A Backdoor Tax on the Internet

Ready to pay more for Internet access? Me neither.

Unfortunately, that’s exactly what we can expect under the “net neutrality” rules being pushed by President Obama.

“Net neutrality” may sound harmless, but there would be nothing neutral about this change. Currently, broadband providers such as Verizon, AT&T and Comcast are treated differently than traditional telephone companies and electric utilities. They aren’t subject to “common-carrier” rules that prohibit them from varying rates and services.

In short, they can offer — and charge — what they want. That’s good for consumers, because it means that in order to compete, they’re always trying to win and keep customers by offering better, faster service at lower rates.

That would change with the advent of “net neutrality.” Under the plan that Mr. Obama is urging the Federal Communications Commission to adopt, Internet providers would be declared common carriers providing “telecommunications services.” That would leave the FCC free to regulate them.

One result: The providers would have to pay a part of their Internet revenue to the FCC’s “Universal Service Fund,” which provides subsidies for Internet service. This fee is set at 16.1 percent of revenue, or about $7 per subscriber per month. Former FCC Commissioner Harold Furchtgott-Roth calls it “perhaps the largest, one-time tax increase on the Internet.”

It may surprise you to learn that two of the current FCC commissioners oppose the president’s plan. According to one of them, Mike O’Reilly, the FCC is planning a “spending spree” with these new USF subsidies. It’s bad enough our Internet access would become more expensive, but we’d have to fund more waste at a government agency, too?

As regulation expert James Gattuso notes, this push for net neutrality comes at an ironic time: Congress is considering a renewal of its moratorium on state Internet taxes. But, he says, the FCC has no plans to ask Congress to vote on this matter. Why? It claims it has the power to move forward without legislative approval.

But net neutrality would mean more than a rate hike (which will naturally hit lower-income Americans the hardest). Coming under the FCC’s regulatory thumb would harm innovation and make broadband companies wary of investing in new ways to provide better, faster and cheaper service.

This isn’t just conjecture. An example of it came quite recently, in fact, when AT&T CEO Randall Stephenson spoke of how the company’s plans to invest in fiber-optic networks in up to 100 cities would change under Mr. Obama’s proposal.

The fiber-optic rollouts “are long-term investments,” Mr. Stephenson said on Fox Business Network. “And we have to ask under what rules will those be regulated in two or three years. Until we have some clarity, we’ll have to slow ourselves down, and we’ll have to pause and have some idea of what these rules look like in two or three years.”

I can’t think of a better phrase to describe the effect of regulation on innovation: “We’ll have to slow ourselves down.” The fact is, we shouldn’t have to do anything of the sort. These companies should feel they can invest freely in the kinds of services that make life better for their customers. But under net neutrality, that won’t be possible.

It simply makes no sense to yoke the Internet of 2014 to any portion of the Communications Act of 1934. As Erik Telford of the Franklin Center for Government and Public Integrity recently wrote in The Hill, “Given how much the Internet has revolutionized our lives in just the past [10] years, it’s absurd to think that an 80-year-old law will ensure the best service to consumers going forward.”

So let’s see: We’d pay more — for less. Sounds like a government plan, all right.

Here’s a better idea: Leave “net neutrality” junked on the shoulder of the information superhighway instead.

 - Ed Feulner is founder of the Heritage Foundation.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

Originally appeared in The Washington Times