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New taxes could run rural broadband

The Universal Service Fund could use taxes on VoIP and broadband to fund rural high-speed Net access.

New legislation proposed by two U.S. congressmen on Thursday could use taxes on Internet telephony and broadband services to fund subsidies for rural broadband deployments.

On Thursday, House Energy and Commerce Committee members Reps. Lee Terry (R-Neb.) and Rick Boucher (D-Va.) released a draft of the Universal Service Reform Act of 2005, which calls for new taxes to be added to voice over Internet Protocol and broadband services to help pay for the Universal Service Fund. The draft also proposes expanding the fund to subsidize rural broadband deployments.

USF has traditionally been used to subsidize services in rural and high-cost areas. It also helps pay for programs such as E-rate, which subsidizes schools and libraries across the country that provide Internet services. USF is funded by telephone carriers that each contribute a fixed percentage of revenues from long-distance, wireless, pay phone and telephone services. The companies generally pass on those costs to their customers, often in the form of extra charges stuck onto the end of phone bills.

But as technology like VoIP has evolved, and the line between long-distance and local calling has blurred, the Universal Service Fund is suffering from a lack of funding.

"The current state of USF is doomed," Terry said in a statement. "There are too few users paying into USF to meet the growing needs...We believe this draft provides fair remedies to the inequalities that currently exist."

Terry and Boucher suggest that contributions be broadened to include any provider that uses telephone numbers or IP addresses to provide a voice service to contribute to the fund. This would include independent VoIP providers like Vonage, as well as cable operators, like Time Warner and Comcast, which also offer VoIP services. The congressmen also suggest that any provider that charges a fee for providing a network connection also contribute to the fund. This would include all DSL and cable modem providers as well as anyone delivering subscription-based wireless Internet access.

The draft legislation also calls for the fund to be expanded to subsidize universal deployment of broadband in poor and rural areas.

In August, the Federal Communications Commission's federal-state joint board on universal service suggested that VoIP providers contribute to the fund. Changes to USF have been suggested as part of a broader overhaul of the 1996 Telecommunications Act. A draft of this legislation written by members of the U.S. House of Representatives Energy and Commerce committee includes provisions on broadband and VoIP services.

Any changes to USF are expected to increase prices of Internet telephony and broadband service for all customers, because carriers would likely pass on these expenses as line items tacked onto customers' monthly bills.

The public will be able to comment on the draft legislation through Dec. 23. The bill will not be considered in the committee before next year, according to Terry and Boucher.