FCC Dials VOIP for 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