Pai Disputes Claims About Net Neutrality No-Fees Assertion

The FCC assertion that Chairman Tom Wheeler’s draft net neutrality order would impose no taxes or fees was disputed Friday by Commissioner Ajit Pai, who claimed in a statement it “explicitly opens the door to billions of dollars in new taxes on broadband.” An economist also claimed in a Forbes op-ed that the plan would lead to at least $500 million in federal fees and potentially more in state charges. An FCC spokesman Friday stood by a Wednesday fact sheet’s assertion, telling us the Internet Tax Freedom Act (ITFA) applies to broadband, even at the state and federal level.

Commission staff waded into the 332-page draft order that Pai said was more than double the length of the 134-page 2010 open Internet rules. In the three-week countdown until the commission is scheduled to act on the draft order at the Feb. 26 commission meeting, commission staff was being inundated by thousands of similar emails organized by Fight for the Future urging commissioners to adopt Wheeler’s proposal. Wheeler aide Gigi Sohn sold the plan on Twitter and in an episode of the C-SPAN’s The Communicators, scheduled to be broadcast over the weekend (see 1502060056).

Pai's and economist Hal Singer’s Forbes statements took aim at assertions made in the fact sheet the agency released in unveiling the proposal. Emphasizing certain words in bold, the fact sheet said the draft order would “not impose, suggest or authorize any new taxes or fees -- there will be no automatic Universal Service fees applied and the congressional moratorium on Internet taxation applies to broadband.” States “have already begun discussions on how they will spend the extra money. These new taxes will mean higher prices for consumers and more hidden fees that they have to pay,” Pai said in the release. “The ironically named 'Fact Sheet' is anything but -- it is filled with half-truths and internal contradictions,” Singer wrote. Singer and Brookings Institution Senior Fellow Robert Litan co-wrote a Progressive Policy Institute study saying reclassification would lead to $15 billion more a year nationwide in state and local taxes (see 1412150053), a figure he later revised to $11 billion annually. As in the study, Singer in the op-ed said the order could lead to broadband customers paying into the USF. State and local jurisdictions also could impose telecom taxes on broadband if it is reclassified, he said.

“What is more important than what the Fact Sheet says is what it omits," Singer emailed. "It does NOT say that the FCC will preempt or prevent states from assessing telecom-based fees on Internet services. States and localities don’t need the FCC’s approval to do so, and calling broadband an 'interstate' service will not eliminate the risk.”

The draft order, despite the urgings of industry groups, did not forbear from all of Section 254, which involves contributions to the USF program. The order wouldn't require broadband providers to pay into the fund, but defers the decision to the pending recommendation of the Federal-State Joint Board on Universal Service (see 1408070020). Whether reclassification would lead to higher taxes or fees has been a contentious one, with Sen. Ron Wyden, D-Ore., citing ITFA in calling claims of reclassification raising taxes and fees “baloney” (see 1502040052).

Free Press Policy Director Matt Wood said a decision to add broadband to USF is unrelated to the net neutrality order, noting that contribution reform has been discussed for years. “In case anyone hasn't noticed, [Connect America Fund (CAF) and Intercarrier Compensation revisions] efforts are already underway, long before this decision to reclassify was made,” he said.

Pai said he’s disappointed “the plan will not be released publicly” and the agency should post it on its website. “Instead, it looks like the FCC will have to pass the President’s plan before the American people will be able to find out what’s really in it." He said he plans next week to discuss “key aspects of what this plan will actually do.” His office announced a news conference for Tuesday about the order.

Referring to the draft order as President Barack Obama’s plan, Pai said it would give “the FCC the power to micromanage virtually every aspect of how the Internet works. … For that reason, if you like dealing with the IRS, you are going to love the President’s plan.” New regulations will reduce broadband investment, slow speeds and mean that “many rural Americans will have to wait longer for access to quality broadband,” Pai said. "As a New England Patriots football fan, it is a lot like watching the last minute of the Super Bowl,” said Public Knowledge Senior Vice President Harold Feld. “You keep thinking 'this looks so awesome! Please don't screw up!' But there is still enough time left in the game to screw up.”