FCC eyes tax on Internet
service
By Brendan Sasso - 08/26/12 06:00 AM ET
The Federal Communications
Commission is eyeing a proposal to tax broadband Internet service.
The move would funnel
money to the Connect America Fund, a subsidy the agency created last year to
expand Internet access.
The FCC issued a request
for comments on the proposal in April. Dozens of companies and trade
associations have weighed in, but the issue has largely flown under the
public's radar.
"If members of
Congress understood that the FCC is contemplating a broadband tax, they'd sit
up and take notice," said Derek Turner, research director for Free Press,
a consumer advocacy group that opposes the tax.
Numerous companies,
including AT&T, Sprint and even Google have expressed support for the idea.
Consumers already pay a
fee on their landline and cellular phone bills to support the FCC's Universal
Service Fund. The fund was created to ensure that everyone in the country has
access to telephone service, even if they live in remote areas.
Last year, the FCC overhauled
a $4.5 billion portion of the Universal Service Fund and converted it into a
broadband Internet subsidy, called the Connect America Fund. The new fund aims
to subsidize the construction of high-speed Internet networks to the estimated
19 million Americans who currently lack access.
Julius Genachowski, the
FCC's chairman, has made expanding broadband access his top priority. He argues
that a high-speed Internet connection is critical for succeeding in the 21st
century economy and that expanding Internet access is the country's next great
infrastructure challenge.
But the money for the new
Internet subsidy is still coming from the fees on phone bills.
And in recent years, with
more people sending emails instead of making long-distance phone calls, the
money flowing into the program has begun to dry up. The Universal Service fee
has had to grow to a larger and larger portion of phone bills to compensate.
The FCC floated a number
of ideas for reforming the fund's contribution system. In addition to the
broadband fee, the commission also sought comments on taxing text messages, as
well as levying a flat fee on each phone line, instead of the current system,
which is based on a portion of the revenue from interstate phone calls.
The commission only sought
input on the ideas and did not indicate whether it planned to move ahead with
any of them, including the broadband fee.
When the FCC released its
proposal, Genachowski issued a statement saying the current contribution system
is outdated and full of loopholes.
"Today we propose
three goals for contribution reform: efficiency, fairness, and
sustainability," Genachowski said. "And we underscore that any
reforms to the contribution system must safeguard core Commission objectives,
including the promotion of broadband innovation, investment, and
adoption."
In its filing, Google
argued that the evidence "strongly supports expanding the [Universal
Service Fund] contribution base to include broadband Internet access
services."
According to Google,
taxing broadband service is preferable to taxing the kinds of online services
it offers, like email or Google Voice.
"Saddling these offerings
with new, direct USF contribution obligations is likely to restrict innovative
options for all communications consumers and cause immediate and lasting harm
to the users, pioneers, and innovators of Internet-based services," Google
argued.
But Turner argued that
imposing a fee on broadband access, even if it is only a dollar or two, would
discourage many people from buying the service—the exact opposite outcome of
what the FCC is trying to achieve.
"For folks who are
thinking about adopting broadband, who have much lower incomes or don't value
broadband as much—that extra dollar on the margins will cause millions of
people... to not adopt," Turner said.
The FCC could run into
legal problems with the Internet Tax Freedom Act, a 1998 law that bans the
government from taxing Internet access. But the FCC has long argued that
Universal Service is a fee that the providers choose to pass on to consumers
and not a tax.
Turner said it is unlikely
that the FCC will make any controversial moves before November's election.
"I don't anticipate
that the chairman would move to adopt a drastic overhaul ahead of the
election," he said.
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