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FCC Net Neutrality Has Potential for Billions in New Taxes, Fees

Josh LongSubjecting American broadband providers to regulations supported by the White House could result in a mountain of local, state and federal fees, many of which are likely to be passed on to consumers, two groups said last week.

The National Cable & Telecommunications Association (NCTA) warned the Federal Communications Commission (FCC) that classifying broadband service as a telecommunications carrier service subject to Title II regulation could result in an increase in local and state taxes and fees for cable operators and consumers. NCTA is led by Michael Powell, a Republican who served as FCC chairman under President George W. Bush.

“While the competitive landscape has shifted and telecommunications companies now compete broadly with one another, state tax structures have lagged behind,” James Assey, executive vice president of NCTA, stated in a Dec. 2 letter addressed to FCC General Counsel Jonathan Sallet. “Many states and local governments continue to impose – and many, in fact, have increased – taxes and fees on regulated utilities like telecommunications service providers.”

Such taxes and fees include universal-service fund fees, telecommunications service relay fees, emergency communications fees, and public utility fees, according to NCTA.

“If the Commission were to regulate broadband service under Title II of the Communications Act,” Assey wrote, “many of these state and local taxes and fees could apply to broadband services providers and consumers unless otherwise preempted by federal law.”

Michael Weinberg, vice president of Public Knowledge, which has advocated for strong Net neutrality provisions, said the FCC doesn’t control local or state taxes.

“There’s nothing to indicate that all 50 states have their fee and tax structure tied to federal regulatory categories,” Weinberg said in a phone interview with Channel Partners. “If a state or locality wants to add a fee to tax broadband, they can do that today regardless of how it’s classified by the federal government.”

How Title II regulation would impact federal fees is another source of debate.

The Progressive Policy Institute (PPI) recently calculated that Title II reclassification could add around $15 billion in new user fees. Under Title II, ISPs would be subject to federal and state fees, including a federal excise tax and universal service, according to a December 2014 policy brief. In an FCC filing over the summer, the U.S. Chamber of Commerce said all telecommunications providers must assess universal service fees on customers.

Robert Litan and Hal Singer of PPI reckoned the average annual increase in local and state fees levied on wireline broadband subscribers would be $67 while the average annual increase in federal fees per home would be $17. The policy brief estimated wireless broadband customers would have to pay $72 annually in additional local and state fees.

“Although the state and federal governments collect these fees from broadband providers, history shows – and economic models of competitive markets predict – that the fees are passed along to customers, just as they are now on telecommunication services,” Litan and Singer wrote.

Responding to the report, Weinberg said that subjecting broadband to universal service fees would broaden the base of consumers paying into the multibillion dollar fund. He said that could result in similar or even lower fees for Americans who presently subscribe to phone and Internet services.

“There’s no reason to think anyone’s price goes up in any significant way,” Weinberg said.

In a proceeding that garnered nearly 4 million comments, the Commission is weighing how to regulate the Internet. Broadband services are currently classified as so-called information services, subject to fewer regulations than telecommunications services.

President Obama, however, has supported a different regulatory approach: Title II regulation. In a statement, Obama said the FCC also should prevent ISPs from blocking websites or services, ban them from “throttling” or slowing down content, and require certain disclosures under “transparency” rules that were upheld earlier this year by a federal appeals court.

According to the U.S. Chamber of Commerce, Title II has its origins in the 1880s regulation of railroads and was originally enacted as part of the Communications Act of 1934 to address monopoly power of telecom services.

The biggest U.S. telecommunications companies, including AT&T and Verizon, are opposed to Title II regulation and contend it is unnecessary to preserve the openness of the Internet and prevent disparity in the treatment of websites.

Although Verizon hasn’t performed its own calculations, spokesman Ed McFadden said the company agrees “Title II would impose a new level of taxes and fees.”

Free Press, an organization in favor of Title II regulation, said PPI exaggerated the tax ramifications. Title II regulation would result in an FCC finding that broadband is solely an interstate telecommunications service, according to Free Press.

“Because broadband access is interstate and not intrastate, none of the intrastate taxes or special telecom fees would apply. The only taxes that could apply would be state sales taxes levied on interstate telecom services,” wrote Matt Wood, policy director of Free Press, in an analysis of PPI’s report. “Even if you used PPI’s fuzzy math, this would amount to approximately $4 billion in total, nowhere near the $15 billion sum Singer and Litan cite.”

Since the late 1990s, the FCC has been weighing and debating how to police the Internet. In a report to Congress on April 10, 1998, the Commission warned “classifying Internet access services as telecommunications services could have significant consequences for the global development of the Internet.” In a statement accompanying the report, then-FCC Chairman William Kennard said he favored a hands-off approach to the Internet and a refrain from treating ISPs as telecommunications providers.

Harold Furchtgott-Roth, an FCC commissioner at the time who was appointed by President Clinton, recently questioned the prudence of Obama advocating for Title II regulation. He said the FCC faces a catch-22.

“If the FCC adopts rules that are the same or similar to those proposed by the President, the FCC and its chairman will appear to be under Mr. Obama’s direct influence. So much for an independent agency,” Furchtgott-Roth of the Hudson Institute wrote in an article for Forbes. “If, on the other hand, the FCC ignores the president, the commissioners are exposed to his unsubtle threats. So much for the FCC’s independence.”


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