Senate Bill Promises Bevy of Consumer Benefits

Published August 1, 2006

In June, the U.S. Senate Commerce Committee approved the Communications, Consumer Choice and Broadband Deployment Act of 2006, sponsored by Ted Stevens (R-AK) and Daniel Inouye (D-HI). If passed by the full Congress, this massive telecom bill will bring consumers significant benefits, especially long-overdue cable franchise reform.

New technologies have made it possible for broadband providers to compete with cable’s video services by delivering television signals over the Internet–known as IPTV, short for Internet Protocol television. Unfortunately, the current system of cable franchising allows local government bureaucrats to make it difficult for cable competitors to enter the market. Stevens’ and Inouye’s bill would change that and open up the marketplace.

Healthy Competition

More competitors mean more choice, better quality, and lower prices. In states where local lawmakers have already passed reforms, the results have been stunning. This has led to a movement in state legislatures across the country to approve cable franchise reforms. Even California’s leftish Democrats, such as Assembly Speaker Fabian Nunez (D-Los Angeles), understand that less government control would increase choice and deployment. It also would increase tax revenues.

Brookings Institution scholars Robert Crandall and Robert Litan recently calculated that local government revenues from cable franchise fees would actually increase by more than $400 million due to competition. The reason is that although consumers would be paying 13.5 percent less for cable than they are now, subscriptions would increase between 29.7 and 39.1 percent.

Cable reform isn’t the only key item in the Stevens and Inouye bill. It also takes a rational approach to the issue of network neutrality.

Supporters of net neutrality argue broadband providers shouldn’t be allowed to charge more for premium services. Of course, anyone who understands economics knows that if companies can’t charge more for premium services, then those services won’t materialize. If that were to happen, Americans would be stuck watching as other countries continue to gain faster broadband speeds. The United States already lags behind other nations in broadband speed and deployment, and net neutrality “principles” would keep us there.

Putting Tax on the Table

Then there’s the tax issue. In the recent vote on the bill, the Senate committee agreed to make the Internet tax moratorium permanent. That’s a huge deal, especially since telecommunications–one way to access the Internet–is taxed at the high levels usually reserved for alcohol and cigarettes.

Indeed, tax relief should be the next big issue in telecommunications reform, especially since the Federal Communications Commission recently voted unanimously to require taxes on all Internet phone services that connect to the public-switched phone network. The tax revenue will be used by the Federal Universal Service Fund (USF), which is supposed to subsidize phone service in rural and low-income areas but is rife with abuse and waste.

Universal service is one downside of the Stevens and Inouye bill, as their legislation would keep the faulty program in place without reform. That’s disappointing, given that the USF budget has nearly doubled in the past eight years, tripling the telecom tax on long-distance providers and raising telephone costs for consumers. And it gets worse.

A Bill with Merits

In 2004, the FCC audited 100 schools that had received funds through the E-Rate program, which is funded through the USF and provides discounts on long-distance phone service, Internet access, and other telecom services. The FCC found one-third of the recipients were non-compliant with program guidelines. Many were suspected of scams such as bid-rigging, false reporting, and other kickback schemes with tech vendors. The system seems so open to abuse that it has been alleged the Gambino crime family used a Missouri-based E-Rate service provider to defraud the program out of nearly $22 million.

If it passes, the Stevens-Inouye bill would bring many benefits. Cable franchise reform, Internet tax freedom, and a settling of the net neutrality debate would be welcome developments.

The issue of universal service and the generally high levels of communications taxes will need to be addressed more clearly, but that will wait for a future session of Congress.

Sonia Arrison ([email protected]) is director of technology studies at the Pacific Research Institute. She traveled to Luxembourg to report firsthand on the Microsoft CFI hearing. This article is reproduced with permission of TechNewsWorld and ECT News Network.