FCC Minority Report Warns That New Internet Tax May Be Coming Soon

Rudy Takala | March 13, 2015 | 9:44am EDT
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FCC Commissioner Ajit Pai holding 332-page draft of proposed Internet regulations that the agency passed without disclosing them to the public. (Twitter)

(CNSNews.com) – The Federal Communication Commission’s (FCC) two Republican members warned Americans that a new “Internet tax” may be only months away in their dissent on the FCC’s net neutrality decision, which was publicly released Thursday.

“Net neutrality proponents are already bragging that it will turn the FCC into the ‘Department of the Internet,’ Republican Commissioner Ajit Pai wrote in an exhaustive 63-page dissent that lamented the FCC’s ruling for reasons ranging from higher taxes and fees to the plan’s questionable legality.

“The Internet has become a powerful force for freedom,” Pai began. “So it is sad to witness the FCC’s unprecedented attempt to replace that freedom with government control….This Order imposes intrusive government regulations that won’t work to solve a problem that doesn’t exist using legal authority the FCC doesn’t have.”

The decision, which reclassified Internet providers as Title II utilities, was passed with promises of “forbearing” those providers from having to pay into the Universal Service Fund (USF) like other utilities.

The $8.7 billion fund, which has grown 20 percent since President Obama took office, is intended to enable universal access to the utilities that contribute to it.

Other Title II utilities currently pay into the USF at a rate of 16.1 percent of their “interstate and international end-user telecommunications revenues.” The cost is passed on to customers, and generally itemized on consumers’ telephone bills as a “universal service fee.”

However, Pai noted, “the Order notes that the FCC has referred the question of assessing state and federal taxes on broadband to the Federal-State Joint Board on Universal Service and has ‘requested a recommended decision by April 7, 2015,’ right before Tax Day—although ‘a short extension of that deadline’ may be in order.

“It’s no surprise that many have interpreted this referral as a question of how to tax broadband, not whether to do so, and states have already begun discussions on how they will spend the extra money,” he said.

Because the FCC’s authority for the decision draws from the Communications Act of 1934, Pai said, there were enormous ambiguities that the FCC would be interpreting at its discretion.

“How will all this be resolved? No one knows. 81-year-old laws like this don’t self-execute,” he wrote, “and even in 317 pages, there’s not enough room for the FCC to describe how it would decide whether this or that broadband business practice is just and reasonable.”

The FCC will also decide “the appropriate rates and charges for service,” Pai noted.  “A government agency deciding whether a rate is lawful is the very definition of rate regulation."

FCC Commissioner Michael O'Rielly (FCC)

Michael O’Rielly, Pai’s Republican colleague on the commission, echoed his concern about the USF fee, referring to the promise of forbearance as “fauxbearance.”

O’Rielly said that reclassifying the Internet as a public utility represented “a monumental and unlawful power grab” by the FCC, and suggested that the main reasons given by the Democratic majority for passing the regulations were “mere needles in a Title II haystack.”

O’Rielly went on to question the majority’s motives behind passage of the regulations, calling them an “extreme solution to an imaginary problem.”

“Even after enduring three weeks of spin, it is hard for me to believe that the Commission is establishing an entire Title II/net neutrality regime to protect against hypothetical harms,” he explained.

Reiterating a concern expressed by Pai, O’Rielly said that the scope of power the FCC had given itself, coupled with the ambiguity of the rule, would subject the Internet to a treacherous, unpredictable regulatory environment.

“Parties will have no way of knowing, in advance, how a Bureau or the Commission — much less courts… will rule on a particular matter,” O’Rielly wrote. Although broadband providers can seek advisory opinions in advance to see whether their activities are allowed under the new regulations, those opinions would be of little value, he noted.

“Parties may seek an advisory opinion, which appears utterly useless: they are only available in certain circumstances and are not binding.”

He added that seeking an advisory opinion under the new regulations could actually be a bad idea: “I’m also not sure why any party would want to refer itself to the Enforcement Bureau when its request could be used against it later.”

The combined seven pages written by the Democratic commissioners remained silent on the concerns expressed by O’Rielly and Pai.

Federal Communications Commission Chairman Tom Wheeler (AP photo)

In his two-page contribution, FCC chairman Tom Wheeler highlighted what he believed would be the benefits of the regulations.

“There are three simple keys to our broadband future,” Wheeler said. “Broadband networks must be fast. Broadband networks must be fair. Broadband networks must be open.”

Wheeler reiterated his view that Internet providers would receive forbearance from certain provisions applicable to other Title II utilities, writing that “we forbear from sections of Title II that pose a meaningful threat to network investment, and over 700 provisions of the FCC’s rules.”

However, he remained silent on Pai’s warning that higher taxes and fees were looming.

Democratic Commissioner Mignon Clyburn contributed four pages, but unlike her colleagues, she complained that Internet providers were given forbearance from paying into the USF, facilitated on a state-by-state basis.

“I think we should tread lightly when it comes to preempting the states’ ability to adopt and implement their own universal service funds,” Clyburn wrote, arguing that USF fees would not be federally assessed. “State universal service funds are completely distinct from any federal program.”

Commissioner Jessica Rosenworcel contributed a half-page explanation of why she voted for net neutrality.

Referring to four million comments the FCC received during a four-month period in 2014, Rosenworcel wrote: “Four million Americans wrote this agency to make known their ideas, thoughts, and deeply-held opinions about Internet openness. They lit up our phone lines, clogged our e-mail in-boxes, and jammed our online comment system.”

An analysis by the Sunlight Foundation of 800,000 comments collected by the FCC in July - 60 percent of which were generated by "organized campaigns" - found less than one percent were opposed to the principles of net neutrality.

However, polling conducted in February by Hart Research Associates found that only nine percent of Americans supported the plan that was ultimately passed by the FCC.

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