Universal Service and Intercarrier Compensation Solutions
Even with limited USF support, wireless service providers are doing an outstanding job of meeting the needs of their many rural customers. However, if wireless carriers have the same access as ILECs to the USF monies, a broadly competitive marketplace will exist. Universal service and intercarrier compensation reform should be guided by certain key principles relating to consumer choice, efficiency, non-discrimination, and administrative simplicity. This will set the stage for maximum consumer benefit, and ensure customers can choose the communication mode that most truly meets their needs. An artificially supported, government-directed system should not be making that choice for them.
Costly Unfunded or Underfunded Government Mandates
Unfunded or underfunded government mandates, such as local number portability, E911, and outage and revenue reporting obligations, pose a disproportionate threat to customers and providers in rural markets.
Sometimes, the expense of these unfunded mandates makes it difficult for smaller, local carriers to offer both high-quality service and upgrades. As Terry Addington, then-CEO of First Cellular of Southern Illinois, remarked, “new government obligations that must be paid for, but are not funded, burden us all, especially small carriers like me. Mandates forced me to sacrifice projects that improve customer quality–delaying new cell sites and slowing the upgrades I planned for the delivery of higher-speed data solutions.”
Discriminatory Taxation of Wireless Consumers
Another significant concern for wireless customers is the high rate of taxation. Currently, more than one third of U.S. states require wireless consumers to pay double-digit taxes and fees on their wireless products and services. Such high rates are usually reserved for oldfashioned “sin” taxes—exceptionally high additional governmentimposed charges intended to discourage consumption or use of a particular item or service. Wireless communication is an increasingly powerful driver of our nation’s economy, and excessive taxes and fees should not discourage consumers from using such a valuable resource. When taxed at such unreasonable levels, consumers are not able to utilize fully the potential wireless provides them.
One reason for the high taxation rates is the ingrained thinking of many state regulators and legislators. These perceptions were shaped by the monopolistic telecommunications era prior to the 1990s. This model is wholly unreflective of the current, highly competitive, wireless industry. As a result, wireless consumers are forced to pay on average more than 11% in taxes and fees, compared to about 7% general sales tax.
Rate of Wireless Taxation and Fees Combined State, Local and Federal Taxes and Fees–2006
Dark blue - 20% and Higher
Green - 15% to 19.9%
Light Blue - 10% to 14.9%
Tan - Less than 10%
Sources: Scott Mackey, Kimbell Sherman & Ellis, and Council on State Taxation
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