Senate Finance Committee's tax credits for broadband

[David Farber <dave () farber net>]

Begin forwarded message:

From: Saul Hansell <Hansell () NYTimes Com>
Date: February 5, 2009 9:42:47 PM EST
To: dave () farber net
Subject: Re: [IP] Senate Finance Committee's tax credits for broadband

An late update. (But things are changing fast.)
Saul
http://bits.blogs.nytimes.com/2009/02/05/senate-scales-back-broadband-tax-breaks/

February 5, 2009, 9:04 PM
Senate Scales Back Broadband Tax Breaks
By SAUL HANSELL
Verizon isn't going to get what could have been a $1.6 billion tax  
break, under a new version of the stimulus plan being introduced  
Thursday night. The change is being made to provisions meant to  
encourage the deployment of high-speed Internet service that had been  
written by Senator John D. Rockefeller IV, the West Virginia Democrat  
who is the chairman of the Senate Commerce Committee.

One reading of somewhat ambiguous language in the first version of the  
Senate bill would have given a 20 percent tax credit to any investment  
in "next-generation broadband" service — defined as offering download  
speeds at least 100 megabits per second — to any home. Verizon is  
planning to bring its FiOS service to 6 million homes over the next  
two years and could offer service at that speed. The first bill also  
offered credits for slower speeds, too: 20 percent for unserved areas  
and a 10 percent credit for rural and underserved areas, which it  
mainly defined as low-income neighborhoods.

According to staff members of the Commerce Committee, Mr. Rockefeller  
has proposed an amendment that would significantly tighten those  
rules, but would increase the amount of the tax credit. The new plan  
would only offer credits for broadband service to rural areas and  
places that have no high-speed Internet access at all. The credit  
would be 40 percent for service that is 100 megabits per second or  
better and 30 percent for slower service that is at least 5 megabits  
per second.

The amendment also allows wireless data service allowing downloads at  
a minimum of 6 megabits per second to qualify for the 40 percent  
credit; wireless service of 3 megabits per second or more, would  
qualify for the 30 percent credit.

There would no longer be any tax break for Internet service to low- 
income areas. Some analysts had noted that since Verizon has already  
agreed to bring FiOS to low-income neighborhoods in New York,  
Philadelphia and Washington, D.C., it might well get a tax break under  
the original bill for investments it had already planned to make.

The Senate is working late into the night Thursday as the Democratic  
leadership tries to finish work on the $900 billion package, juggling  
various amendments, including the changes to the broadband tax breaks  
proposed by Mr. Rockefeller. Whatever the Senate approves will need to  
be reconciled with the House version in a conference committee.

Companies and interest groups of all sorts are hoping that  
modifications can be made to the broadband provisions of the stimulus  
bill in the conference committee. Since the House did not give any tax  
breaks for broadband, there is a great deal of room for changes as the  
two versions are reconciled.

Some technology groups want companies that accept the tax breaks to be  
prevented from discriminating against some content or devices attached  
to their networks. The House and the Senate bills did include such  
rules, often called network neutrality, as a condition for the grants  
and loans for new broadband, but the Mr. Rockefeller did not include  
them in his tax proposal.

Another issue is which federal agency will have the responsibility to  
dispense the grant and loan funds. The House provision split the money  
between the Rural Utility Service, which is part of the Department of  
Agriculture, and the National Telecommunications and Information  
Administration, which is in the Commerce Department. The Senate  
Version gives all the money to the N.T.I.A., but Senator Tom Harkin,  
the Iowa Democrat who chairs the Agriculture Committee, is expected to  
press the conference committee to follow the House model and give half  
the money to the Agriculture Department.

The cable industry, meanwhile, would like the definition of advanced  
service reduced, perhaps to 50 megabits per second, a level that more  
cable systems could provide than 100 megabits per second. And  
Hollywood and record industry interests would like the network  
neutrality provisions modified to make it clear that Internet  
providers could block the exchange of copyrighted music and video.



On Thu, Feb 5, 2009 at 6:51 AM, David Farber <dave () farber net> wrote:


Begin forwarded message:

From: Stephen Ronan <sronan () panix com>
Date: February 5, 2009 12:31:42 AM EST
To: David Farber <dave () farber net>
Subject: Senate Finance Committee's tax credits for broadband

For IP if you wish -s

The broadband portion of the Senate Appropriations Committee's  
stimulus package bill (1) ameliorated certain aspects of the House  
bill (2) that had been criticized on the IP list and elsewhere (e.g.,  
by providing more flexibility to NTIA rather than writing speed  
requirements and references to the FCC 05-151 statement on Net  
Neutrality into the law). And the Senate Appropriations Committee  
provisions seem to have bipartisan support, with the whole package  
winning some Republican votss on the Appropriations Commiteee and Sen.  
Kay Bailey Hutchison (R-TX) on Meet the Press this past Sunday saying  
she agreed with broadband and electric grid elements of the package.

However, the Senate Finance Committee has sought to supplement the  
Appropriations Commitee's work by adding tax credits for broadband  
equipment and installation (3). I haven't seen much discussion of the  
provisions, though Saul Hansell in the NY Times blog pages seemed  
skeptical (4). Perhaps a prime reason for the absence of discussion is  
that the bill's language is somewhat opaque.  I have asked around as  
to whether any party has yet tried to fully explain in clear language  
what it means.... what its impacts would likely be in regard to cost,  
jobs created, number of subscribers likely to receive broadband  
service who would not otherwise have broadband service, or whose  
broadband service quality is radically improved, and the short term  
and long-term effects on competition among broadband providers and,  
relatedly, affordability for subscribers. But haven't yet unearthed  
any such clear explanation.

I see that its language largely derives from "The Broadband Internet  
Access Act of 2000", S. 2698 sponsored in 2000 by the late Senator  
Moynihan et al. The bill has been repeatedly introduced since then  
with a few modifications (e.g., increased bit rates), for example:  HR  
1818 "The Broadband Deployment Acceleration Act of 2007".

Along the way from 2000 until now, the bill has been stripped clean of  
pro-competitive aspects. The original S. 2698, sponsored in 2000 by  
Moynihan, Rockefeller, Snowe, Baucus et al. included this language

-----------------------------------------
SEC. 5. STUDY AND REPORT.

(a) SENSE OF CONGRESS. It is the sense of Congress that in order to  
maintain competitive neutrality, the credit allowed under section 48A  
of the Internal Revenue Code of 1986 (as added by section 3) should be  
administered in such a manner so as to ensure that each class of  
carrier receives the same level of financial incentive to deploy  
current generation broadband services and next generation broadband  
services.

(b) STUDY AND REPORT. The Secretary of the Treasury shall, within 180  
days after the effective date of section 3, study the impact of the  
credit allowed under section 48A of the Internal Revenue Code of 1986  
(as added by section 3) on the relative competitiveness of potential  
classes of carriers of current generation broadband services and next  
generation broadband services, and shall report to Congress the  
findings of such study, together with any legislative or regulatory  
proposals determined to be necessary to ensure that the purposes of  
such credit can be furthered without impacting competitive neutrality  
among such classes of carriers.

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=106_cong_bills&docid=f:s2698is.txt.pdf
---------------------------------------

Nothing of such language or sentiment remains in the current version.  
And in 2000, when these tax credits were originally proposed there  
were requirements in existing FCC regulation that the deployed fiber  
or copper would be unbundled and potentially shared among competing  
providers, requirements since largely or entirely dissolved.

While the bill may be promoted as encouraging broadband access for  
unserved people in underserved areas, it seems unlikely that the  
credits would largely derive from such activity. As Hansell noted, the  
credits for "next generation" broadband could derive from service to  
"any residential subscriber." And the credits for "current generation"  
broadband could be obtained from serving anyone who lives in a rural  
area.

So, in regard to tax credits for 100 Mbps by 20 Mbps "next generation"  
service, it appears that if a broadband provider's current business  
plan is to bring fiber to the very wealthiest residents of urban  
mansions, townhouses or condos and to estates in the poshest suburbs  
or rural areas and to charge the customer an arm and a leg for doing  
so, the bill would provide a 20% tax credit for making the "last mile"  
connection to subscriber, whether or not the provider offered any  
service whatsoever to unserved or underserved persons or rural areas  
and whether or not an additional job were created beyond the current  
plan.

And, in regard to "current generation" service (5/1 wired or 3/.768  
wireless), if the broadband povider is already planning to persuade  
the richest residents of rural areas to switch their connection from,  
say, DSL to cable or from cable to wireless (according to NTCA, 9 out  
of 10 rural youth have a mobile phone and 90% have an Internet  
connection, half have more than 100 channels of video) <http://www.usdoj.gov/atr/public/workshops/telecom2007/submissions/228096.htm 
>, the provider could get a 10% tax credit for doing so, regardless  
of whether it connected an additional person beyond the current plan,  
connected anyone who currently lacks a connection, lowered anyone's  
subscription cost, improved the speed of anyone's connectivity or  
created an additional job.

I'd be interested to know if there are any folks on this list who  
believe that the bill is worthy of support in its current form?

Stephen Ronan

1) Senate Appropriations Committee bill (S. 336):
http://appropriations.senate.gov/
See: "01/28/2009 Text of S336, the American Recovery and Reinvestment  
Plan", especially: pp 10-11, 36-38, 47-56 for broadband provisions.

2) House Appropriations Committee stimulus package bill:
http://appropriations.house.gov/pdf/RecoveryBill01-15-09.pdf
See pp 38-40, 45-47, 49-58 for broadband provisions.

3) see: "Legislative Text of The Senate Finance Committee Provisions  
for The American Recovery and Reinvestment Act of 2009". http://finance.senate.gov/sitepages/legislation.htm 
 Part VIII is "Broadband Internet access tax credit." That can be  
found at pp. 61-82.

3) "Verizon Could Get $1.6 Billion in Senate Stimulus Plan" by Saul  
Hansell, Jan 30, 2009
http://bits.blogs.nytimes.com/2009/01/30/senate-looks-to-stimulate-verizon/




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