Universal Service Tax On VoIP Will Actually Hold Back Universal Service

from the nice-work-FCC dept

Daniel Berninger continues to write some of the sharpest pieces on what’s going on with the telco industry these days. In the past, he’d written up great pieces explaining why the the internet isn’t the internet without net neutrality, and why breaking net neutrality could end up harming the telcos. His latest writeup, over at Jeff Pulver’s blog, is in response to the silly decision by the FCC to tax phone replacement VoIP providers using the infamous “quacks like a duck” test, that says if a new technology (VoIP) is backwards compatible with an older technology (the phone system) then it deserves to be taxed as if it were that older system. Of course, this only encourages people to avoid compatibility altogether and slow down adoption of the new technology.

In this case, those new taxes are supposedly to support the “Universal Service Fund” that’s designed to bring phone service to rural areas and those who can’t afford service. So how’s the Universal Service Fund doing? That’s a damn good question — and, as Berninger notes in his open letter to Senator Ted Stevens and other Congressional folks, it’s not something many people want to talk about because the results aren’t very good. The Universal Service Fund hasn’t done very much at all to increase service, and the government isn’t even bothering to measure the results. All they track is how much money goes into the program — and not whether it’s successful in increasing access. Berninger shows how, with this new VoIP tax, it’s really about taking money from these upstarts who are actually providing cheap phone service and handing it over to the incumbent telcos who are providing expensive old phone service. Once again, it comes down to the real issue: the lack of competition in the telco world. Real competition drives new innovations and lower prices (like VoIP) that help increase access. Instead of encouraging that, we’re now forcing these VoIP companies to pay a big tax that goes straight to the incumbent telcos. That doesn’t help increase access to service — it slows it down.

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Comments on “Universal Service Tax On VoIP Will Actually Hold Back Universal Service”

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Duncan says:

Universal Access

As a recent benificiary of universal access, there is a basic infrastructure cost that must be borne to enable POTS or VOIP.
The Universal Access funds were used to cover the installation of fiber. Once that was done, Universal Access funds will subsidize shortfalls in operations revenue.
What we did find out is that the funds will not cover anything other than POTS, which means our carrier had to disguise the provisioning of a T1 as part of the POTS build out.
One would think that Universal Access would be about connectivity, not just POTS.

Ajax 4Hire says:

Tax the rich to feed the poor.

This is another Robin Hood program.

Tax the rich telephone users to feed the poor telephone service;

Tax the rich internet users to feed the poor without internet connections.

But the government forgot to give the money to the poor after the money grab. Just like Robin Hood, the government takes its cut. Whats left, well that is for the bureaucracy to sort out.

Telephone connection, Internet access, CableTV, Electricity, Natural Gas, Water; if there is money to be made distributing these utilities, then companies will step in and make it.

Who still ‘rents’ their trimline telephone from the phone company for $72 a year?

Brad Eleven (profile) says:

Re: Tax the rich to feed the poor.

It may have become this, but the original design of these (and other) telco handouts was to subsidize rural infrastructure. Telcos (and others) don’t have a business interest in developing infrastructure for sparse areas.

The same federal commission which gets funding from this source just won’t go away, even though all of the rural telco buildout is complete–and has been for twenty years. One guy in particular got on the commission with the goal of becoming chairman and shutting it down. He made chairman all right–but made zero progress in shutting it down in his five-year tenure.

Federal agencies seem to find ways to survive, no matter what.

James Herald says:

Re: Overage?

Hello… I use Revol myself, here in Cuyahoga Falls. I have noticed that some people like the service, and some hate it. I personally love it! Yes, there are some trouble spots, but the service has been getting better. I was with them when they were Northcoast PCS, and altogether now, it’s been 4 or 5 years now. I honestly can’t complain. Pretty soon, I’m going to be upgrading my phone from the Candid, to probably either the Slider Remix or Razr… most likely the Slider Remix.

Take care… hope the service is still treating you good… if you want, drop me an email and let me know how the service is treating you… jherald@neo.rr.com

Harb says:

Who pays?

Interesting that VoIP shops and bandwidth intensive content providers don’t hesitate to cry foul at phone companies whose capital investments must continue in order to stay competitive (anyone feel like moving back to dial-up or ISDN at 128k after experiencing broadband?)

So…media companies enjoy the heck out of broadband but don’t feel the need to support the infrastructure necessary to make it run. Super.

In addition, VoIP is kinda neat, but it still requires a broadband connection to work. Aside from the ability to move your connection at will, where is the total cost savings?

Gullett says:

There is no gettin around the hand in the pot

Take the skype example. If you have a pda (they even have a stand alone wifi phone) and are in an area with wifi, you have phone coverage. Before you know it the us will be covered in wifi, i live out in the sticks and net stumbler picks up 4 wifi signals. Skype will be the napster of phone service. As soon as skype doesn’t meet the demands, and gets shut down, there will be another company to spring up aka kazaa. It will be the same vicious cycle. Before you know it, the government will start taxing your internet with a “traffic tax”.

Anonymous Coward says:

Anyone that thinks local towns (politicians) are happy giving up the tax revenue from traditional phone service and are willing to not tax VoIP is just plain stupid.

You really think the govt. will allow that? You think they will just go without the money, that their citizens will be happy with another property tax increase to make up the difference?

RushMan says:

Impressions from outside U.S.

It’s impressive, that’s the same thing everywhere in the world! In Brazil, there’s exactly the same program (a.k.a. FUST – Fundo de Universalizacao de Servicos de Telecom). The problems are exactly the same: users are billed for the program, telcos doesn’t care, the mony goes to gov.program e no one sees the money. Nowaday, the FUST has US$ 1 billion (yes, BIllion), e so far no action taken to convert money on telcos services to the poor.

RushMan says:

Impressions from outside U.S.

It’s impressive, that’s the same thing everywhere in the world! In Brazil, there’s exactly the same program (a.k.a. FUST – Fundo de Universalizacao de Servicos de Telecom). The problems are exactly the same: users are billed for the program, telcos doesn’t care, the mony goes to gov.program e no one sees the money. Nowaday, the FUST has US$ 1 billion (yes, BIllion), e so far no action taken to convert money on telcos services to the poor.

gspederson says:

Tax and Spend

I always wonder who learned their business model for whom? Did the mob learn from the government or did the government learn from the mob? Either way they both extort and leech off the hard work of others.
Taxation is like crack cocaine for politicians…they always need more and just burn through what ever they do get.
For a long time I have felt that we should have a quarterly US financial report. I want to know how much money was collected from every cent of tax and EXACTLY how that money was spent. In addition I wan to know exactly how much does it cost to maintain our system. Beyond the basics the citizens of this country should be able to vote for any extra spending…this way the people will really have control of how our government dollars are being spent.

Shane, why do people like you make such idiotic statements?? Are you just a moron? This article isn’t about whether you personally like VOIP service or not, it’s about the taxes and their purpose. Cell phone service is one of the highest taxed services…have a look at your cell phone bill.

I’ve been using Lingo for 2 years and admit that in the beginning service was rough. I chalked this up to Lingo being new in the VOIP arena. However, after the initial learning curve was resolved I’ve been satisfied with me VOIP phone. Of course the quality is not as good as a landline or cell phone, but for $21.95/mo I’m more than willing to overlook that slight shortcoming. The real deal is that quality is really down to your internet connection. If your connection, more specifically your upseed is good then your VOIP call quality will be satisfactory.

In the 2 years I’ve had VOIP I started with no tax, then $1.50 Regulatory Recovery Fee was added and last month a $3.36 Universal Service tax was added. That means taxes are now 22%. Under the taxes and fees section there are four more buckets listed that currently show 0.00, Federal Excise tax, sales tax and surcharges, county/local taxes and Presubscribed Inter-exchange Carrier charge.
If/when these taxes are added this bill will end up looking like a cell phone bill….which sickens me. I’m tired of busting my butt trying to be a successful small business owner to only have the government line up for money before I even get a chance to make money…and then line up again for more money when I do finally make a profit.
Sounds like the same extortion plot used by the mob….except no physical violence, but try not paying your taxes and see what the government will do to you.

So make as much stink as possible whenever more taxes are being added. At least if you make a stink and fuss their desire to tax and spend like crack heads could be limited.

Larry says:

Re: Tax and Spend

to gspederson:

I like your mob/government correlation! And the tax/crack cocaine comparison is priceless, as in being right on mark. I have had Vonage (voip) for a couple of years and aside from a few hiccups, I am well satisfied. I do the $199 annual plan. Do the math on that deal. The price is advertised as no hidden fees, but they just popped me for the first time on the USF tax, for roughly $10. I bet you would play hell trying to get some kind of low income discount as a Voip customer. It is taxation without representation. Besides that, I bet that the beaucracy ‘administering’ it is syphoning most of the money to pay salaries and do paperwork before it even gets used for its intended purpose. You are spot on when you talk about the empty buckets. All they have to do is create a line item at 0% to open the door for it to become .01%, then you blink a few times and it is 10%. It is a bunch of horse shit thieving SOBs!!

Darin McDonald says:

FCC TAX, way wrong.

It’s My understanding that this tax was originally leveled to help fund the Spanish American war, see the link below for more explanation. The war started in April 1898 and finished in August same year…

I started out with SpeakEasy voip here in Seattle, and have since moved on to faster cable internet, and cheaper Voip, I use ViaTalk, originally $19.95 a month all you can eat in North America , and 3 cents a minute to Switzerland. Then I got a rocking deal for $99 a year, and now the FCC kicks in and wants a piece of the pie. so I pay an additional 30 bucks a year, and also a E911 fee…
My Question is since a bunch of Manufacturing jobs have moved over seas… why not reverse this?, bring the jobs back here and send my Voip services over seas, and avoid this stupid, unfair, unlawful tax.

peace out


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