WatchDog reports that taxes are costliest part of providing telecom services

WatchDog, looking at a recent study on The Economic Impact of Rural Broadband says…

A study on rural broadband found that — wait for it — taxes are far and away the largest cost involved in providing telecommunications services.

This comes after another report last year indicated taxes could slow down wireless broadband expansion.

The tax they refer to is the USF (Universal Service Fund) which has morphed into the Connect America Fund, which you might see mentioned at CAF.

They note that the tax is confusing by its name, although I think “universal service fund” might imply a tax to fund service universally…

“Rather than being transparent and saying we need to have a subsidy to get the last farm on the road … we adopted the Universal Service Fund,” Kuttner said.

The Federal Communications Commission administers that fund, which was originally designed to provide telephone service to rural areas and now includes the expansion of broadband. The USF reaps some $8 billion annually from taxpayers and telecommunications providers, going to four primary programs:

  • Lifeline, which helps low-income customers pay for phone and internet charges.

  • E-Rate, which helps provide phone and internet services to (primarily rural) schools and libraries.

  • Connect America, which offers subsidies to qualifying telecommunications providers to serve higher-cost (again, primarily rural) areas.

  • Rural Health, which offers lower-cost telecommunications for rural health care providers to make tele-health service more affordable.

The article also notes that half of the USF funds support CAF…

He told Watchdog that municipal broadband providers have a capital advantage because they can usually borrow money at lower rates — not to mention the fact they’re also financially backed by ratepayers or taxpayers.

But Kuttner said private providers also receive ratepayer backing through Connect America. About half of USF money goes to that program.

Taxes are part of the equation either way you slice it – providers pay taxes and providers benefit from government support, especially to serve areas where the market will not support expansion and upgrades.

This entry was posted in FCC, Funding, Policy by Ann Treacy. Bookmark the permalink.

About Ann Treacy

I have a Master’s Degree in Library and Information Science. I have been interested or involved in providing access to information through the Internet since 1994, when I worked for Minnesota’s first Internet service provider. I am pleased to be a part of the Blandin on Broadband Team. I also work with MN Coalition on Government Information, Minnesota Rural Partners, and the American Society for Information Science and Technology.

3 thoughts on “WatchDog reports that taxes are costliest part of providing telecom services

  1. I would argue that construction costs are the biggest barrier to broadband deployment in rural America. Fiber, electronics, boring and engineering expenses far exceed any incremental costs that USF may impose on carriers. It’s the customer that pays, not the telecommunications provider. In fact, USF and CAF have and will be used to expand broadband to the most remote and least populated areas in the country.

  2. It is a little scary when I take a look at my telecom bill (triple play from Comcast and three phones from Sprint). I can tell you that the USF charges are a drop in the bucket compared to the total charges, almost a rounding error. When I reviewed the same study, my main conclusion was that my knowledge that urban and rural economies are linked. Federal subsidies to deploy rural broadband also benefit the companies and people in the urban areas that create, manufacture and sell the latest equipment and offer professional services to broadband providers. A win-win!

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