FCC Plans Phone Tax Hike

The Federal Communications Commission (FCC) is requesting an increase of $1.5 billion for its E-Rate program, citing the need for improved internet connectivity in public schools. This would represent a 62 percent increase in current spending.

While better internet for schools may not sound like the most controversial thing ever, it’s worth considering how the E-Rate program actually works, as well as how it is funded. The Universal Service Fund for Schools and Libraries (E-Rate) was established in 1996 as way of subsidizing internet access to public schools and libraries. E-Rate is funded by the Universal Service Fund (USF), into which all telecommunications companies are required to pay. In the fourth quarter of 2014, the Universal Service charge was 16.1 percent of profits for these companies, so it’s not a small amount of money, and USF currently has an operating budget of $8.4 billion.

Even though E-Rate currently has $5 billion of unspent money in its account, the FCC wants to raise taxes on phone companies still further in order to finance its proposed spending hike. This would result in increased rates for phone customers of at least 16 percent, which would go to the Universal Service Fund in general, not specifically to E-Rate.

FCC Commissioners MIchael O’Rielly and Ajit Pai have both expressed doubts that the proposed new spending fails to address fundamental problems with the fund, and that more comprehensive reforms are needed to reduce waste and inefficiency. Simply throwing money at a problem, they argue, doesn’t make it go away.

Michael O’Rielly’s statement reveals some of his concerns about the proposal:

I am disheartened to hear that the FCC intends to increase the E-rate program by 62 percent, bringing the total USF budget to approximately $10 billion. How will the FCC pay for this spending spree? Initially, the FCC will raise telecommunications bills by at least 16 percent. And, ultimately, I predict the FCC will disastrously impose new fees on broadband service – a move that even some consumer groups have opposed.

Sadly, this action comes at a time when many families are still struggling and businesses are trying to regain their footing in the economy. Even worse, this new spending does not appear to be paired with any meaningful reforms to the E-rate program to target funding where it is truly needed. In fact, it could duplicate other universal service spending.

Ajit Pai is even more direct:

Last July, the Commission had the opportunity to enact bipartisan, student-centered E- Rate reforms. Instead, it adopted a plan with numbers that didn’t come close to adding up and promised outside groups a massive post-election tax increase. Now, less than two weeks after the election, those chickens are coming home to roost. I strongly oppose this 17.2% tax increase.

Instead of imposing a greater burden on families struggling to make ends meet in this lackluster economy, the Commission should pursue fiscally responsible reforms. These reforms would cut the bureaucratic red tape and focus resources on the children and library patrons of poor and rural America, where the need is greatest.

Over the last few years, the Universal Service Fund has suffered a loss of revenue as a result of consumers moving away from landline telephones, so it is not surprising that they are now looking for a way to raise rates. It also might be a motivating factor behind the push to start regulating internet service providers (ISPs) as common carriers under Title II of the Telecommunications Act, as President Obama has proposed. Under these regulations, all ISPs would suddenly find themselves required to pay into the Universal Service Fund, guaranteeing an immediate boost in revenues for the FCC, as well as higher prices for consumers.

The Commission’s unwillingness to enact meaningful reform, relying instead on quick spending and tax increases, is emblematic of the problems with federal bureaucracies managing complex industries. The same people who can’t efficiently allocate a school internet program now expect us to entrust them with the whole internet. Can there be any doubt that we would see the same mismanagement, waste, and eagerness to raise taxes on internet service that we see on phone service now?


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