FCC Imposes Universal Service Fees on Internet Telephony

Federal regulators on Wednesday agreed to impose or increase universal service fees on wireless and Internet-based phone subscribers.

The Federal Communications Commission (FCC) changed the “safe harbor” percentage for wireless carriers from 28.5 percent to 37.1 percent. The FCC is also requiring Voice over Internet Protocol (VoIP) carriers to contribute to the Universal Service Fund, a 10.9 percent fee on calling revenue. Those funds are earmarked to subsidize phone service in rural areas.

Biting Into Wireless

The increase in the safe harbor fees for wireless carriers is attributed to the rapid growth of the technology, combined with the trend toward using cell phones for long distance calls, according to FCC Chairman Kevin Martin. “The current safe harbor no longer accurately reflects the extent to which wireless consumers utilize their wireless phones for interstate calls,” Martin said.

The bigger news, though, is the FCC’s decision to tax Internet telephony. Many VoIP providers claim that their services are “inherently interstate,” Martin said. “Thus, we could require these providers to pay based on 100 percent of their revenues,” he added. Instead, the VoIP carrier contribution will be based on a safe harbor of 64.9 percent.

DSL’s Free Ride

The Federal Communications Commission’s decision to impose new fees on Internet telephony comes at a time when the US$7 billion fund faces cutbacks.

The FCC deregulated DSL last year. DSL broadband services, which contribute about $350 million to the Universal Service Fund, will stop paying into it this summer. That means consumers could see lower DSL bills — if the phone companies reduce the bills in accordance with the universal service fee savings.

All this is good news for traditional telcos, some of which bundle DSL and VoIP into their triple- and quadruple-play packages and have been paying into the USF across the board. It’s bad news, however, for pure play VoIP firms like Vonage.

More Expensive VoIP

Voice over Internet Protocol (VoIP) customers may be paying higher rates thanks to the new fees. That, said IDC analyst Will Stofega, could eat away at Vonage’s price advantage but leave PC-to-PC players unharmed.

“It’s pretty clear that the FCC is not going to do anything with companies that do not touch the Public Switched Telephone Network,” Stofega told TechNewsWorld. “If it’s a PC-to-PC call, it doesn’t traverse the PFTN and it stays out of the FCC’s domain.”

Skype, then, would escape the fees for its original service, but pay up for its SkypeOut version. Google Talk would remain unscathed. Vonage, however, could feel the pinch.

“It’s not good news for any of the carriers,” Stofega noted. “Universal service has been a hotly debated topic. The funding is not where it should be. There are a lot of rural areas that are underserved. So is it really serving the purpose it’s intended to serve? That’s the question.”