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Press Release

    Statement of Kent Lassman Before the Subcommittee on Telecommunications, Trade, and Consumer Protection, U.S. House of Represent

    03/09/2000

    "I am for those means which will give the greatest good to the greatest number."

    – Abraham Lincoln, February 12, 1861

    Introduction

    Mr. Chairman, and members of the Committee, thank you for the opportunity to share my views on H.R. 3011 and H.R. 3022 – the Truth in Telephone Billing Act, and the Rest of the Truth in Telephone Billing Act. Both pieces of proposed legislation share a single attribute. Namely, public policy should not impede the flow of information so that consumers can make the best decisions possible.

    This is the most important and defining attribute of the legislation and should influence your deliberations today. A market process, free of regulatory mandates, is the best means to give the greatest amount of good information to consumers.

    I present these views on behalf of the members of Citizens for a Sound Economy Foundation (CSE Foundation).1 CSE Foundation recruits, educates, trains, and mobilizes hundreds of thousands of volunteer activists to fight for less government, lower taxes, and more freedom.

    CSE Foundation believes that individual liberty and the freedom to compete expand consumer choices and provide individuals with the greatest control over what they own and earn. CSE Foundation’s aggressive, real-time campaigns activate a growing and permanent volunteer grassroots army to show up and demand policy change.

    As evidence of this grassroots focus, I offer the following statistic. In 1999 CSE Foundation hosted five telecommunications or technology-related policy events in Washington, D.C. In the same time frame, we hosted or participated in more than 150 events around the country where telecommunications or technology policy was a primary focus.

    History
    Extensive regulation of telecommunications services predates the widespread deployment and use of telecommunications services in this country. Taxation and rate regulation are perhaps two of the most perverse forms of government intervention. Each should be eliminated to the greatest extent possible. Both serve to limit the ability of consumers to exchange information efficiently at affordable costs.

    Fortunately, the proposed legislation provides an initial step away from both extensive rate regulation and taxation of telecommunications services.

    In November of last year, I testified before the House Judiciary Committee on H.R. 2636, the Taxpayer Defense Act.2 The Taxpayer Defense Act would require legislative action before any new administrative tax could be instituted. Like some of the legislators here today, the supporters of that legislation are prepared to make policy changes to improve the amount of information available to consumers about the taxes, fees, charges, and subsidies associated with telecommunications services.

    The basic problem addressed by all three pieces of legislation is rooted in administrative – or regulatory – taxation. The hearing today amplifies the problem faced by consumers on a daily basis: unelected officials use the regulatory process to impose taxes upon telecommunications services.

    As I testified last year, H.R. 2636 would make this practice more difficult. Both pieces of legislation before us today – H.R. 3011 and H.R. 3022 – would provide consumers with more information about these taxes through mandates on service providers. Both of these objectives are desirable. However, I urge you to remain steadfast in pursuit of a solution to the root problem: taxation through regulation should be eliminated, not simply discouraged or made more transparent.3

    Pricing and Information
    Information is a costly commodity. This is true in the marketplace for telecommunications services just as it is true of the marketplace for shoes, fresh salmon, or stocks. It is also equally true with regard to information that explains the price that citizens pay for government services.

    Prices play a key role in the transmission of important information about goods and services. Changes in price signal changes in scarcity and allow consumers to adjust their use of a product accordingly. And therefore it is no surprise that consumers are best suited to determine which of the competing goods would meet their demand. It is prices that provide the information necessary to make these choices. When government policies affect prices – even the price of information – they can distort the market by altering the prices consumers see in the marketplace. To avoid such distortions, the government’s impact on price should be clarified wherever possible.

    There is widespread agreement that when it comes to government action that cannot be, or simply is not, performed by a private market that a "price" assigned to that government action increases responsibility and effectiveness of the government actor. In short, consumers should know what they are paying for, especially when it comes to government programs.

    Therefore, it is reasonable to expect that the information about the cost of government mandates provided to consumers as a result of either H.R. 3011 or H.R. 3022 would have a positive effect. First, it would allow consumers to have more complete information about the costs associated with telecommunications services. Second, it would provide a rough proxy for the price of the government taxes, fees, and other collections levied on telecommunications services.

    While the discussion today is focused on telecommunication services and the billing practices of telecommunications providers, it is instructive to look at an analogous situation. Consider the last time that you took your car to a mechanic for an oil change. Despite the fact that consumers at Al’s Auto Shop might get a bill that looks very different from a consumer’s bill at Charlotte’s Car Shop, there are distinct similarities. The type of service provided, the various new parts installed, and charges for labor are all listed.

    As such, it might be reasonable to require telecommunications providers to provide an explanation of the governmentally mandated taxes, fees, and charges on telecommunications services. However, because information can be costly, there is a point beyond which the cost of collecting information is greater than the benefit it provides.

    For example, it may be beneficial to provide information about regulated access fees to consumers. It would likely be cost prohibitive to distinguish the exact percentage of the access fee that is a "cost" versus "subsidy." This would be like an auto repair shop that listed the amount of rent and electricity necessary to provide a well-lit garage to perform an oil change. It is more efficient – for the service provider and for the consumer – to provide a reasonable estimate of the costs associated with the service.

    A Legislative Analysis

    The proposed "Truth in Billing" initiatives are quite similar. The Chairman’s legislation, H.R. 3011, would require telecommunications carriers that contribute to governmental programs to provide more information to consumers than is currently made available. This appears to conform to the overarching goal stated at the beginning of this testimony: Public policy should not impede the flow of information so that consumers can make the best decisions possible. With regard to generating information about federal telecommunications taxes, subsidies, and programs, H.R. 3011 is therefore an improvement upon the status quo.

    However, it is not necessary to create new law. In an effort to find a solution to the problems associated with little or poor billing information, this legislation appears to ignore the fundamental problem that is the relationship between, on one hand telecommunications services, and on the other hand, federal tax and regulatory policy. Federal taxes and regulation stand in the way of a market process that would generate clear billing procedures to provide information to consumers.

    The "Rest of the Truth in Telephone Billing Act of 1999," H.R. 3022, is essentially the same as the Chairman’s legislation, with one important distinction. H.R. 3022 would require carriers to provide subscribers of telecommunications services a separate line-item stating the amount of their bill that is collected for government programs, taxes, fees, and subsidies.

    This provision would continue and extend the basic goal mentioned earlier in this statement. That is, it is a means to provide the greatest amount of information to consumers as possible.

    CSE Foundation has argued strenuously in the past, and I affirm to you today, that individual consumers should know both how much they contribute to America’s costly subsidy regime and how much individual consumers benefit from the subsidy regime.

    The difference between the two pieces of proposed legislation is that H.R. 3022 is one step closer to a plain reading of section 254(e) of the 1996 Telecommunications Act where universal service support "should be explicit and sufficient to achieve the purposes of this section.

    Therefore, a strict policy analysis of H.R. 3022 would suggest that it is superior to its counterpart, H.R. 3011. However, absent a small technical amendment, the legislation would be difficult to implement and probably impossible to pass.

    Three words should augment sections (3)(A) and (3)(B) of H.R. 3022. At line 20 of page two and line one of page three the words "an estimate of" would improve the legislation:

    (3)(A) as a separate line-item, an estimate of the dollar amount that is being attributed to and collected from such subscriber for such governmental mechanism, fund, tax, or program; and

    (B) an estimate of the average amount per month by which the subscriber’s service is reduced by any subsidy identified under paragraph (1)(B).

    This change would allow the superior attributes of H.R. 3022 to succeed in spite of an ongoing and irreconcilable debate over how one fee or another may be the result of a combination of (a) a regulated recoverable cost, and (b) a subsidy.

    Conclusion
    Information technology is evolving faster than the legal apparatus designed to regulate telecommunications services. As one prominent authority has concluded,

    Television is leaving the air in favor of the wires; the telephone is leaving the wires in favor of the air. Copper and coax, wired and wireless, terrestrial and satellite: digital data networks are rapidly emerging as the new universal, universally interconnected standard for the transmission of everything—voice, data, video, the lot.4
    The effect of the 1996 Telecommunications Act and the dynamic, innovative technology marketplace have brought the exciting possibility of competitive forces to all aspects of the telecommunications marketplace. Yet, significant barriers still remain. First among them are regulated prices, fees, charges, and taxes upon telecommunications services. Consumers would be best served if these policies were stopped in their tracks and regulators no longer intruded into the price system for telecommunications services.

    A second best alternative is to promote the most efficient means to provide accurate information to consumers about the federal role in telecommunications services. The legislation considered today would achieve this second best alternative. Where necessary, an amendment should be made to allow for a reasonable estimate of the portion of a fee that is in part a subsidy and in part a regulated rate.

    The Truth in Billing Act and its counterpart the Rest of the Truth in Billing Act would serve to provide more information to consumers about the price of our government. Senator Wyden has identified at least 28 different programs or federal agencies that provide telecommunications assistance or subsidies. Each of these programs has an economic cost associated with it. To the extent that these costs are recovered through a consumer’s telephone bill, that information should be made explicit and available.

    Will Rogers observed that "If you ever injected truth into politics you have no politics." Public policy to inject truth into consumers’ telephone bills is a good start toward taking politics out of telecommunications.

    1 CSE Foundation does not receive any funds from the U.S. Government.

    2 Kent Lassman, Statement to the Committee on the Judiciary, U.S. House of Representatives, November 3, 1999.

    3 A brief summary of the federal excise tax.

    4 Peter W. Huber, Michael K. Kellogg, and John Thorne, Federal Telecommunications Law, page 3, 1999, second edition.