Wireless Industry Makes Case Against Proposed Taxes, Regulation

Published June 1, 2010

Nearly every state is facing record budget deficits, and legislators are increasingly looking to the technology sector–especially the wireless industry–for new sources of revenue.

This trend, along with the specter of federal regulation, was a hot topic at this spring’s annual meeting of CTIA–The Wireless Association in Las Vegas.

“States are in a lot of trouble financially, so when a state takes a look at the industry and its growth and success, they see a possibility of new revenue to help them solve some of those issues,” said Scott Mackey, partner with the Kimbell, Sherman and Ellis law firm in Montpelier, Vermont.

Local Governments Want More

While the overall U.S. economy has struggled, the wireless sector has been a rare bright spot of growth. As a result, cities that face rising expenses, falling property tax revenues, and sales tax declines are starting to look at taxing the cell phone bills of local residents.

“Wireless consumers need to be very concerned that cities and states might come after them with new taxes,” Mackey said. “As the industry continues to grow as others suffer, it becomes an immediate target for [governments] looking to get new money to solve some of their immediate budget problems.”

Cell phone tax rates for the consumer average about 15 percent nationwide when federal, state, and local taxes are added together. But consumers in some states, like Nebraska and New York, pay as high as 22 percent. Such tax rates begin to have a diminishing rate of return, according to Mackey.

“When wireless consumers are loaded up with taxes, they can’t afford to spend as much on these services that they want and need,” Mackey said after returning from the CTIA show in late March.

Regulation a Threat

Randall Stephenson, president and CEO of AT&T, said in order for the wireless industry to continue to attract investment, innovate, and maintain a competitive environment, the government must use a light regulatory touch in the wireless sector.

“The very nature of superfast mobile networks, devices, and apps may seem sufficient to attract capital to fund all of these economic growth engines,” Stephenson said. “But we’ve seen time and time again that private investment does not necessarily freely flow to infrastructure and innovation when our industry is encumbered with what is well-intended but generally stifling regulation.

“Historically, there’s been a light regulatory touch on the Internet and the wireless industries,” Stephenson added. “As a result, private-sector investment has poured into this industry to the tune of $340 billion over the last five years.”

Keeping U.S. on Top

Stephenson notes the United States leads the world in mobile phone innovation and investment, pointing to the nation’s lead in 3G and 4G subscribers, mobile broadband usage, mobile applications, and emerging wireless devices.

But onerous taxes and regulation threaten this country’s position, Stephenson says.

“When the rules and the incentives are right, capital investment flows, and it flows very aggressively,” Stephenson said. “New companies are launched, new infrastructure is built, jobs are created, competition intensifies, and innovation flourishes. The results are indisputable.

“Mobile broadband stands to be this decade’s economic growth engine,” Stephenson said. “It’s going to drive innovation, capital investment, and job creation.”

Net Neutrality a Concern

The Federal Communications Commission is contemplating enforcing strict “net neutrality” rules on the digital economy, regulating how Internet service providers manage their networks.

Steve Largent, president and CEO of CTIA, says the growth of the wireless sector would be impaired if net neutrality rules are applied to smart-phone technology.

“In this hypercompetitive wireless business, there is no need for net neutrality regulation,” Largent said. “The FCC was not able to find a single example of a wireless carrier doing harm.”

Wireless Is Different

At the CTIA show in Las Vegas, Largent broadly outlined several reasons net neutrality rules shouldn’t apply to wireless:

  • Wireless networks are inherently different from the wired networks that net neutrality rules were designed to manage.
  • The proposed rules ignore how wireless service providers must constantly evolve and adapt their networks to meet market demand, and would lead to a “lowest-common-denominator” set of devices.
  • Imposing net neutrality rules on wireless would cause harmful unintended consequences that would stifle needed investment. Wireless providers need the freedom to innovate without worrying about possible government intervention in the future.

Polls Support a Light Hand

According to Largent, a recent Zogby International consumer survey found 62 percent of respondents said wireless carriers were better equipped than the government to handle network traffic issues.

Only 6 percent of respondents said the federal government would do better than the wireless market.

Wireless Tax Gauntlet

Mackey said the state legislature in Maine recently considered legislation shifting some of the tax burden off property owners by raising taxes on those who own wireless devices. An intense lobbying effort by Mywireless.org helped convince residents to force legislators to back off the proposal.

CTIA noted at the conference there are other taxes on wireless devices the organization is also fighting against. One is a federal law taxing employees for personal use of a company-provided wireless device.

The rule was written in 1989 and is outdated, according to CTIA, which supports pending legislation to remove the tax.

Phil Britt ([email protected]) writes from South Holland, Illinois.