FCC Dials VOIP for USF

The Federal Communications Commission (FCC) Wednesday increased the amount of money the government can tax wireless and VOIP operators for the Universal Service Fund (USF).

The Commission ruled that 64.9 percent of VOIP revenues are “interstate” and therefore are subject to assessment for the USF. That’s the same rate at which wireline carriers pay into the USF.

Today’s move was widely anticipated as the Commission moves to find new money sources for the underfunded USF, a system of assisting rural and poor areas with funds to provide basic phone services. Like most things regulatory, the USF is in serious need of an overhaul for the broadband age. (See TIA Testifies at Final Senate Commerce Committee Hearing on Telecom Reform Bill.)

VOIP providers were not suprised by the FCC's actions. “Basically we think this will result in a slight increase to our customer bills, but on the whole we really don’t view it as a competitive needle mover,” said Vonage Holdings Corp. (NYSE: VG) spokeswoman Brooke Schulz. (See FCC Fines Carriers for USF Violations.)

In the past, the contributions to USF came primarily from wireline telephone service providers through small fees charged to their customers. These days, however, mobile phones and VOIP services are beginning to replace some traditional voice service, and so are increasingly tapped for contribution to the fund.

As it stands today, “interstate” calls are taxable at the federal level while intrastate calls are taxable at the state level. The problem is, it’s tough to tell which are which when the communication medium isn’t phone lines but the Internet. Some in VOIP circles have argued in other contexts that VOIP is “inherently interstate,” which would logically qualify all VOIP revenues for contribution to the fund.

“This is the FCC opening the door to taxation of VOIP service,” says Voice On the Net (VON) Coalition president Stacy Pies.

“The reason the FCC needs to come out with this order is because the time period to access [tax] DSL service is going to expire at the end of July and they will have a $350 million hole in the Universal Service Fund,” Pies contends. The FCC ruled in 2005 that broadband should be considered an “information service,” not a telecommunications service –- a ruling that was backed up by the Brand X court decision. (See Supremes Sing Cable's Praises.) This effectively put broadband out of bounds for USF contribution.

Pies believes the FCC’s ruling might lead to state-level taxation of VOIP as well. “The states might be given the opportunity to say that if 65 percent of the calls are interstate then 35 percent must be intrastate, and so we may well see some states acting after this."

The FCC also ruled that 37.1 percent of wireless revenues are interstate and subject to USF contribution, up from 28.5 percent.

“Like public safety goals, universal service obligations transcend new technologies and cannot be compromised,” FCC Chairman Kevin Martin said in a statement Wednesday.

The Bells, of course, aren’t heartbroken at the thought of VOIP companies chipping in for USF. “This order ensures that all telecom providers pay their fair share of universal service support, stabilizing the fund while the Commission considers comprehensive reform of the way contributions are calculated,” says BellSouth Corp. (NYSE: BLS) spokesman Herschel Abbott.

— Mark Sullivan, Reporter, Light Reading

falsecut 12/5/2012 | 3:50:58 AM
re: FCC Dials VOIP for USF The tax people will just have to continue to concentrate on taxing users. Even though a company is HQd outside the US, they should be able to collect the revenues in most cases (at least from the reputable companies).

The consumer is just going to get more and more crap on their bills. It's almost impossible to read the bills now, and I know what to look for.
paolo.franzoi 12/5/2012 | 3:50:58 AM
re: FCC Dials VOIP for USF
I understand that the FCC has really no choice with this band-aid. However, USF funds have to move to the general fund. The technology is moving faster than the ability to change the tax structure.

How will VoIP companies HQed in Mexico be taxed?

paolo.franzoi 12/5/2012 | 3:50:57 AM
re: FCC Dials VOIP for USF
Are you kidding?

If you are outside the US, then local taxes apply NOT US taxes.

"Ill" Duce 12/5/2012 | 3:50:49 AM
re: FCC Dials VOIP for USF What's the deal with USF anyway?
Has anyone really gone through and audited the path of revenues and expenses? I really doubt that the money went to it's intended use.

And what about the excise tax? The Spanish American war only lasted three months (then became the Phillipine-American war.)

And how about everyone's favorite Local Number Portability. When the TRO went down, that issue was dropped like a flaming spud, yet we are still paying for it. At some point, all the numbers are marked as ported and it's a matter of maintaining the database. I have yet to know anyone who actually had a number ported.
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