The battle cry of the American Revolution was "No Taxation
Without Representation." It's so deeply rooted in the country's psyche
that when the District of Columbia was casting about looking for a
slogan for its license plates, it hit upon the fact that it does not
fall within any state, and therefore cannot vote for its own senators or
representatives. They came up with the surprisingly bitter and militant
phrase Taxation Without Representation. You can see it on a goodly
number of license plates in our nation's capital.
But this slogan
could equally well apply to your local phone company, which, as likely
as not, is also your local DSL supplier. If you pay your phone bills and
DSL bills without close examination, you'll probably not have noticed
this, but there's a little surcharge that's sometimes not so little that
the company has been passing on to its customers for years. It's called
the Universal Service Fund or USF, and it's a charge that the FCC levies
on any company that provides cross-state communications. Since the
Telecommunications Act of 1996, it's also been levied on DSL providers.
Notice that I mentioned that it's a charge that a government body
levies on a corporation, because that's not what it's listed as on your
communications company bill. It's listed at the bottom with all the
legitimate taxes that you're used to paying. But it was never intended
to be a tax; that's just the way the telcos have made it look. And by
making it a surcharge, they can advertise DSL service for $37.50 (which
of course amounts to $40.89 with taxes) and actually bill you $42.51.
Because everybody in the United States is used to ignoring the
small print at the bottom of their phone bills, the telcos have gotten
away with passing on the USF fee since time immemorial and DSL providers
have done the same for a decade. By some definitions, this process is
tantamount to levying a tax on their customers to pay their own tax bill
(and of course, ordinary citizens have no representation within a
corporation).
Although consumer groups have been kvetching about
it for years, the telcos haven't actually run afoul of the law. That is,
not until this summer, when things took an abrupt turn with a new ruling
from the FCC.
A Quick Legal Primer
The
Communications Act of 1934 put forth the proposition that because all
men were created equal, they should have equal access to a reasonably
price nationwide communications network. To make this possible, the law
created a Universal Service Fund, which was to be funded by the
providers of the national communications service, and which would cover
the creation of communications infrastructure in isolated rural
communities and urban poor communities...in short, anywhere that a
corporation would consider it unprofitable to lay its cable.
The
Telecommunications Act of 1996 expanded the original Act's scope from
1934-era technology to include good old Ethernet- and IP-based Internet
communications, and expanded the mandate to provide Internet and phone
services to libraries and schools.
On Aug. 14, the FCC, which
manages the fund, reworked it definition of a company that provides
interstate communication. That definition excluded DSL companies. In
short, the Verizons and Bell Souths of the world were no longer required
to pay into the Universal Service Fund.
When is a Tax
Not a Tax?
Almost immediately after the FCC made its
announcement, Verizon and Bell South issued their own. Broadly speaking,
they told their customers "Your bill stays the same. We're just going to
call the surcharge something different."
Before August, Verizon
DSL customers at 768Kbps paid about $1.25 into the USF every month and
3Mbps customers footed a $2.83 charge. BellSouth customers were charged
$2.97 per month. In August, Verizon added a "supplier surcharge" that
amounted to slightly less than the USF charge (a nickel less at 786Kbps
and 13 cents less for high speeds). BellSouth said it would keep its
$2.97 fee the same, and continue to call it a "regulatory cost recovery
fee."
Within two weeks, the FCC raised a red flag. The FCC's
commissioner Michael Copps went on record in a Reuters news report
saying "When the FCC phases out a fee and a major broadband provider
rushes in to replace it with a new company surcharge, consumers get
burned."
To stave off any government probe, BellSouth relented on
Aug. 25 and issued a statement saying it would drop its surcharge and
make it retroactive to the day after the FCC released the company from
its USF fee. Verizon was slower to react, and got an FCC nastygram
saying, in part, "The bureau is investigating whether Verizon's
practices are consistent with the obligations set forth in the
commission's Truth-in-Billing rules." The letter required a response
within 20 days, but that was too late for the deadline on this
column.
So as of now, I don't know whether Verizon will cave and
drop its surcharge or manage to justify it to the government. One
thing's for sure: They've ticked off a lot of their customers.
Read My Lips: No More Surcharges
Verizon
and Bell South could have kept its customers' goodwill (and its revenue
stream) if it had been more honest in the first place. If they'd quoted
3Mbps DSL at a monthly rate of $39.75 and added only legitimate taxes on
top, the consumer would have paid the same grand total of $42.83 per
month and the FCC wouldn't have come sniffing around.
As it is,
Verizon has come across as petulant for finger-pointing at the
government for charging them a USF fee in the first place, and greedy
for adding their own surcharge when the government freed them from it.
So Verizon, do yourself a big favor: Quote us a straightforward
price from the outset. If your costs go up for any reason, including any
corporate tax the government levies against you, don't use surcharges.
Raise your base price the way regular companies do. No customer likes
price hikes, but we like deception even less, and sneaking your own
personal corporate tax on us seems, well, just plain un-American.
Contributing Editor Matt Lake writes SOHO Advisor
monthly for ComputerUser.
