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Multiple rate and tax increases, in the name of broadband

COMMENTARY | June 08, 2010

Using old data, the FCC proposes multiple revenue-raisers. Bruce Kushnick sees most of the money, as in the past, going to the big telecoms that have already collected huge amounts and have failed to deliver on their promises. He asks whatever happened to the quaint idea of protecting customers’ rights.

By Bruce Kushnick

Call it voodoo economics, hocus-pocus accounting, or corruption mathematics. In the name of a national broadband plan, the Federal Communications Commission is seeking to increase local telephone rates, taxes and other items in five different ways. But the FCC and the state commissions it deals with don’t have accurate, up-to-date data to use as baselines.
I’m not the only critic of these new charges. Eli Noam of Columbia’s CITI program (and a former New York state Public Service Commissioner) stated: 
“The national broadband plan claims that all of its provisions will cost the government nothing. This claim is misleading. The money to implement the plan would be raised in several ways… the plan wants to take money from the telecom 'universal service fund' and 'lifeline" programs and move it to a new 'Connect America' fund which would support the buildout of high speed broadband. This means that phone service for many people would become more expensive in order to subsidize rural and low income Internet. These are not necessarily the same users. Those with no interest in broadband would only see their phone bill going up. It is doubtful that the support for rural telecom companies and users would be cut, given its political strength. More likely, the new programs would be additive and require a new support source for support.” 
These are the tax and rate increases in the FCC plan:
  1. A new tax called the “Connect America Fund” (CAF)
  2. An increase in the “FCC Line Charge” (sometimes called “Subscriber Line Charge”)
  3. Adding broadband to Universal Service
  4. An increase in local rates (known as ‘rebalancing’)
  5. A so-called “Mobility Fund” 
Here are highlights of these increases:
The “Connect America Fund.” The FCC writes: “CAF will enable all U.S. households to access a network that is capable of providing both high-quality voice-grade service and broadband that satisfies the National Broadband Availability Target.”
This could be a very large fund; the FCC’s details include this line: “The remaining amount, up to $11.5 billion (present value in 2010 dollars), can be expressly targeted to supporting broadband through the CAF so that no one is left behind.”
An increase in the FCC Line Charge. This monthly charge is currently capped on telephone bills at $6.50 per month. Over the last five years phone companies have discussed raising it to $10 a month. Now the FCC seems simply to be buying into this rate increase. It does not go to fund the FCC as the name might imply, but is direct revenue to the phone companies. In many states it is hidden in the “taxes and surcharges” section of the bill, even though it is not a tax or surcharge but was originally designed as the ‘long distance’ access component for local service.
Adding broadband to Universal Service. The Universal Service Fund had the lofty goal of providing phone service to everyone in America. Over the years other aspects, such as the Schools and Library fund, “E-Rate”, Lifeline and other programs were added. Though it changes every quarter, this tax is now at a whopping 15.2 percent on all interstate charges, including wireless fees. The FCC may suggest that the Universal Service Fund could go down as these other taxes and additions are instituted. To that, a reasonable response might be, who’s kidding whom? It will be added to other parts of the bill and probably increased. The Universal Service Fund has turned into an out of control slush fund, riddled with fraud. The largest part, known as the “high-cost” fund, goes to increase the profits of successful, thriving phone companies who use it, in part, to pay stockholders’ dividends. Thus, telephone subscribers are all helping subsidize companies that don’t ‘need’ the money.
An increase in local rates. The FCC is seeking to increase phone rates despite massive rate increases issued by individual states to Verizon and AT&T over the last decade. In a 2006 Nieman Watchdog article, I highlighted how local phone prices had continued to rise. That hasn’t stopped. It has gone up by 90 percent since 2004, and continues to climb in most states, including all of the related fees, from directory assistance to Calling Features, like Call Waiting or Caller ID.
A ‘Mobility Fund.” “The FCC should create a Mobility Fund to provide one-time support for deployment of 3G networks (used for both voice and data) to bring all states to a minimum level of 3G availability which will improve the business case for investment in the rollout of 4G in harder to serve areas.”
The suggestion here is that the FCC questions whether this tax is really required. What will happen – you can rely on it – is that the FCC will claim ‘non-served’ areas need to be funding the incumbent wireless companies.
This is all being played out against a backdrop of unreadable phone bills and major costs that continue to rise. To see the increases and how previous deregulation has already raised rates, here are the charges, by line item, based solely on actual phone bills for New York City.
I’m not against tax increases per se. But these proposed tax increases are unjust and even scurrilous.
Customers have already been overcharged in buried-over, multiple ways. No regulator – not the states or the FCC – has shown any concern at all; protecting customers’ rights seems a quaint notion these days. It is only going to get worse if the FCC’s new broadband plan is implemented, delivering five new ways to increase costs, to the benefit of the the phone companies.
These increases will impact those who can least afford it and who least use the service: low income, low volume customers, including seniors and low-income “Lifeline” customers. It is estimated that they represent over one-third of the U.S. population
AT&T, Verizon the other telephone and cable companies are the benefactors of most of this money. Wireless is also in play, but since AT&T and Verizon control about 80 percent of the wireless market, there really isn’t going to be serious competition, especially for high-speed broadband. And, there is even a ‘mobility’ fund to make sure that the companies receive multiple subsidies.
Customers have already paid billions of dollars per state for broadband, part of the changes in state laws over the last two decades. These financial incentives were to upgrade the utility infrastructure. In many states all schools, libraries, and hospitals – not to mention homes and businesses – were supposed to be upgraded with fiber optic services, replacing the old copper. This money is still being collected, and increased through state local rate increases but hardly any of the promised upgrades have occurred.
No regulator examines the total phone bill charges or the total flow of money. None. My group, Teletruth, has called for a comprehensive examination of all of the money flows from the state and federal overlapping Universal Service funds, Lifeline funds, Erates. This type of basic examination doesn’t exist. We also called for an examination of the state-by-state commitments to do network upgrades and the monies that have and continue to be collected in the name of broadband. It has never been done by the FCC or states.
The fact is, FCC and state data are non-existent on many topics. The FCC’s data on phone bill charges, on competition, on broadband deployment are seriously flawed, like their data on almost every subject. For example, last year we described in Nieman Watchdog how the FCC was using data from 1997 to reflect small business competition in the wireless markets in 2009. In 2010, every FCC national broadband plan proceeding, of which there are over 60, contains the same old, boilerpate data.
Elsewhere we have out outlined how the FCC’s data for the cost per minute for long distance ($.05 a minute for wireline or a wireless call) is simply taking industry supplied aggregated numbers – which in no way reflect actual calling patterns or actual usage, especially when plan fees, phone-company-created ‘admin fees’ and other must-pay charges are included.
It is these kinds of data the FCC is using to seek rates and fee increases. In short, hold onto your pocketbooks, purses and piggybanks and be ready to get nickel, dimed and quartered by major new increases in the name of broadband.

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