June 12, 2007 4:45 PM PDT

Senators oppose plan to curb phone taxes

WASHINGTON--There are few defenders of those rapidly multiplying taxes, fees and other surcharges that appear at the end of Americans' phone bills every month.

But in the U.S. Congress, senators from rural states that benefit from the mandatory levies on Tuesday attacked a proposal to cap those taxes.

At issue is whether those unpopular taxes, which flow into a pool of money called the Universal Service Fund, have spiraled out of control. Last month, a federal panel recommended some temporary caps on funding for wireless providers--which would effectively keep in place the 2006 level of $1 billion.

"When you're assessing surcharges that high, you ought to be delivering something that's measurable, that's tangible and that's going to those people who need it the most," said Sen. John Sununu, a New Hampshire Republican.

Around $1 billion might seem like a lot of money being diverted to wireless providers in what federal rules call high-cost areas (typically rural ones). But it may not be enough for senators such as Ted Stevens, an Alaska Republican, or Olympia Snowe, a Maine Republican, who expressed their steadfast opposition to limits during Tuesday's hearing.

Limits on federal spending will "place rural America at a tremendous disadvantage," Snowe said. States like Maine depend on subsidies for better mobile phone coverage, she said.

"When you're assessing surcharges that high, you ought to be delivering something that's measurable, that's tangible and that's going to those people who need it the most."
--Sen. John Sununu

The federal panel's proposal would rein in the Universal Service Fund, which overall doled out more than $7.3 billion last year alone to subsidize telephone service in rural and low-income areas and in schools and libraries. Since its inception during the Clinton administration, the fund has been plagued by waste, fraud and abuse.

Senators on Tuesday were vocal, however, about their frustrations with the panel's plan, which some dubbed a "piecemeal" approach that did nothing to address fundamental concerns with waste and fraud in the program. Some said they were concerned, for instance, that consumers would continue to see rising line-item charges on their phone bills, and with no guarantee that their money was going to areas that truly need help.

Right now, phone companies--including wireline, wireless and Internet phone providers--are subject to a federal tax of 11.7 percent of their long-distance call revenues, which they typically collect from their subscribers each month.

Federal Communications Commissioner Deborah Taylor Tate, who heads the joint board, endured repeated questioning from the politicians about why the FCC hadn't done more to stabilize the fund. She suggested it was difficult to reach a consensus but repeatedly said it was necessary "to move forward absolutely as quickly as possible toward fundamental reform."

Plagued by controversy, fraud and abuse
At issue in the board's recommendation is a portion of the controversy-plagued Universal Service Fund used to help fund wireless carriers building cell sites and other network infrastructure in rural areas. The amount doled out to those companies has grown from about $15 million in 2001 to about $1 billion in 2006--representing an annual rate of more than 100 percent--according to the board.

Without immediate changes, the entire fund is in danger of becoming unsustainable in the future, the board, which is also composed of other FCC commissioners and staff, state utility commissioners and consumer advocates, said in its recent report (PDF). That's why it suggested restricting those payments to their 2006 levels for the next 18 months.

But some senators suggested a cap was the wrong approach. Rather than going that route, some suggested the FCC should restructure the way it doles out the funds in the first place--and threatened to step in with new laws if the regulators didn't act.

"As I understand it, if Carrier A is serving and Carrier B comes in to compete...the reimbursement of Carrier B is based on costs of Carrier A, not Carrier B," said Sen. Stevens, the committee's vice chairman. "In almost every circumstance, Carrier B has substantially lower costs. Why the windfall?"

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Only Senators Defend Taxes?
It is not really hard to find defenders of the Universal Service Fund and Ms Broache could have found them with an easy Google search. See these recently-published examples:

* A Wireless Lifeline
<a class="jive-link-external" href="http://www.washingtontimes.com/op-ed/20070611-085926-9512r.htm" target="_newWindow">http://www.washingtontimes.com/op-ed/20070611-085926-9512r.htm</a>

* FCC fund freeze could signal bad news
<a class="jive-link-external" href="http://www.pjstar.com/stories/061207/BUS_BDFQGMUV.004.php" target="_newWindow">http://www.pjstar.com/stories/061207/BUS_BDFQGMUV.004.php</a>

* Wireless funding cap can hurt rural areas
<a class="jive-link-external" href="http://www.roanoke.com/editorials/commentary/wb/120335" target="_newWindow">http://www.roanoke.com/editorials/commentary/wb/120335</a>
Posted by ktaglang (2 comments )
Reply Link Flag
A few points:

* First, you conflate the broad Universal Service Fund with the myriad of taxes and fees that appear on our phone bills. One can hate the second while still agreeing with the principles of the first (perhaps through a different funding mechanism, such as general tax revenues).

* Second, it's easy enough to find examples of special interest pleading, such as the specific wireless company you cite that would benefit from handouts going to specific types of wireless companies. Let me say that I, for one, would welcome federal handouts going to Irish-American journalists whose last names begin with "McC-" -- but that's not that interesting a point, or a good argument for McC- handouts.

* Third, if you identify broad support for those end-of-bill fees, let us know. But we won't be holding our breath.

Thanks for reading.
Posted by declan00 (848 comments )
Link Flag
Education Tech is a good reason too!
Little do people outside of k-12 education tech, knows that these phone taxes also pay for K-12, and libraries to obtain technology related products and services. It is located at www.sl.universalservice.org . School technology could not survive with out this grant program (disclosure: I am paid through this grant from a school district I have a contract through). It also pays for telecom services for schools and libraries. It really is more than a slush fund.
Posted by bjwhaw (18 comments )
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$350,000 for 1000?
How is it that people can actually even make an argument that the Federal government should be paying hundreds of thousands of dollars to a private company so that they can provide their profitable service to just a few hundred or thousands people? Why not just buy everyone of those rural residents a satellite phone and subsidize their use of that? It'd be cheaper.

The real issue is not the cost of the towers or the "need" of those rural people to get "critical" service. The fact of the matter is, there are many services not available to rural areas simply because they are not economically practical.

Why should the majority of taxpayers foot the bill so that people can live in rural areas and "enjoy" cellular phone service? That is what we're talking about here. Cell service. Not ER medicine or national guard helicopters or anything equally critical. YES, people can indeed make it through the day without cell phones. Hard as it may seem to some.
Posted by pdxmhatter (2 comments )
Reply Link Flag
Waaay out of control
The overall "high cost support" system is way out of control. It allows rural telephone companies to operate on a cost-plus basis with virtually no controls on their costs. For example, Sandwich Isles Communications in Hawaii receives $765/month PER SUBSCRIBER. This lets them pull fiber optics to remote rural homes, who pay low prices for service. Likewise, USF is spending over $10k/home to subsidize the build of "fiber to the ranch" in the countryside surrounding Zapata, TX. They already have region-wide WiFi but that's not subsidized, so the telco is spending more.

Wireless companies can provide service at a far lower cost, and it's probably quite adequate, but the subsidies are now set at the wireline carrier's costs. The proposed answer is to cut off the wireless companies, not let them "bid" for the support (who can provide service the cheapest?). It's a total ripoff. Of course it's not called a "tax", but it's a federally-mandated charge on the bill that goes to the government for redistribution, so it sure looks like one. (Contrast to the "FCC line charge" which is simply part of the rate paid to, and kept by, the phone company.)
Posted by fgoldstein (144 comments )
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Government Programs = Fraud and Waste
Why should anyone be surprised that the USF program is plagued by fraud and waste, you could look at any gooberment program and find the same thing. Think there isn't Medicaid fraud and waste? Look at companies selling medical supplies and devices to the elderly for reimbursement -- $5,000 motorized scooters, $500 wheelchairs, etc. How about farm subsidies. Should Ted Turner, the biggest private landowner in the U.S. get farm subsidies? AgriBusiness? Why are there corn and sugar subsidies? The government spent $41.9 billion on corn subsidies from 1995 to 2004. Government supported ethanol programs are now soaking up huge amounts of corn, driving up corn prices -- so why is there even a corn subsidy anymore? The real issue is that fraudster politicians like Ted Stevens spend their days jawboning to suck ever more money out of taxpayers pockets and zero effort figuring out how to make government run more efficiently.
Posted by Stating (869 comments )
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Wasted Anyway
In one incident, a local provider took federal funds to provide high speed internet to "rural" Arizona, but used the money to overbuild in downtown area which already had DSL and Cable internet.
Posted by disco-legend-zeke (448 comments )
Reply Link Flag
Get rid of the phone taxes already
I am sick of all these phone taxes and the "fees" the phone companies charge. You can have a $39.99 phone plan, but it actually costs about $47 once you pay all the extras -- sales taxes, phone taxes, USF, phone company "fees", 911 fees.
Posted by chris_d (195 comments )
Reply Link Flag
are you kidding???
What about the State Universal funds??? I KNOW there are some real issues that make these Federal tricksters look like Angels. There are State funds that are being pilled up by the millions of dollars of tax payers money through State Universal Funds, that are handed out like candy!
One phone company was getting over three million, of tax payers money out of a State Universal Fund(phone tax)until a Citizens rate payer board attorney questioned the Fund Administrators testimony that would have awarded the small rural phone company the money, and it turned out the Phone company did not have the money coming at all! The fund administrator was able to change her direct testimony and the Phone company ended up with around a hundred thousand instead of over 3 million the fund administrator was attempting to hand out. The same administrator struck a deal with another phone company that received over a million in 2005 and was going to be audited in 2006 but made a "deal" with the same fund administrator to get out of the audit by agreeing not to take ANY money from the fund in the coming year!!! Wow, how could that phone company need a million dollars out of the fund one year, but could get by with zero the next??? And why would the "head auditor" of the fund cut such a "deal"??? Does it look a little shady...?
How about the 8.9 million that the DOJ linked back to the New York crime family that was lifted out of the fund through a small Midwest phone company? Yes some changes do need to be made to the Federal fund, BUT, what about the State funds?
Posted by rick laham (1 comment )
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