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Senator plans Net taxes but no Net neutrality

Republican proposal would levy new taxes to pay for broadband services, but skips the thorny question of Net neutrality.

WASHINGTON--More Americans would be forced to pay taxes subsidizing broadband service in "unserved" locales, and cities would be free to go into the Wi-Fi business under an upcoming U.S. Senate bill.

Later this week, Sen. Gordon Smith, an Oregon Republican, plans to introduce a legislative package called the Broadband for America Act of 2006, he said Tuesday morning at a conference here hosted by the National Telecommunications CooperativeAssociation, which represents small and rural carriers.

Net taxes on the way?
Sen. Gordon Smith's proposal would force Americans to pay more to log in. Here's why:
Currently telephone companies are forced to cough up a percentage of their revenues to the so-called Universal Service Fund, which subsidizes school and library Net connections and has been plagued by fraud--$4.7 billion was distributed during the first nine months of 2005.

While some details remain unclear, Smith wants to levy this tax on broadband providers too--and they're expected to turn around and pass it on to their customers in one of those fine-print notices at the end of their monthly bills.

Because Universal Service taxes are diverted to pay for rural telecommunications access, Democrats and Republicans from rural states tend to see eye-to-eye. A Democratic proposal, for instance, would levy Universal Service taxes on Internet chat services as well.

Conspicuously absent from the bill, however, is any mention of Net neutrality, which refers to the idea of the federal government forcibly preventing broadband providers from favoring some Web sites or video streams' connection speeds over others. The concept has generated significant controversy in the House of Representatives' version of a telecommunications reform bill. The House Energy and Commerce Committee is scheduled to take up its own proposal again on Tuesday evening, with a vote expected later in the week.

A copy of the 41-page bill seen by CNET is essentially a combination of existing proposals introduced by Smith and his colleagues on the Senate Commerce Committee. That committee's Republican chairman, Sen. Ted Stevens of Alaska, has also been readying what Smith called "an even more comprehensive bill" intended to overhaul the Telecommunications Act of 1996, which has been criticized as outdated for failing to account for the Internet's vast new influence.

Smith's bill is not intended to rival Stevens' proposal, he said, but he hopes that its "targeted" nature will allow it to pass more speedily through committee and to the Senate floor. "The bigger it is, the more comprehensive it is, the more likely it is to get bogged down," he said.

As network operators roll out more advanced broadband services, particularly video, they've argued that they should be able to finance those efforts by charging bandwidth-hogging content providers extra fees for the privilege of faster transmission or other preferential treatment. Net neutrality supporters say they're concerned such a practice would amount to unprecedented Internet "gatekeeping" that could raise consumer costs and inhibit innovation, and they've called on Congress to legislate against it.

Smith, for his part, told reporters after his speech that he'd rather "wait and see whether there's a problem before we legislate (on Net neutrality). I'm not convinced we're there yet." Senate Commerce Committee Chairman Stevens has also voiced reluctance to include Net neutrality in his broad telecommunications reform bill. A committee aide said Tuesday that Stevens is still wrestling with whether to include any such language.

Smith's bill instead focuses on four major areas. It would require the FCC to establish rules requiring that all companies "capable of supporting two-way voice communications" pay into the Universal Service Fund, a multibillion-dollar pool of money that's currently used to subsidize telecommunications services in rural and other high-cost areas, schools and libraries.

Right now, long-distance, wireless, pay-phone and wireline telephone services are required to pay a fixed percentage of their revenues to the fund, which they typically do by tacking an additional fee onto their customers' bills. A number of the larger voice over Internet protocol providers, including Vonage, have said they already pay into the fund, but there doesn't appear to be a formal regulation requiring them to do so.

Smith's bill also proposes allocating up to $500 million per year for supplying broadband service in areas where private investors are "reluctant" to set up networks. Certain users, such as low-income households, would be exempt from the fees under Smith's proposal.

A second portion of the bill, rooted in two earlier proposals, would give the Federal Communications Commission 180 days to establish rules for unlicensed use of so-called "white spaces" on the broadband airwaves--that is, empty, unused channels in the broadcast TV bands. Consumer advocates say using those slices of the radio spectrum would enable cheaper and easier setup of broadband networks, but the broadcasting lobby has voiced fears that such uses would muddle their stations' reception.

A third provision comes from the Community Broadband Act introduced last summer by Sen. John McCain of Arizona and Sen. Frank Lautenberg of New Jersey. That bill, aimed at preventing states from blocking public-sector entrants into the broadband business, appears to be targeting more than a dozen states that have already passed laws bearing such restrictions or prohibitions.

Another provision is designed to relieve new entrants to the video services market from negotiating franchise agreements with individual cities and towns--a matter that has sparked controversy among cable companies, which have historically had to negotiate such deals, and phone companies seeking relaxed regulations so that they can roll out their own video services more quickly.