broadband service rather than traditional phone service, there will need to be a modernization and rationalization on the contribution side as well,” said a spokesman for Sen. John Kerry, D-Mass., chairman of the Senate Communications Subcommittee. “We will wait to see how the agency evaluates the comments of groups and industry alike and we'll keep focused on ensuring that the universal service program extends broadband to all Americans.”