Taxes Are The Key To Telecom Reform

Huge Compliance Costs Cited

Bierbaum noted telecom companies have 391 taxes to administer, compared to 118 collected by other businesses. Telecom firms must also contend with 15,218 taxing jurisdictions, versus 8,262 for other businesses. “There are huge costs on the industry in complying with these taxes,” she said. “The number of returns that we have to file a year--we’re talking about transaction tax returns--for general business is about 8,284 returns a year. For telecom, it’s over 67,000 returns a year, for a national provider. AT&T’s number approaches that. Every 1.2 minutes of the workday, we are sending somebody at the state or local level a tax return.” In addition to the administrative costs associated with the preparing and filing of so many tax returns, there are litigation costs, according to Bierbaum.

Taxes Complicate Billing

Bundled service packages, which give consumers a variety of services such as local calling, long-distance calling, Internet access, and other services under one charge, are also causing problems. In many locales, each piece of the package is taxed differently, sometimes not at all. Bierbaum said this makes it extremely difficult to determine what the tax should be. “The customer shouldn’t have to pay tax on the full charge,” she said. “Again, this is important to us because of a class-action lawsuit risk.

One of the regional Bell companies has a class-action lawsuit that has just been filed against it, where Internet access was included in the bundle. The consumers are saying, ‘Hey, wait a minute, my legislators said Internet access was not taxable. Why are you taxing us?’ Again, we’re put in the middle.”

New Entities Treated Differently

New voice providers, such as those using voice over Internet Protocol, which provides telephone service over the Internet, have big tax advantages over traditional firms, because they often have no tangible property or employees in states where they do business, according to Bierbaum. They cannot be compelled to collect taxes in states where they have no physical presence.

One such provider, in New Jersey, collects sales tax only on New Jersey customers. Customers in the rest of the country are not taxed.
 “So you’re going to buy service from AT&T or Verizon and pay, in Richmond, Virginia, 28 percent,” Bierbaum said. “Or you can go to this new company and pay zero in tax. You’re going to distort behavior in consumers.”

Tax Laws Obsolete

 “The technologies are exploding, and the laws are not keeping up with those changes,” said Scott Mackey, an economist at Kimbell Sherman Ellis who specializes in the telecommunications industry. “This is creating a lot of problems,” he said, including discrimination against certain providers of communication services.

 “Clearly, the way the economy is going, you have got to have this infrastructure in your states,” Mackey said. “How are the companies that have these billions of dollars in network investments under the regulatory scheme going to survive if we persist in having this discriminatory tax system ...?

 “The gap between the unregulated or favorably taxed provider and the provider that is saddled with all these discriminatory taxes is only going to grow as market forces drive down the price of the service but not the tax,” he said.

SBC To Bundle Phone, Web, TV Service Into One Package

Seeking to stake out its share of the consumer electronics market, SBC Communications Inc. detailed its vision Thursday for a sophisticated bundle of telephone, television, cellular and Internet services.

The new package will be offered to about half of SBC's 35 million-plus customers in California and 12 other states within three years, the telephone giant's chairman, Edward Whitacre, told attendees at the annual Consumer Electronics Show in Las Vegas.

The new package of services will be called U-verse and will be available in some markets later this year, Whitacre said. There is no timetable on when it may be offered to Sacramento-area customers.

Such a bundle of offerings moves SBC further away from its core business as a telephone company but allows it to compete more effectively with cable providers, such as Comcast, which already has video and Internet and is adding telephone service in some markets.

"SBC doesn't have any choice. This is what's happening in the telecom industry," said Jeffrey Kagan, an independent telecommunications analyst.

Congress Bails Out Universal Service Fund -- For Now

The Senate's approval of the National Telecommunications and Information Organization Act, HR 5419, followed approval by the House of Representatives, which had passed the legislation by unanimous consent two weeks earlier. Contained in the legislation are three separate acts addressing the structure of nationwide 911 services, federal spectrum reallocation, and the Universal Service Fund (USF).

The "Universal Service Anti-Deficiency Temporary Suspension Act" proved to be the most politically difficult of the three. The USF is a federal program that collects an 8.9 percent fee from long-distance telecommunications companies to subsidize telecommunications services for low-income and rural customers. It also subsidizes discounts on Internet access for eligible schools, libraries, and rural health care providers.

An immediate hike in contributions from subsidizing telecom companies would have been necessary to cover the shortfall and unfreeze the funds. Because telecom companies recoup these USF fees from their customers, the FCC's decision would have meant a huge increase in consumer landline and wireless telephone bills.

The National Taxpayers Union (NTU) ultimately but reluctantly decided to lend its support to the legislation, for the sole reason of preventing the immediate tax increase that the FCC's decision would have created. The group's reluctance stemmed from its longstanding position that the USF itself should be eliminated. However, NTU officials argued consumers shouldn't be further punished because of an accounting change, regardless of its merit, to a broken federal program.

"By enacting HR 5419, Congress may have saved taxpayers from the immediate threat of a USF-triggered tax hike," said Pete Sepp, NTU vice president for communications. "But the long-term prospects for the modern, free-market telecommunications system Americans want will be greatly diminished unless elected officials stop looking backward and start moving forward.

"That means ending the USF, dramatically reducing telecom taxes, and clearing away the thicket of regulations that continue to choke development of technologies to help improve our lives," said Sepp.

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SBC Communications has launched its Wi-Fi service called the FreedomLink service in 600 Barnes & Noble Inc bookstores. The service will allow the laptop users to access wireless high-speed Internet access.

The cost of the service is pegged at $3.95 for a two-hour session. The annual membership at a cost of about $19.95 a month will allow the users access to the service for unlimited hours at about 5,000 SBC Wi-Fi hot spots.

The introductory offer by the company also allows SBC Yahoo DSL customers unlimited access for free at the SBC hot spots till April 15 2004 and they can continue to use the service at a cost of $1.99 for an annual subscription.

In another tie-up with Cendant Corp's Avis Rent a Car, Wi-Fi service will be offered in 88 Avis locations on the airports in the US by 2005.
 

Safety officials have received 83 reports of cell phones exploding or catching fire in the past two years, usually because of bad batteries or chargers.

Burns to the face, neck, leg and hip are among the dozens of injury reports the Consumer Product Safety Commission has received.

The agency is providing tips for cell phone users to avoid such accidents and has stepped up oversight of the wireless industry. There have been three voluntary battery recalls, and the CPSC is working with companies to create better battery standards.
 

Plans for a downtown Midland connection for 'Net surfers with PDAs, cell phones or laptops won't happen in the near future.

The Midland Downtown Development Authority had supported a plan to place three antennas for wireless service so PDA, cell phone or laptop users could sit in their cars or on park benches and get their e-mail or surf the Internet.

DDA Executive Director Christin O'Callaghan had worked with Mercury Network of downtown Midland to study the the idea but, because the equipment would cost more than $3,000, the DDA would have had to seek bids for the work.

O'Callaghan said wireless fidelity, or WiFi, won't be feasible for the time being because technology is changing so rapidly. The proposed antennas might become obsolete in three to five years, so spending $12,000 to $15,000 for the wireless service isn't a good idea, she said.

O'Callaghan said she thought the downtown WiFi project would good for the DDA to support because it would add a new amenity, allowing people to connect free of charge. She said it wouldn't be the kind of thing private companies would want to provide on their own because they'd have to shell out $12,000 to $15,000 and get nothing back for it.

Ashman Court Marriott Conference Hotel has had WiFi about 18 months. It's available in the lobby, the restaurant, the ballroom and conference room foyers, the concierge lounge and most of the meeting rooms, said Donna Beall, director of sales and marketing.

Espresso Milano has had WiFi for several months, although it was down for a time, said longtime employee Nathan Thomas. Two or three patrons come in nearly every day with their computers, and others come from time to time.

"I think it's worthwhile for sure," he said. "More people are buying laptops, and laptops are coming standard with wireless technology.

"It's a nice environment to do work in -- just sit and have a cup of coffee."
Bistro 101 manager Laura Janson said she expects the restaurant will have WiFi by month's end. She's been told it will operate throughout the building -- at all tables and at the bar.
 

T-Mobile earned an "A" for Caller Satisfaction, with Verizon and Cingular tying for second place earning "B's". For Call Completion, T-Mobile received a "B" with callers obtaining the information they wanted on the first call, as compared to Verizon Wireless and Cingular each receiving "C's" in this category.

Cingular was the most improved carrier moving up a grade in each category from the previous quarter.

Other results included in this study:
 -- AT&T Wireless (now merged into Cingular) received a "D" in Caller Satisfaction and a "B" in Call Completion

-- Sprint PCS (NYSE:PCS) received a "D" in Caller Satisfaction and scored a "C" in Call Completion.

"The most surprising drop was Verizon," said Peter U. Leppik, CEO of VocaLabs. "T-Mobile is leading the mobile phone carriers in customer service.

According to our data, we are still seeing many of the same customer service complaints such as difficulty in connecting to an agent, long hold times, and automated systems which are difficult to navigate," said Leppik.

VocaLabs asked study participants to provide details on their customer service experiences. Difficulty connecting to a live customer service agent continued as the most frequent complaint.

One study participant shared his frustration and commented, "I hate all these menus -- they need to make the first option "talk to a live person" and go from there."

Data in this report were gathered between September 2004 and December 31, 2004
 

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