California's broadband tax on phone service poses hard choice

2 March 2016 by Steve Blum
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Is it a rock or a hard place?

The ban on state or local Internet access taxes creates a dilemma for policy makers in California. Right now, some broadband infrastructure construction is subsidised by the California Advanced Services Fund (CASF), which gets its money from a relatively small tax on telephone bills.

In other words, telephone customers are paying to improve service and, presumably, reduce costs for broadband subscribers. Nearly all people who buy broadband service are also telephone customers – the CASF tax is applied to mobile and VoIP service too – but the reverse isn’t true. With the statewide broadband adoption rate in the 70% range, there are still plenty of people who pay the CASF fee via their phone bill but don’t have broadband service. Yet they’re paying to subsidise it for others.

The Federal Communications Commission conceivably could apply federal universal service fees to broadband bills, as it does for telephone service. The current ban only applies to state and local governments, although some in congress want to extend it to the federal level too. That doesn’t do anything specific for California, though, except potentially funnel money from here to other states, given a built-in bias towards incumbents and the tendency of federal telecoms programs to favor midwestern and southern circumstances.

There’s no easy answer. It’s hard to make a connect-the-dots argument that the general universal service authority given to states overrides the specific Internet access tax ban, although some are sure to try. The CASF tax is often characterised as a fee, but the non-partisan California legislative counsel’s office – the legislature’s in-house lawyer – says nope, it’s a tax. So it’s still a choice between taxing phone service for broadband purposes or doing nothing at all.