June 21, 2006 11:52 AM PDT

FCC approves new Internet phone taxes

WASHINGTON--An estimated 4 million subscribers to Internet phone services like Vonage could see new fees on their bills under a plan approved Wednesday by federal regulators.

The Federal Communications Commission voted unanimously at its monthly meeting here to require all voice over Internet Protocol services that connect to the public-switched telephone network--as opposed to using peer-to-peer technology, like Skype--to contribute to the Universal Service Fund.

The $7.3 billion fund, which has been a feature of U.S. policy for more than 70 years, subsidizes telephone service in rural and low-income areas. It also runs a controversy-plagued program called E-Rate that provides discounted Internet and phone service to schools and libraries.

Right now, only telecommunications services, including wireless, pay-phone, traditional telephone and DSL providers, are required to contribute a fixed percentage of their long-distance revenue to the multibillion-dollar fund. It had been unclear whether VoIP providers must also pay.

The same FCC order would also raise the share that cell phone providers must contribute to the pool, though it was not immediately clear how many consumers would see hikes or how much they would be. That's because the FCC raised the contribution rate for only one of three formulas that can be used by cell phone companies to determine how much they owe. If those companies choose to stick to the two unchanged formulas, their customers would likely see no additional fees.

"Certainly we're concerned whenever consumers are forced to pay higher government taxes or fees, but it depends on the carrier and what their approach is," said Joe Farren, a spokesman for CTIA-The Wireless Association, a trade group.

The new contribution scheme takes effect immediately, and any new fees would likely appear on customers' bills later this year, said Thomas Navin, chief of the FCC's Wireline Competition Bureau. He declined to speculate on the differences customers of each service may see on their bills, saying it would depend on a variety of factors and "there's not one typical scenario for me to paint for you."

Calculating what's fair
Pressured by consumer groups and the telecommunications industry, the FCC has long been contemplating changes to the USF contribution scheme. Critics of the current system say the means of calculating contributions needs sweeping changes. That's because the bulk of the money comes from actual or estimated long-distance revenues, which are steadily dwindling due to changing business models in the wireless and wireline worlds.

The FCC's decision Wednesday drew applause from the U.S. Telecom Association, which represents both large and small telephone companies.

"We applaud today's ruling for ensuring that all voice service providers are treated alike," Walter McCormick, the organization's CEO, said in a statement.

By one VoIP industry estimate, customers could owe as much as $2.12 extra on a $30 monthly bill because of the changes, said Jim Kohlenberger, executive director of the VON Coalition, which represents the Internet phone industry. Traditional wireline users would pay $1.38 on a comparable bill, while wireless users pay an average of $1.21, he said.

Those numbers are based on a "safe harbor" contribution rate, established by the FCC's order, that would require all VoIP providers to calculate what they owe based on the assumption that 64.9 percent of their total revenues represent long-distance calls. The safe harbor option for cell phone providers climbed to 37.1 percent from 28.5 percent under the FCC's order, but it remains far lower than the VoIP share.

The discrepancy has the industry scratching its head, Kohlenberger said. "The FCC's efforts on VoIP are like trying to solve traffic and energy problems by stifling the rollout of energy-efficient hybrid vehicles, while subsidizing SUVs," he said.

Cell phone and Internet phone providers would also have another option for calculating fees. They could do a complex analysis known as a "traffic study" to determine what percentage of their revenues are long distance. If the results prove to be lower than the safe harbor percentage, fees for consumers, in theory, wouldn't be as high.

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23 comments

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Universal Service Fund - a Black Hole
I wonder if Congress has bothered to look recently, say in the last 20-30 years, at the structure, revenue and budget of the USF.
It appears that the fund is paying for infrastructure and services to areas that revocvered their supplier investment in providing services many, many years ago. For instance, still paying line charges for telephone poles in areas that have been long developed and are no longer "rural" by any definition.
And many similar items that reflect little if any attention paid to what the funds were first intended to provide, and the reality of the marketplace today.
Worth a look, maybe? Or maybe the FCC doesn't consider 7+ Billions, that a big "B" folks, REAL money. After all it's just our tax dollars, not like it's anything important.
Diogenes
Posted by bdennis410 (175 comments )
Reply Link Flag
Universal (Dis) Service Fund - Black Hole
I wonder if Congress has bothered to look recently, say in the last 20-30 years, at the structure, revenue and budget of the USF.
It appears that the fund is paying for infrastructure and services to areas that revocvered their supplier investment in providing services many, many years ago. For instance, still paying line charges for telephone poles in areas that have been long developed and are no longer "rural" by any definition.
And many similar items that reflect little if any attention paid to what the funds were first intended to provide, and the reality of the marketplace today.
Worth a look, maybe? Or maybe the FCC doesn't consider 7+ Billions, that a big "B" folks, REAL money. After all it's just our tax dollars, not like it's anything important.
Diogenes
Posted by bdennis410 (175 comments )
Reply Link Flag
Well like this court case I see they'll never get started.
Fees are very and every important to the interpretation of the law. by all means of practising the law; this takes time. rather, think of it as who gets there first holding the bag of currency. In any event waiting to be convicted inorder to protect your entitlment under the law is the catch of this mill. Without inpeded climatic consequences of the human element envolved "to" make the case; on your behave. Example: economy = administrative policy+judicial oversight
Posted by Stalin Hornsby (60 comments )
Link Flag
FCC Can Levy Taxes?
How can the FCC, a department of the Executive Branch, levy new taxes? I was always under the impression that tax and revenue bills were always to be generated out of the House of Representatives and follow the normal law-making process.
Posted by 04Outlander (16 comments )
Reply Link Flag
Of course they can levy taxes.
As long as you have a stray buck in your pocket, the government will elvy a tax.

After all, it is their money, not yours. After all, if you earn it, you don't know how to spend it "best".
Posted by Too Old For IT (351 comments )
Link Flag
I Couldn't Agree MORE - Now apply it to Net Neutrality
"We applaud today's ruling for ensuring that all voice service providers are treated alike," Walter McCormick, the organization's CEO, said in a statement.

So that means all your telco memebers will not mess with My Voice provider's packets even if they don't pay your Toll to reach me, your subscriber. Right?

C'mon now Walt, say it with me..."Treat Voice Service providers alike"
Posted by LarryLo (164 comments )
Reply Link Flag
Next tax will be for talking in public places
Talking to each other is also voice communication. Maybe tax that for talking in public places. What next?
Why tax on each number? Maybe this should be a fixed amount for each address. Most families have at least 3-4 numbers - cell phones, land lines or voip. I would have to pay this fee 5 times, once for each #.
Posted by tapaskm (10 comments )
Link Flag
WTF is your prob!
Dude so you want all your stuff monitored and if net neutrality goes on then you will have to pay more to get speedy access to all sites insteada slow access to some and fast to the ones who pay more what the **** is your problem are you ****** up in the head or something? You would think people would say no to pay less cause tax dollars dont go back to us! Idiot!
Posted by romUdog (1 comment )
Link Flag
USF
At least the FCC is honest. They are only doing what the US Telecom Association is telling them to do. After all the association pays very good money to their lobbyist's to get this type of service out of the FCC. That is the American way...no?
Posted by thxraymonde (1 comment )
Reply Link Flag
I missed the memo . . .
Since the FCC is chartered as a private corporation under Federal
ownership (like the Post Office), it doesn't directly respond to the
People in any method unless it chooses to do as such under the
leadership of that time. Created under President Taft after the
sinking of the Titanic, it was merely supposed to assign carrier
licenses for radio spectrum frequencies, not censor and dictate
the content thereof. How the FCC gets away with taxes and
censorship is that being chartered from the Office of the
President, it, therefore, has bypassed Congress for existance,
and also bypassing the First Amendment, because Congress can
make no law in lieu of the style the FCC operates.

What was meant to be just for licenses to avoid cross-clutter on
the radio (AM back then) has turned into something else, with
just about anything we do to communicate "roughly" falling
within it's boundries.

So they approve new Internet phone taxes? Scientifically, and
from a mechanical procession viewpoint, Internet phone isn't
actually "telephony" like traditional phones, or even cell phones.
Who gives the FCC the Right to approve or disapprove, or even
question taxes, or censoring Howard Stern (yeah, some of you
knew I was going to bring that up) and etc., etc.? Their charter,
when you go to the National Archives and look at the original
version signed during Taft or Wilson's administration (could be
both, you know how long Federal red-tape is), the only power
the FCC has is to assign carrier licenses.

Programmer #A-5 of www.totallyparanoia.com

(Yes, I'm totally paranoid. Proud of it.)
Posted by fakespam (239 comments )
Reply Link Flag
The FCC needs to be abolished.
I'm with you. I've always believed that it should be abolished, but the worst thing it has done was when it unilaterally made changes to CALEA to make it legal to wiretap broadband, without going through congress first. Only congress can change CALEA, and only the president can sign it into law. But Neo-nazi, Kevin Martin, believes otherwise. I have a newfound respect for Michael Powell over what a disgrace Kevin Martin has been in comparision. He needs to be booted.
Posted by MisterFlibble (207 comments )
Link Flag
7% tax increase
One of the problems with the current phone system is that the
taxes and fees become a HUGE percentage of the cost. When I
was with Qwest, my $24 service came in at about $36. That's
50% in taxes and fees. 50% TAXES and FEES for phone service.

Now, the greedy government is looking to once again try drive
up its taxes and fees on VOIP.

I am really getting sick of this government (which apparently
isn't my gov't anymore) raising taxes with zero accountability.
And yes, these taxes will only affect those of us that work for a
living.
Posted by m.meister (278 comments )
Reply Link Flag
I totally agree
I've been sick of this government for ever! Besides when was it ever your government? The republicans are just as sick as the democrats!

As a working person I'm also sick of supporting the lazy people that dont want to work! This goes for all of congress, senate and the whitehouse!
Posted by mlinder69-21063211865664677784 (36 comments )
Link Flag
Correction: That's 50% for phone service taxes and fees to be paid from income that had already been taxed 17% to 51%.

Honestly I don't know which is worse: the government's absurd wasteful squabbling and spending (Did it really need to cost $5.3 thousand million dollars for the last presidential election? Really?) or the taxpayer's equally absurd willingness to accept it whenever the government says they need more.
Posted by netmeister (1 comment )
Link Flag
FCC tax on VoIp Long Distance
I am a Vonage customer and they do not charge me for my long distance calls, therefore the that portion of my bill is $0.00 tax on this amount LOGICALLY should be $0.00!

VoIP calls that are made to distant locations, aka Long Distance, are NOT Point-To-Point connections over public-switched telephone network as PLAIN OLD TELEPHONE, POT. does, VoIP makes the jump server to server until it gets to a server near the location to be contacted. Since VoIP does not use public-switched telephone network equipment for Long Distance then VoIP customers should not be taxed on a service or the equipment to provide the sevice that they don't use!

A more logical implementation of a tax to fund the subsidies That the FCC gives to telephone service in rural and low-income areas and a controversy-plagued program called E-Rate that provides discounted Internet and phone service to schools and libraries would be to have a SINGLE tax percentage on the TOTAL bill for ALL the providers POT, wireless or VoIP.

The more consumer friendly solution would be to look at what is being subsidized and see if the newer services (wireless and VoIP) could provide a better ROI for the services. Then take these rural and low-income areas services and the E-Rate program that provides discounted Internet and phone service to schools and libraries from the incumbents, give it to the new service providers and still charge the POT providers!
Posted by zepop (3 comments )
Reply Link Flag
Who Gets USF No-bid Contracts?
Follow the money on the USF. You can be sure that there are a boatload of telco contractors that are getting fat off of no-bid and minority contracts to build and maintain comm facilities. We haven't had an honest government here since Nixon.
Posted by CancerMan2 (74 comments )
Reply Link Flag
Double Taxation is illegal -- Right?
I was under the impression that the FCC excluded DLS provider from paying into the USF (Univeral Service Fund) because 98% of DSL provider ride over traditional phone lines (which already charge USF taxes).

Given this fact, how can they turn around an levy a USF tax on a SERVICE (that rides over my DSL line), when I am already paying a USF tax on the line that carries my VoIP traffic?

Isn't that DOUBLE-TAXATION???

I pay for my phone line (that is REQUIRED for DLS -- so DSL providers are exempt), yet my VoIP SERVICE that runs over that same line is not EXEMPT?

Can someone explain this to me???

Sounds like attorneys for the VoIP industry need to step in here... Can we (the VoIP industry) file a class-action suit against the government to prevent his or does the CONSTITUTION cover this?
Posted by UStraveler (8 comments )
Reply Link Flag
VOIP TAX IS REDUNDANT.
If you pay your money to get the Internet in order to GET VoIP over the Interent that your paying into the USF already 2X. Once for the Telephone service, once for the USF on your Internet bill. And now with a tax on VoIP a THIRD time.
Posted by JCPayne (820 comments )
Reply Link Flag
VOIP TAX IS REDUNDANT.
If you- pay your money to get the Internet, in order to GET VoIP over the Interent- then your already paying into the USF Fund already 2X. It's once for the Telephone service, once for the USF on your Internet bill. And now with a tax on VoIP a THIRD time on your VoIP phone bill.

However much they raise on Cellular, I'll be sure to downgrade my phone plan.
Posted by JCPayne (820 comments )
Reply Link Flag
Phone tax
This is another example of the politicians and bureaucrats being paid off by special interests. What's next? Taxing e-mails because first class postage revenues are falling. These internet taxes stink!
Posted by grbin1 (1 comment )
Reply Link Flag
Voip Tax 44%
On Lingo

Data Services Charges: 7.95
Total Taxes & Surcharges: 3.51

(7.95 + 3.51) / 7.95 = 144%

This why i dropped verizon and moved to voip 6 years ago, seriously considering moving my service to Europe.

PS: Calls where $0.94
Posted by mdvx (2 comments )
Reply Link Flag
I just got two, TWO new sales tax charges from the state of WA on my Vonage. I left that state because of their fees and taxes. Now I guess I have to change my address to England where vonage is alo and see what your gov. is going to do to get new money out of me this time.
Posted by junearooni (1 comment )
Reply Link Flag
 

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