The Net Neutrality Gray Zone

Nov 25, 2014 · 5 min read

By Vernon Keenan, CEO of Telnexus, a VoIP Service Provider in Berkeley, CA

The US Government’s role in controlling the future of the Internet is more important now than it has been since the Internet was made public in the 1990’s. With the courts having recently invalidated the FCC’s power to regulate Internet companies, and with packet shaping going on with the major ISPs, the clamor from the public for something to be done is at an all-time high. Now, with President Barack Obama weighing in on the pending FCC ruling on Net Neutrality by the FCC, activists are cheering the President’s call for regulation of ISPs and how they deliver services.

It is not a black and white choice, but as Net Neutrality stakeholder and Voice over Internet Protocol (VoIP) service provider Telnexus favors the imposition of a more regulated Internet as long as an Open Internet is maintained and the big ISPs play along.

Why take a measured approach? At Telnexus, we cannot come up with a bumper sticker slogan that encapsulates our feelings about the imminent FCC actions. “Keep The Open Internet” doesn't work for us, because the Internet we have today was created free of the new regulations being suggested. AT&T, Comcast and Verizon all argue that keeping the Internet out of Title II regulation, and free of end-user taxes, is part of what incentivized them to invest billions of dollars into the Internet we have today. AT&T is already threatening to pull back on new fiber deployments if Mr. Obama gets his way.

I wonder if this activist knows that Title II rules will likely increase taxes on the Internet? (Photo: Andrew Harrer/Bloomberg via Getty Images)

When Mr. Obama talks about putting in Title II regulation on the Internet he means he wants the Internet to be classified as a common carrier service to which every US citizen and resident will have access. That is pretty good if you think access to information is a fundamental right. But, how are the under-served to get the Internet service they deserve? If the Internet were governed under Title II, then the government could tax Internet access and use that tax revenue to fund universal access for those people who cannot afford it.

Sound familiar? That’s because many of us now pay a Universal Services Fund (USF) fee that does the same thing for landlines. It’s a big tax, ranging from 10 to 15% of your voice services. That money gets plowed back into the big phones companies as a subsidy for low-income phone subscribers. USF revenue also goes to schools, libraries and rural medical facilities to develop their communication facilities and pay for phone bills. In California we have another tax called the California Teleconnect Fund that does the same thing for nonprofits.

The FCC was created as part of the Telecommunications Act of 1934, which also established AT&T as a national telephone monopoly and used Universal Access taxes to wire rural America during the Great Depression. President Barack Obama wants to use Title II of the Act to regulate the behavior of Internet Service Providers and provide universal Internet access.

The ability for the government to tax phone service and treat it as a universal common carrier was legislated 80 years ago. The “Title II” provision everyone is talking about is the part of Telecommunications Act of 1934 that pertains to common carrier services, which at the time was exclusively the phone network.

When Mr. Obama says he wants Title II applied to the Internet to assure universal access that means the FCC will have the right to tax Internet revenue from every ISP in the country. Every ISP will need to file a special tax return with the FCC, and they will need to upgrade their billing systems to support the tax collection and agency payments.

With new taxing burdens, Title II and Net Neutrality will likely be a bad thing for thousands of small ISPs across the USA. They will need to start operating like the phone company as far as their billing and tax obligations go. There will be fewer ISPs, and therefore fewer choices for consumers and businesses. Net Neutrality and Title II could be bad for ISP competition, potentially raising prices and lowering choice for consumers.

Speaking as the CEO of Telnexus, a small VoIP service provider in Berkeley, taxing the ISPs will be a good thing. Telnexus already complies with Title II provisions, and we have all the billing and payment mechanisms in place to comply with FCC, state and local regulations. Since Telnexus has already passed this regulatory hurdle, imposing Title II regulations on ISPs would raise a barrier to entry for our competitors.

My main hope about Title II regulation is that that taxing the ISPs would take a target off of the backs of Internet Telephony Service Providers (ITSP) like Telnexus.

Lately, cities and counties have really gotten creative to fund new emergency communication centers. 911 centers have traditionally been funded with local taxes on landlines. Since VoIP is taxed just like landlines, and with fewer and fewer landlines in use, agencies that have depended on telephone tax revenue have had to really pile on the new taxes onto ITSPs. Sometimes I get the feeling that these strapped cities and towns see ITSPs as their new sugar daddy!

Cities and counties must upgrade their emergency call centers to 21st Century standards. Telnexus thinks Title II regulation of the Internet will spread this responsibility around fairly. (Photo: Jason Pack DHS/FEMA News Photo)

In the future emergency call centers will start receiving emergency calls on things other than land lines and cell phones. Eventually, you’ll be able to call for an ambulance with a Facetime or Skype video call over WiFi. When emergency call centers start working with Internet communication apps, Telnexus believes it will be unfair to just tax the ITSPs for 911 services.

Besides the tax issue, Telnexus also cares how ISPs treat different types of data in their networks. My primary Net Neutrality concern is about the ability of ISPs to shape packets and potentially block Over the Top (OTT) services like our VoIP service. Any new regulations on the behavior of ISPs must stipulate universal access of services to subscribers.

No packet shaping and avoiding a “fast lane” for certain types of traffic are the most important features of the Internet in place today that must be maintained. Mr. Obama believes that placing the Internet under Title II regulations will get that done. We shall soon see if the chairman of the FCC, Thomas Wheeler, and the commissioners agree.

Thanks to Jesse


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