FCC Mulls Taxing VOIP Calls

The FCC's new proposal to have VOIP providers pay dues to a service fund could raise the cost of VOIP services.

Businesses that moved to voice over IP calling services to lower their phone bills could see a portion of their savings disappear if the most recent FCC proposal to add VOIP services to the Universal Service Fund is adopted.

FCC Chairman Kevin Martin proposed recently that VOIP service providers such as Vonage, Skype and others begin paying 10.9 percent of 65 percent of their revenues into the USF.

The fund, which overall collects about $7 billion from interstate and international calls, is used to subsidize the cost of providing phone services to poor and rural customers.

It will lose as much as $350 million starting in August when DSL and other broadband Internet access services become exempt from having to contribute to the fund, according to Staci Pies, president of the VON Coaltion, an advocacy group for VOIP service and equipment providers.

At the same time, Chairman Martins proposal also includes raising the rate at which wireless carriers pay into the fund. While they currently pay based on 28.5 percent of their revenues, that percentage would increase to 37.1 percent under the new proposal, according to reports.

Although its impossible to measure how much of their VOIP traffic represents interstate calls, the VOIP service providers say 65 percent is way off the mark.

"Were not sure where the commission is coming up with the numbers. We have yet to come up with something that points to 65 percent of revenues being interstate," said Pies.

"We dont have any reason to believe [VOIP] calling patterns are different than wireless or wireline. That becomes a discriminatory assessment based on whatever type of technology youre using to make your calls," she added.

/zimages/1/28571.gifTo read more about previous FCC actions on VOIP tariffs, click here.

Its not yet clear how much it will increase the cost of VOIP services. By passing through the rate alone to customers, as traditional telcos do today, it could amount to about $1.77 per month for an average $25 monthly bundle, according to Pies.

Thats "not a deal killer" that would put VOIP service providers out of business, believes Ron Cowles, research vice president in Gartners Carrier Operations & Strategies practice in Stamford, Conn.

But such "back of the envelope" calculations do not include the cost to VOIP service providers for implementing the call tracking and billing systems required to add such fees to customers bills, according to Pies.

Such increased costs are likely to be passed on to customers, and traditional telcos, as well as wireless carriers, already have such systems in place, she said.

"That puts them at a disadvantage to wireless or traditional wireline. Early adopters bought [VOIP services] because they were less expensive," she said.

"It does make them a bit less competitive, but weve always said that the advantage they have now will go away and you better bank on it," said Cowles. "Theyre going to have to have flexible billing systems for all kinds of reasons — the same as competitors."

The proposal could be taken up as soon as the FCCs June 15 meeting. It has been an open issue that has already gone through an extensive comment period and is a top priority, according to Cowles.

With the August deadline looming, the FCC will have to act soon.

But how quickly VOIP service providers could respond, and how much they would actually help make up for the $350 million shortfall, is an open question.

"Adding VOIP and [increasing] wireless wont come near filling that hole," said Pies. "The number of VOIP subscribers is incredibly small compared to DSL and there will be a significant lag time for VOIP providers to get the systems in place to enable them to make these contributions."

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