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Poll

Should the USF subsidize broadband and/or VoIP?
Yes
0%
 0%  [ 0 ]
Infrastructure Only
18%
 18%  [ 2 ]
Service Only
0%
 0%  [ 0 ]
No
81%
 81%  [ 9 ]
No opinion, don't know or don't care
0%
 0%  [ 0 ]
Total Votes : 11

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scerruti
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Joined: Feb 05, 2005
Posts: 1424
Location: Carlsbad, CA (finally)

PostPosted: Fri Jul 01, 2005 8:54 pm    Post subject: Broadband Tax Article on CNET Reply with quote Back to top

My response to the CNET article on the proposal to tax broadband to fund the USF.

Quote:
Many broadband customers will pay new universal service taxes akin to those on their telephone bills if Congress bows to suggestions from rural legislators.


These legislators are urging congress to collect taxes on broadband users to subsidize broadband in rural areas where it is not economical to provide service on a for profit basis. There is a long history of subsidizing rural utilities including electricity and telephone service.

Quote:
The USF should continue to be "industry funded," but the base of contributors should be expanded to "all providers of two-way communications, regardless of technology used, to ensure competitive neutrality," . . . . That means companies providing broadband services such as Voip over telephone wires would also have to pay into the fund.


There are several fundamental problems here.

Tax on Service or Infrastructure
Lawmakers need to decide whether they are going to tax the infrastructure, the service or both. If the put a tax on your broadband service and also tax your Voip service delivered over that broadband service you are paying double the tax. This was a fundamental flaw in telecommunication reform legislation that failed to pass in Virginia this year.

What constitutes a two-way communication service?
There is a broad continuous range of services. Text messaging on Blackberries, email, IM, voice and video via IM clients like Yahoo! messenger, computer to computer services like Skype and fully integrated broadband phone service like Vonage.

How do we tax services that are offered for free, anonymously, or from outside the country?
Telecommunication law requires that telecommunication providers be registered so that they can be monitored and taxed. How will you tax a system like FWD? How do you justify taxing Vonage if you can't tax FWD? How will you tax home grown Voip networks built by friends and family?

Quote:
The wireless industry applauded the proposed change "since wireless consumers are significant and disproportionate payers into the universal service and intercarrier compensation systems,"


Wireless pays more because the infrastructure is fundamentally more costly based on the need to pay license for spectrum. In addition the services are bundled with the infrastructure so tax is based on the total cost. If we realize that the infrastructure alone is taxable then the tax on wireless would be slightly reduced, but it would also fairly reflect the cost of the infrastructure.

If we then realize that the license fees are being paid back to the same entity that is doing the taxing we can lower the taxes by eliminating or reducing the license fees in rural areas.

Quote:
The Universal Service Fund in recent years has faced allegations of waste, fraud and abuse. The FCC announced in June a formal inquiry into its management.


Any time the government decides to get into the business of redistribution of wealth, and make no mistake that is exactly what the USF does, it runs into problems with waste, fraud and abuse.

I am not against reform of telecommunication taxes, I am not against taxing broadband connections to fund the USF. But it would be very harmful to establish taxes without disconnecting the services from the infrastructure. There is no need to tax the services because there is no need to subsidize those services in rural areas if the infrastructure is in place.

Well, in my opinion anyway. I would like to hear your thoughts on whether we should be subsidizing broadband in rural areas and if so how it should be funded.

Notes:
Read the article if you can. It provides a more comprehensive explanation.
If you want to know the legislators who are pushing for this, click the link in the article labelled letter. The letter is in PDF the signers are at the bottom.

_________________
Stephen P. Cerruti (ISP: TWC)
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scerruti
Vonage Forum MVM
Vonage Forum <b>MVM</b>


Joined: Feb 05, 2005
Posts: 1424
Location: Carlsbad, CA (finally)

PostPosted: Tue Jul 05, 2005 3:13 pm    Post subject: Reply with quote Back to top

I don't know how this escaped my attention when starting this thread last week, but on 6/27 the Supreme Court ruled that cable modem service was an "information service" and not a "telecommunication service" as defined under the 1996 act which created the universal service fund.

This decision was pivotal in preventing USF taxation of cable modem service (possibly at 8.9%) as well as other services like Voip. For a overview of the issue you can read FCC Appeals Brand X Decision to Supreme Court.

This ruling was probably the direct cause for legislation to be introduced to apply taxes to information services.

It is my understanding, as a layperson, that the ruling of the ninth court was not overturned because their interpretation of telecommunication versus information was incorrect but rather because federal courts are supposed to defer to federal agencies if the statute is within the agencies jurisdiction.

One of the key points is that cable modem service does not primarily supply a transparent telecommunication service, something that does happen with most cable company provided digital phone systems. This means that service could most likely be classified as a telecommunications service where unbundled Voip would remain classified as an information service.

The FCC's decision to classify cable modem service as an information service is based on its underlying belief that decreased regulation of broadband will lead to competition, lowering prices and providing consumer choice. While this may be true, without some type of government subsidy program rural areas may well be left bereft of broadband access and therefore access to Voip.

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