Martin’s Plan Could Double Cable’s Levy

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Washington— Cable operators that offer voice-over-Internet Protocol service could see their federal phone-subsidy payments more than double under a proposal supported by Federal Communications Commission chairman Kevin Martin, according to industry lobbyists familiar with the plan.

Martin’s plan is an interim effort to shore up the Universal Service Fund, which is designed to keep dial-tone service affordable in rural America and to connect schools and libraries to the Internet.

Much funding in the past has come from fees assessed against long-distance calls, which are fading in the face of new forms of voice communications that drive down or eliminate charges for individual long-distance calls. Also trimming the fund: the agency’s decision last year to exempt telephone companies’ digital-subscriber-line revenue from assessment. The DSL exemption is expected to drain $350 million annually from the $6.5 billion program.

The FCC could vote on Martin’s plan at its June 15 meeting, but an agency spokesman would not confirm any proposed changes to the USF.

If Martin’s plan is adopted, a Time Warner Cable Digital Voice customer paying $40 per month would see fees for Universal Service rise from about $1.24 per month to $2.83, a 128% increase.

“Cable firms and independent VoIP firms, such as Vonage [Holdings Corp.], will be hit the hardest [under Martin’s interim plan] since they are likely to lose retail-pricing advantage by having to pass through additional USF costs to their customers,” Medley Global Advisors LLC analyst Jessica Zufolo said in a client note last Wednesday.

In an approach supported by the cable industry, Martin is expected to push for a numbers-based policy, which would involve charging a monthly fee for each working phone number in order to collect the $6.5 billion needed.

The numbers-based approach isn’t universally admired. A coalition that includes several senior citizens’ groups is opposed to placing an equal USF burden on all phone users.

“It’s unfair to ask everybody to pay the same amount regardless of the amount of phone service they use. Why should Aunt Betty down the road pay the same amount as someone who makes thousands of dollars of long distance calls each month?” said Maureen Thompson, executive director of the Keep USF Fair Coalition, which includes groups with 55 million members.

A cable-industry lobbyist said a numbers-based approach would cost a cable VoIP customer about $1 per month, compared with $2.83 for a Time Warner customer under Martin’s interim plan. USF fees may be passed along to consumers. Cable prefers the numbers-based systems because it treats all phone providers equally.

Although the USF enjoys support among Capitol Hill lawmakers with rural constituents, House Energy and Commerce Committee chairman Joe Barton (R-Texas) has talked about eliminating the program. Senate Commerce Committee chairman Ted Stevens (R-Alaska) is sponsoring a bill (S. 2686) that could expose cable-modem revenue to USF taxation to fund a $500 million rural-broadband program.

Federal law requires telecommunications-service providers to contribute 10.9% of their interstate and international revenue to the USF. VoIP has been exempt since its arrival in the market because the FCC never classified it as a telecommunications service.

Martin’s plan would bring VoIP into the USF program.

Time Warner, with 1.4 million VoIP customers, contributes to the USF on a voluntary basis, relying on the FCC formula that wireless-phone carriers use as a proxy. The formula assumes that 28.5% of wireless revenue is interstate, and 10.9% of interstate revenue is contributed to the USF.

Under Martin’s plan, the wireless formula is to rise to 37.1%. But VoIP providers are to assume that 65% of revenue is interstate, forcing Time Warner to increase its USF payments. Zufolo said wireless carriers will end up paying 4% of total revenue and cable operators 7% of their VoIP revenue into the USF.

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