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REPORT: USF FEDERAL PHONE TAX “CRISIS” IS A HOAX, NO NEED FOR RUSH TO ANTI-CONSUMER FUNDING SCHEME
"Telecommunications World Equivalent of WMDs in Iraq"; FCC Chair Martin’s Plan Would Raise USF Fees on 43 Million Households
WASHINGTON, DC (February 27, 2006) -- A “phony crisis” is being manufactured by Federal Communications Commission (FCC) Chairman Kevin Martin and some on Capitol Hill who want to change the Universal Service Fund (USF) fee on long-distance bills to a flat per-line charge that would increase phone taxes by up to $700 million for 43 million U.S. households, most of them low-income seniors, rural residents and minorities, according to a new report by the Keep Universal Service Fund (USF) Fair Coalition.
Released on the eve of U.S. Senate Commerce Committee hearings on USF contributions, the KUSFF Coalition report, which is entitled, "Exposing the Hoax: The Phony 'Crisis' of the Universal Service Fund,” notes: “Proponents of killing or expanding the federal Universal Service Fund (USF) fee paid by consumers on long-distance charges share one thing in common: the claim that the Fund contribution formula is ‘broken’ and ‘needs to be repaired.’ ... However, the facts suggest that the case for a change so radical as shifting USF to a numbers-based formula is the telecommunications equivalents of weapons of mass destruction (WMDs) in Iraq: The evidence of a problem isn’t there.”
KUSFF Executive Director Maureen Thompson said: “As the actual USF data reflect, there is no Universal Service Fund contribution ‘crisis’ today. There is no evidence that the contribution system is ‘broken’ or ‘needs repair.’ If changes to the USF contribution formula actually are needed at some point in the future, it is possible to make modest incremental adjustments falling far short of radical upheaval of the sort of that would harm tens of millions of the most vulnerable U.S. consumers.”
Consumer Action Director of National Priorities Linda Sherry said: “I am concerned that despite repeated calls for it to do so, the FCC has not come forward with a public estimate of the effect of the change on low-income consumers, including seniors on fixed incomes. It simply does not make sense for the FCC or Congress to radically overhaul the contribution method for USF funding without first taking a long, hard look at who would pay for the so-called simplicity of a numbers-based plan.”
Based on publicly available records, the facts cited in the KUSFF report about USF funding are:
- The USF fee passed on to consumers has been stable – not rising quickly. In the first quarter of 2006, the contribution formula was set at 10.2 percent of long-distance charges, which was the level set by the FCC for the preceding two quarters and an actual decrease from the 11.1 percent set for the second quarter of 2005 and 10.7 percent in the first quarter of that year. With the current relatively stable contribution factor, consumers are making lower USF payments today than they were in 2002.
- The current USF revenue base is stable – not eroding. In 2003, the long-distance revenue base for the Universal Service Fund fee was $76.6 billion, compared to an estimate of $78.9 billion in 2006. In 2007, the projected revenues will be down slightly to $76.8 billion, but that is still slightly higher than the 2003 level.
- The potentially enhanced USF revenue base is growing – not insufficient. The current USF contribution methodology could logically be extended on a technology-neutral basis to include advanced telecommunications and Voice over Internet Protocol (VoIP). The 2004 expanded revenue base for USF would have been $95.3 billion, growing to $104.5 billion in 2006 and $105.9 billion in 2007.
- Under a technology-neutral approach to USF funding, all consumers using long distance would pay less than they do now – not an increase of 1,000 percent or more for many under a “numbers” approach. Under an expanded USF revenue base, the USF contribution would have dropped this year from the current 10.2 percent (the contribution factor set for the first quarter of 2006) to roughly 7 percent.
The new report from KUSFF is the second it has issued in recent months. On November 17, 2005, the Coalition released a report entitled “Losing Numbers: How America’s Most Vulnerable Consumers Could Suffer Under Universal Service Fund (USF) ‘Reform’”. That 2005 report concluded: “The currently consumer-friendly ‘pay for what you use’ approach to funding the Universal Service Fund would be replaced under the Martin plan with a regressive, flat-fee arrangement of $1-$2 or more per phone line – regardless of whether or not consumers even make a long-distance call. For a consumer who now dials only a handful of long-distance calls per year and pays correspondingly low USF taxes, the effective tax rate under the Martin plan would soar by more than 1,000 percent on an annual basis! With low-income and elderly consumers already socked with high gas prices, the prospect of soaring winter heating bills and continued inflation in medical prescriptions, the wide range of diverse groups in the Keep USF Fair Coalition are opposing the Martin ‘numbers’ based plan. These groups caution against balancing USF finances on the backs of the very consumers who use long-distance the least and are unable to afford phone bills that would rise under “numbers” simply in order to subsidize high-income/high-volume callers.”
ALTERNATIVE APPROACH RECOMMENDED
The chief argument advanced for the Martin “numbers” plan for USF incorrectly assumes that there is no viable alternative to it. In reality, Keep USF Fair Coalition members and other groups concerned about the threat posed to America’s most vulnerable consumers by a “numbers” based approach are coalescing around the “Fair Share Plan,” which would eliminate the need for radical changes that would be injurious to vulnerable consumers. The Plan assumes the following, common-sense reforms to improve the USF contributions process to ensure sufficient funds:
- Expand the USF contribution base to include revenues derived from all telecommunications, including services provided using Voice over the Internet Protocol (VoIP) technology.
- Establish a contribution factor cap to be applied to the revenue-based approach, e.g., somewhere between 12 and 15 percent of revenues derived from interstate telecommunications (including VoIP).
- Carriers would still be assessed based on revenues up to that cap amount, and would still have the right to charge their end users a USF recovery charge not to exceed the capped amount.
The Plan would benefit those low-income users who make few interstate calls. They would be subject to flat assessments for their wireline and wireless telephone numbers, but the level of those assessments would be measured in cents, not the $1.00 or more anticipated under a “connection” or “numbers” based funding plan.
ABOUT THE COALITION
The Keep USF Fair Coalition (http://www.keepusffair.org) is committed to keeping the Universal Service Fund collection method fair, and opposing proposals to move to a regressive, per-line flat fee. Now counting more than 115,000 members in its ranks, The Keep USF Fair Coalition was formed in April 2004. Current members include Alliance for Public Technology, Alliance For Retired Americans, American Association Of People With Disabilities, American Corn Growers Association, American Council of the Blind, Black Leadership Forum, Consumer Action, Deafness Research Foundation, Gray Panthers, Latino Issues Forum, League Of United Latin American Citizens, Maryland Consumer Rights Coalition, National Association Of The Deaf, National Grange, National Hispanic Council on Aging, National Native American Chamber of Commerce, The Seniors Coalition, Virginia Citizen’s Consumer Council and World Institute On Disability.
The NAACP is a supporter of the Keep USF Fair Coalition, and is among the many national organizations that have filed comments with the FCC in support of a non-regressive USF collection method. Keep USF Fair also has received support through a resolution passed in 2005 by the National Association of Consumer Agency Administrators (NACAA). The resolution recognizes that a "restructuring effort of the Universal Services Fee must find a fair method, competitively neutral, that takes into consideration new technologies," and says that a "flat fee or exclusively numbers-based plan would be unfair to millions of consumers, especially lower call volume users if they would now pay the same fee as high volume, business users."
CONTACT: Ailis Aaron, (703) 276-3265, or aaaron@hastingsgroup.com.
EDITOR’S NOTE: A streaming audio replay of the related telenews event is available at mms://www.hastingsgroupmedia.com/KUSFF/022706USFhoax.wma . |
