FCC Chairman Says Net Neutrality Won't Mean New Internet Taxes. Here's Why One Agency Commissioner Says That's Wrong.


Ajit Pai Twitter

As Federal Communications Commission (FCC) Chairman Tom Wheeler has pushed forward with the reclassification of broadband Internet service from a Title I information service to a utility-like Title II telecommunications service as part of an effort to implement net neutrality rules, his office has repeatedly insisted that the move won't result in new taxes on Internet service.

You can see this, for example, in an official agency document released yesterday that claims to "separate fact from fiction" regarding the agency's regulatory overhaul. It's a "myth," the sheet says, that the new rules will increase broadband bills or raise taxes.

This is the official position of the FCC under Chairman Wheeler. But it's not the position of all of the agency's five commissioners. In a detailed and compelling 62-page dissent, Commissioner Ajit Pai, one of the two Republican appointees who voted against the Title II switchover, argues that the move clearly paves the way for new taxes and fees on Internet service.

Most phone bills, Pai explains, contain an additional line for what's known as a "universal service fee"—essentially a tax added to your phone bill by the FCC which raises about $9 billion in revenue each year. Because this is a feature of Title II service, it's never been applied to Internet service before.

But now that broadband falls under Title II, there's a clear path to seeing these fees applied. As Pai writes, "the Order explicitly opens the door to billions of dollars in new taxes on broadband." Pai notes that this is explicit in the order, which "authorizes the Commission to impose universal service contributions requirements on telecommunications carriers—and, indeed, goes even further to require '[e]very telecommunications carrier that provides interstate telecommunications services' to contribute."

As a result "the FCC now has a statutory obligation to make sure that all Internet service providers (and in the end, their customers) contribute to the Universal Service Fund. That's why the Order repeatedly states that it is only deferring a decision on new broadband taxes—not prohibiting them."

So Wheeler and his backers are dodging the issue when they claim that there are no new taxes or fees on Internet service as a result of the Title II transition. No, the new rules don't explicitly install the new fees right this minute, but they make it possible, and even likely, that they will be put in place before long. (One important decision on local Universal Service Fees is expected in April.) 

This is typical of the FCC's approach under Title II, which relies on forbearance—essentially holding off on some aspects of Title II regulation—to escape some of the new title's required regulations. But as Pai points out elsewhere in his response, the forbearance process is hardly a guarantee that the FCC will hold off on a regulatory manuever forever. It is, at best, a promise, easily broken, that the current FCC won't move in that direction. Essentially, the FCC is saying, "trust us, this won't happen." 

But the very history of the Title II order suggests that the agency's leadership can't be trusted to stay on course. Chairman Wheeler spent most of last year talking up a middle ground proposal that would have put some net neutrality rules in place without reclassification. Title II was not really under serious consideration.  But after President Obama released a statement in support of Title II, Chairman Wheeler quickly changed his tune. The rapid shift, and the rush to pass the new rules, suggests how easily it is for the Commission to alter its direction when the political winds change. And it further suggests that the agency's various promises that it will avoid onerous regulations or new taxes and fees under Title II should be treated with a fair amount of skepticism. 

Watch ReasonTV's interview with Pai below: