Verizon to Add Internet Surcharge

[Dave Farber <dave () farber net>]

Verizon to Add Internet Surcharge

April 14, 2004
 By MATT RICHTEL





Verizon Communications announced plans yesterday to add a
$2 to $3 monthly surcharge to the cost of its high-speed
Internet connections, a move that could fuel further debate
over the taxation of online services.

Verizon said its new charge would start appearing next
month on the bills of roughly 2.5 million subscribers to
its high-speed data line service in Eastern states. The
company said that, because of logistical problems, the
surcharge would not be levied on high-speed Internet
customers in Western states until June.

Verizon and other providers of digital data lines say they
are required by federal regulations to pay into the
Universal Service Fund that subsidizes telecommunications
service in rural areas, schools and libraries. Verizon said
that until now, it had paid the surcharge, rather than
passing the cost on to customers.

BellSouth, another large regional phone company, also said
yesterday that it would add $2.97 in fees to the bills of
its 1.4 million high-speed Internet customers starting
April 15.

The fee is 85 percent of the combined amount of the
surcharge and administrative costs that the company
currently bears, Joe Chandler, a BellSouth spokesman, said.


In February, SBC Communications began levying a monthly
charge of $1.84 on the bills of new customers and existing
customers who sign new contracts for high-speed Internet
service, a company spokesman said.

The phone companies already include the Universal Service
Fund fee on bills for lines used for telephone service. But
they had hoped that politicians, regulators or the courts
would relieve them of having to pay the fee on high-speed
Internet lines.

"We've been hoping it would go away," said Eric Rabe, a
Verizon spokesman. Verizon charges $34.95 for high-speed
Internet service, but customers who also use Verizon for
long-distance and local telephone service pay $29.95 a
month for the Internet line.

The fate of the federal fee - along with other state and
local taxes levied on Internet access - is being debated on
Capitol Hill and is the subject of litigation.

Telephone companies, like Verizon, point out that cable
companies that offer similar high-speed Internet
connections are not required to pay the surcharge. As a
result, the telephone companies say, they are at a
competitive disadvantage.

Complicating the matter, some states and cities levy
additional taxes on phone lines used for Net access, while
other states do not.

Cable and telephone access to the Internet are treated
differently for tax purposes because the Federal
Communications Commission has defined telephone data lines
as a telecommunications service, thus subjecting it to
certain surcharges. But cable Internet access has been
defined as an "information service," a category that has
been shielded from taxes under federal law.

Two competing bills in the Senate are seeking to address
the issue and the larger question of taxation of Internet
services. One bill, sponsored by George Allen, a Republican
from Virginia, would eliminate all tax on Internet access,
whether provided by telephone or cable companies.

A competing bill, sponsored by Lamar Alexander, a Tennessee
Republican, would allow states that collect taxes on phone
companies for high-speed Internet access to continue doing
so.

John Reid, a spokesman for Mr. Allen, said the senator
hoped to see his bill voted on the Senate floor later this
month or in early May.

The courts have had to address the discrepancy of treatment
for telephone and cable services as well. The United States
Court of Appeals for the Ninth Circuit issued a ruling in
October that vacated the F.C.C.'s determination that cable
Internet services were entirely information services, and
said they had elements of telecommunications services. Last
Friday the appeals court stayed its ruling pending an
appeal by the commission and the cable industry to the
Supreme Court.

If the Supreme Court does not take the case, or the appeals
court decision is left in place, cable companies could be
required to pay the surcharge, Mr. Rabe of Verizon said.

http://www.nytimes.com/2004/04/14/technology/14verizon.html?ex=1082982436&ei=1&en=f4495790a1b05d2c

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