This week, the U.S. Senate Commerce Committee approved the Communications, Consumer Choice and Broadband Deployment Act of 2006, sponsored by Ted Stevens (R-Alaska) and Daniel Inouye (D-Hawaii). If passed by the full Congress, this massive telecom bill will bring consumers significant benefits, especially long overdue cable franchise reform.
New technologies have made it possible for broadband providers to compete with cable’s video services by offering television over the Internet, also known as “IPTV.” Unfortunately, the current system of cable franchising allows local government bureaucrats to make it difficult for cable competitors to enter the market. Stevens’ and Inouye’s bill would change that and open up the marketplace.
More competitors mean more choice, better quality and lower prices. In states where local lawmakers have already passed reforms, the results have been stunning. This has led to a movement in state legislatures across the country to approve cable franchise reforms. Even California’s leftist Democrats, such as Assembly speaker Fabian Nunez, understand that less government control would increase choice and deployment. It would also increase tax revenues.
Brookings Institute scholars Robert Crandall and Robert Litan recently calculated that local government revenues from cable franchise fees would actually increase more than US$400 million due to competition. The reason is that although consumers would be paying 13.5 percent less for cable than they are now, subscriptions would increase between 29.7 and 39.1 percent. However, cable reform isn’t the only key item in the Stevens and Inouye bill. It also takes a rational approach to the issue of net neutrality.
Supporters of net neutrality argue that broadband providers shouldn’t be allowed to charge more for premium services. Of course, anyone who understands economics knows that if companies can’t charge more for premium services, then those services won’t materialize. If that were to happen, Americans would be stuck watching as other countries would continue to gain faster broadband speeds while the U.S. would simply stagnate. The United States already lags behind other nations in speed and deployment, and net neutrality “principles” would keep us there.
Putting Tax on the Table
Then there’s the tax issue. In the recent vote on the bill, the Senate Committee agreed to make the Internet tax moratorium permanent. That’s a huge deal, especially since telecommunications — one way to get to access the Internet — is taxed at the high levels usually reserved for alcohol and cigarettes.
Indeed, tax relief should be the next big issue in telecommunications reform, especially since the Federal Communications Commission recently voted unanimously to require taxes on all Internet phone services that connect to the public-switched phone network. The tax revenue will be used by the nation’s Universal Service Fund, which is supposed to subsidize phone service in rural and low-income areas, but is rife with abuse and waste.
Universal service is one downside of the Stevens and Inouye bill, as their legislation would keep the faulty program in place without reform. That’s disappointing, given that America’s USF (UNiversal Service Fund) budget has nearly doubled in the last eight years, tripling the telecom tax on long-distance calling providers and raising telephone costs for consumers — and it gets worse.
A Bill With Merits
In 2004, the FCC (Federal Communications Commission) audited 100 E-Rate recipients and found that one-third were noncompliant with government guidelines and many were suspected of scams such as bid-rigging, false reporting and other kickback schemes with tech vendors. Indeed, the system seems so open to abuse that it has been alleged that the Gambino crime family used a Missouri-based E-Rate service provider to defraud the program out of nearly $22 million.
If it passes, the Stevens and Inouye bill would bring many benefits. Cable franchise reform, Internet tax freedom and a settling of the net neutrality debate would be welcome developments.
The issue of universal service and the generally high levels of communications taxes will need to be addressed more clearly, but that will wait for a future session of Congress.
Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.