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Title II and the Ka-Ching! Factor

WASHINGTON — Reclassifying Internet access under Title II could be a big hit in the pocketbook for both consumers and Internet-service providers.

That potential hit to the bottom line is one of many fronts industry players have opened in their battle against the push for reclassifying ISPs under some form of Title II common- carrier regulations.

As Federal Communications Commission chairman Tom Wheeler ponders that reclassification under pressure from the White House and Silicon Valley, foes of that strategy are fighting back with economic arguments in an effort to dissuade him. They may have a little more time to make that case.

Most FCC observers now anticipate that the agency is targeting February at the earliest, or more likely March, for new Internet-neutrality rules. An interim item seeking comment on the flurry of new options under consideration is also possible.

In the meantime, ISPs and others have been amassing their arguments, including the one focused on Title II’s economic fallout.

The American Consumer Institute told the FCC that reclassifying Internet access under Title II common-carrier regulations would be a big tax hit on U.S. consumers that would depress, not stimulate, the economy.

In a letter to Wheeler and the other commissioners, ACI president Steve Pociask said that increased tax exposure could take many forms. For example, he said, many states could use the new authority to tax broadband property under the higher telecom rates of a public utility.

Pociask also said cable and wireless ISP intangible property could be included in the tax base. And in states that consider intangible assets as property, wireless ISPs could be taxed for the billions of dollars in spectrum they obtain in FCC auctions.

Another potential hit could be if state or local governments do not distinguish between the portion of cable plant used for broadband and that used for traditional video, and designate it all “mixed use” property subject to full taxation.

“ISPs that provide video services, information services and other lines of business could have the tangible and intangible property for these other lines of business taxed at higher rates and under a broader base for property tax purposes, exposing the entire business to these higher costs,” he said.

And all of that is not even including the USF contributions that could represent an additional 15% tax from the federal government.

USTelecom wants the FCC to at least review its arguments that reclassifying Internet access under Title II would reduce broadband capital investment by almost a third (31.7%) annually, or as much as $45.4 billion over the next five years.

That translates to tens of billions of dollars in lost investment over the next five years, USTelecom said.

AT&T has already signaled that its investment in building out fiber to scores of cities, an initiative branded as GigaPower, is threatened by the uncertainty of how the FCC plans to regulate broadband.

In an ex parte letter to the FCC, telco trade group USTelecom cited an economic study for its figures and asked the agency to examine the study from economists Kevin Hassett and Robert Shapiro.

The study asserts that under the current, non-Title II regulatory regime, wired and wireless ISPs could be expected to invest about $218 billion over the next five years (2015-2019). Under Title II, it said, that investment could be as low as $173.4 billion.

USTelecom member AT&T funded the study. It was based on USTelecom research and data from Infonetics.