Ask Maggie: On cell phone taxes and the life and death of Flo TV

This week's Ask Maggie helps readers with questions about how to figure out if their carrier is charging them the correct tax rate, advice for Sprint BlackbBerry users, and the bad news about Flo TV.

A mobile phone bill may be one of the most confusing documents for a consumer to understand. With all the different federal, state, and local taxes tacked on at the end of your monthly bill, it's difficult to know what exactly you're paying for.

Ask Maggie

And now wireless subscribers who hold onto their old phone numbers when they relocate around the country may want to double check that they're being charged the appropriate rate. In some cases, some wireless subscribers may be paying the wrong rate. This means that some subscribers may be getting overcharged. While in other cases, some people are getting a break on their monthly bills.

In this week's Ask Maggie, I explain how cell phone state and local taxes should be assessed, and I offer information and links to help readers figure out if they're getting charged the correct fees.

I also answer a reader's question about whether the new BlackBerry Torch will be coming to Sprint Nextel. And I explain why I think Qualcomm's failed mobile TV service Flo TV is dead in the water.

Ask Maggie is a weekly advice column that answers readers' wireless and broadband questions. If you've got a question, please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header.

Are you overpaying your mobile tax?

Dear Maggie,

I was recently looking at my cell phone bill, trying to figure out what all the taxes and fees mean. How is the local and state sales tax I am supposed to be paying figured? I moved to California from Pennsylvania a couple of years ago. I still have the same phone number I had when I lived in Pennsylvania with a Philadelphia area code. So should my state and local sales tax be based on that area code or where I currently live in California? I think I am being incorrectly overcharged.

Thanks,

Larry

Dear Larry,

To answer your question, your specific tax rate should be based on where you live and use your cell phone. The Mobile Telecommunications Sourcing Act, which went into effect in 2002, mandates that wireless taxes and fees should be based on their "area of primary usage." In other words, the wireless carrier should apply the tax rate for your billing address. This means that your carrier should not use your phone number's area code to determine your state and local tax rate.

Unfortunately, some consumers have discovered that when they've moved, they have been taxed inappropriately. So it may be worth looking into.

In your case, Pennsylvania has a local and state sales tax of around 6.5 percent, according to a chart prepared by MyWireless.org, a consumer advocacy group sponsored by the wireless industry group CTIA. Localities can pile on additional fees, and the average Pennsylvanian is paying about 13.58 percent in state and local taxes and fees every month. (Keep in mind this does not include the 5.05 percent federal tax that every U.S. wireless subscriber is charged. With that fee included, Pennsylvania wireless subscribers pay 18.63 percent of their cell phone in taxes every month.)

By contrast, California's local and state sales taxes come out to 9.10 percent. Localities in California have not added as many additional fees as those in Pennsylvania, so the average monthly rate for local and state taxes and fees for Californians is 10.67 percent, about 3 percent less than what people in Pennsylvania are charged. With the 5.05 percent federal tax, Californians pay 15.72 percent in tax on cell phone bills each month.

In your particular case, the difference between what you should be paying in California versus what you paid in Pennsylvania is not huge. But those pennies and dollars add up over time. And because these are percentages of your total bill, the more you spend each month, the bigger the difference becomes. So it might be a good idea to make sure you are paying the correct rate.

On average American cell phone consumers are taxed 15.75 percent on every month's cell phone bill. This average percentage includes state and local taxes as well as federal taxes. The CTIA, the trade organization that represents wireless carriers, says this is outrageous considering that the average tax rate on other goods and services is about 7 percent.

Of course the 15.75 percent tax rate is just an average. Cell phone subscribers in some states are charged a much higher rate while consumers in other states are charged much lower rates. For example, Washington is the highest taxed state on cell phone service in the nation, according to MyWireless.org. Subscribers there pay on average 23.6 percent in taxes every month. Meanwhile, people just across the border in Oregon, which has no sales tax and very low local taxes and fees, pay the lowest tax rate in the country of 6.79 percent.

Figuring out exactly how much you are being taxed and what tax you should be charged is not easy. One of the most confusing things about reading your cell phone bill is figuring out what all the taxes and fees are for.

Part of the problem is that everyone seems to want a piece of the revenue. There's the federal tax, which is used to fund the Universal Service Fund. This fee is about 5.05 percent of your phone bill, and it's charged to everyone in the U.S. using a cell phone.

Then there are also state taxes and local taxes and fees that are tacked on to your bill. States and local governments, if they have one, add a sales tax. They can also add fees for e911 service. And on top of these fees, cities and other local governments often add even more fees.

For example, the city of Baltimore adds a flat $4 fee every month to cell phone bills for all residents. New York City, where I live, is among the worst places to live for all the local fees added. The local government here tacks on several taxes and fees in addition to the state and local sales taxes and e911 fees. For example, New York City adds a "Transit District sales tax," a "Transit District Excise Surcharge," and a "Local Utility" charge. In other words, New York City cell phone subscribers are helping to pay for the subway system and public utilities in the city. In total, New Yorkers pay 16.05 percent in local and state taxes and fees and 21.10 percent overall in taxes and fees when you add in the federal taxes.

The best place to start trying to figure out how much tax you should be charged is to check out a Web site on Mywireless.org, which provides a chart with the average state and local tax rates for all 50 states as of July 2010. MyWireless.org is a nonprofit consumer advocacy group sponsored and funded by the CTIA wireless industry association.

CTIA, which represents the wireless carriers, has been pushing Congress to pass legislation to limit taxes on cell phone service. The group is currently backing a proposal that would allow the federal government to put a moratorium on all new discriminatory taxes and fees at the state and local level.

After you look up the tax rate you should be charged and do the math on your phone bill to figure out what percentage tax you're actually being charged, if you believe, you are being charged incorrectly, Jim Schuler, assistant vice president at CTIA, who specializes in tax issues, suggests calling your wireless carrier. Ultimately, it's the carrier's responsibility to charge you the correct tax based on your billing address. And if it is not applying the appropriate rates, then the carrier must refund you the money.

If you are not making headway with your carrier, Deirdre Cummings, a legislative director for MASSPIRG, the Public Interest Research Group of Massachusetts, which is an independent consumer advocacy group, suggests you contact your state attorney general's office.

"It's better to work through a state agency than to complain to the Federal Trade Commission or the Federal Communications Commission, because these are state and local issues," she said. "The closer the agency is to where you live, the more likely you are to get a better result."

And finally, if you still feel like you are not getting the results you believe you deserve, consider contacting an attorney. Law firms, such as Edelson McGuire in Chicago, specialize in class action lawsuits and have worked on behalf of wireless clients in the past. The firm is currently not involved in any class action litigation on this issue, but it might be a case the firm would be interested in, depending on the exact circumstances.

A Sprint Nextel BlackBerry Torch?

Dear Maggie,

Do you know if Sprint will be coming out with the BlackBerry Torch or a comparable BlackBerry phone anytime soon? I've been going back and forth with Sprint for months now because I keep having problems with my BlackBerry Curve. They keep replacing it for me, but it's still not working properly. They've given me a new one three different times. I am considering dumping the BlackBerry altogether and getting an Android phone, even though I am a faithful BlackBerry user. I have always liked previous BlackBerry phones. I would get the BlackBerry Torch or something similar if it came to Sprint instead of a Droid. What should I do?

Thanks,

Zinia

Dear Zinia,

I have some good news for you and some bad news. The bad news is that I have not heard of the BlackBerry Torch or a similar BlackBerry phone with a touch screen and slide-out QWEERTY keyboard coming to Sprint Nextel anytime soon. I checked with some insiders who also said they had not heard of this phone or a similar BlackBerry device coming out in the CDMA/Sprint version. AT&T launched this phone in August as an exclusive. And the carrier has spent a lot of money marketing the BlackBerry Torch , so my gut tells me it will be quite a while before another similar device ends up on Sprint or any other competing carrier.

The RIM BlackBerry Style has a 2.7-inch main display plus a full QWERTY keyboard. RIM

Now for the good news: even though RIM won't likely introduce a BlackBerry Torch look-alike on Sprint in the near future, the company did just recently introduce the new BlackBerry Style on Sprint. This phone is the second BlackBerry to use the new BlackBerry 6 operating system. The BlackBerry Torch was the first phone to use this new operating system, which greatly improves the user interface and Web browsing experience.

The BlackBerry Style is exclusive to Sprint and its form factor is a clamshell design. It does not have a touch screen. But it does have a full QWERTY keypad, unlike the BlackBerry Pearl Flip, another clamshell phone that had the abbreviated SureType keypad.

Even though the form factor of the Style is different from the Torch, because the phones use the same software, the user experience and apps running on the phones will be similar. The BlackBerry Style also has a 5 megapixel camera and sufficient memory. Kevin Michaluk from the Crackberry blog said in his review of the device that he liked the BlackBerry Style. He called the new BlackBerry 6 software on the device "snappy." And he said you can't beat the $99 price tag.

"The camera has been taking good photos and the battery has been getting me through the day OK," he said. "If you're a flip phone fan the Style is a no brainer--especially at Sprint's attractive $99/2year contract pricing--and I could even see some non-flip phone fans getting won over by it too. It's a nice little addition to the BlackBerry lineup."

Nicole Lee, who reviewed the device for CNET, also gave it a good review:

"Despite a few quirks, the RIM BlackBerry Style's practical design and advanced feature set make it a great smartphone for BlackBerry newbies and veterans alike," she said.

The bottom line is that the BlackBerry Style on Sprint is not the Torch, but it's an adequate substitute. And it should offer a better experience than your current BlackBerry Curve. So if you are a true BlackBerry fan, you may want to check it out before you move over to Android.

Buh-Bye to Flo TV

Hi Maggie,

I called FLO TV last week to activate a second personal Flo TV and give it away as a gift. That's when I was told that they weren't accepting any new accounts or activating any more Personal Flo TV units. They offered to send me literature with instructions for proper disposal of these TVs. I entered into a one-year subscription in June 2010. Services are projected to terminate in the spring of 2011. Do you think some company will buy out Flo TV's parent/present company and reintroduce the service, thus, saving the fate of the personal TVs? I really like my Personal Flo TV and wish the company would stay in business.

Cris

Dear Cris,

I hate to break the bad news to you, but unfortunately, I don't see anyone saving Flo TV. You are one of the few consumers who even knew about the product and the service.

The Flo TV network was built by MediaFlo, a subsidiary of chipmaker Qualcomm. It uses spectrum in the 700MHz spectrum band and it only provides one-way broadcast communication. Qualcomm's original vision was to build the network and wholesale the mobile broadcast TV service to wireless carriers. Meanwhile, Qualcomm would manufacture special chips for devices that were necessary to receive the broadcast TV signals.

Verizon Wireless was the first to sell the service in 2007. AT&T followed about a year later with its offering . But the service never took off. There are a couple of reasons why. First, because the service required a special chip from Qualcomm, it only worked on a handful of handsets. And because it costs money to put additional chips into device, they didn't end up in the most popular handsets. Second, the service cost consumers about $10 more a month, and it wasn't available in every market. The spectrum Qualcomm acquired was for the analog TV channel 55. So the company had to wait until the digital TV transition to launch the service in many markets.

But I think the biggest reason that the service never really took off is that most people are not interested in linear, live TV on their mobile phones. And if they are interested in it, they don't want to pay $10 a month for it. Instead, people are much more likely to watch snippets of video on mobile devices on-demand. What's more, as paid TV services, such as Comcast and Verizon's Fios TV service, offer "TV everywhere" services, people will be able to use their existing paid TV subscription to catch up on TV viewing on a mobile device for no additional charge.

Because the service was not selling well through AT&T and Verizon, Qualcomm and MediaFlo decided to sell the Personal Flo TV device that you have. Unfortunately, these devices were also not a big hit among consumers.

This is why the company announced in October that it would discontinue the product and service . In its statement, executives said they were "examining strategic opportunities for FLO TV." Some of these conversations have been about partnerships, of which some of them have focused on selling the spectrum, the company said. My guess is that Qualcomm will try to unload the spectrum.

Right now, wireless spectrum is considered gold to many mobile operators and possible mobile Internet entrepreneurs. The Federal Communications Commission has said there is a spectrum shortage. And the federal agency is scrambling to make 500MHz of wireless spectrum available in the next decade. So there is a chance that the spectrum used to build the Flo TV network may be more valuable than the broadcast mobile TV network itself.

The only problem with the Qualcomm spectrum is that it may not fit the needs of specific wireless service providers, who may be interested in buying it.

For example, Lowell McAdam, chief operating officer for Verizon Communications, said in an interview with CNET recently that he had talked to Qualcomm's CEO Paul Jacobs about the MediaFlo spectrum. Verizon bought a nationwide block of 700MHz spectrum a few years ago to build its next generation wireless network. But he didn't seem enthused about bidding on Qualcomm's sliver of 700MHz spectrum.

"We have to see how their spectrum would fit into our existing spectrum," he said. "Even though the spectrum we are using for LTE is 700MHz, and the spectrum they have is also 700MHz, they are different flavors of 700MHz. So their flavors may not work with what we have."

This could be a problem that Qualcomm faces in general as it tries to offload this spectrum.

At any rate, I wouldn't hold my breath for another company to save the mobile TV service. Most experts would agree that the service wasn't something consumers really desired or were willing to pay for anyway.

 

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