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Information Wants To Be Free

Information Wants To Be Free

One can understand when taxes are so high that the telecom companies would salivate over a lowering to a flat rate of five percent, but this is a vital year for telecom reform, and the time is right to question why the services are taxed at all.

By Sonia Arrison
02/04/05 5:00 AM PT

This year will see many important battles in the communications industry, one of which is currently playing out in the Virginia state legislature. On one side are cable companies and on the other telecommunications firms, but both sides should realize they have a common goal. If they do, and work together, everyone will benefit, including consumers. The immediate controversy involves municipal franchise fees.

Cable companies pay the fees but telco companies don't. This didn't matter much in the old days, but now players like Verizon and SBC have announced they are rolling out cable services over broadband.

Messy Debate

Predictably, the question has now arisen whether telecom companies should have to pay franchise fees as well. And, if so, how should the process be streamlined so providers don't have to negotiate with thousands of city governments in order to roll out service on what is essentially an international network?

Virginia House Bill 2534, backed by Verizon and introduced by Republican Riley Ingram, would consolidate the patchwork of local cable franchise laws and regulatory authority to the state level and streamline entry into the video cable market. The bill would also simplify franchise renewals, as well as franchise fee payments to municipalities by cable providers. And while Verizon is backing the bill, they have also said that they don't think they should have to pay franchise fees in the first place, making cable companies panic and threaten to litigate.

Of course, the entire debate gets messier when one considers that cable companies have entered the telephone market, offering Internet telephony that competes with the telcos. Those in the telecom industry will quickly point out that cable isn't subject to nasty telecom regulations that burden the sector, such as forced property sharing and endless battles at price-control hearings. Indeed, the communications industry is converging.

Parity Among Platforms

The cable company can now be the phone company, and the phone company can be the cable company. But when each are subject to different rules, the competitive landscape is distorted. In order for consumers and communities to best benefit from the competitive forces in the marketplace, there needs to be parity among the different platforms. What Virginia decides will set an important precedent.

The best outcome for consumers and the economy would be for a complete eradication of franchise fees. After all, the fees were put in place when regulators were concerned with monopoly power, and things are different now. America's communications industry is such an important part of the economy that regulators should unleash their iron grip and allow the sector to take flight.

Cable and telecom companies should band together to put pressure on lawmakers to achieve a freer outcome, and they could even add satellite companies as a partner in this effort. That's because Virginia is also considering legislation to tax all communications providers at the same rate -- a decrease in taxes on telecom and an increase on satellite service providers. Why these communications should be taxed in the first place is anyone's guess.

System Overhaul

The telecom excise tax was originally put in place to fund the Spanish-American war. That war is over, and besides, America is supposed to be a country that supports free speech. Right now, the combined state and local tax rate for wireline telecom services averages 14 percent and can be as high as 30 percent. Verizon's executive vice-president Tom Tauke points out that that puts communications services in the "sin tax bracket, along with alcohol and tobacco."

One can understand when taxes are so high that the telecom companies would salivate over a lowering to a flat rate of five percent, but this is a vital year for telecom reform, and the time is right to question why the services are taxed at all. Yes, cities and states around the country are at peak levels of debt, but much of that problem comes from mismanagement and overspending.

The digital revolution has forced big companies like Comcast, SBC, and others to change their business plans, so it only makes sense that governments now do the same. Taxing communications puts our future and standard of living at risk. This is one fight where all the communications providers should come together and tell Virginia, and the rest of the country, that the time has come to let information be free.


Sonia Arrison, a TechNewsWorld columnist, is director of Technology Studies at the California-based Pacific Research Institute.


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