Phone Customers Pay For Surfing The Internet

Regulation Policy

Phone Customers Pay For Surfing The Internet

Business and residential telephone services are being hit with new charges this year due to the 1996 Telecommunications Act.

Implementing provisions of the act, the Federal Communications Commission is requiring local telephone companies to contribute to a "Schools and Libraries Fund" to provide "universal access" to the Internet for schools and libraries. Phone companies are expected to pass the cost of the new federal mandate on to consumers.

Initially, the phone companies were to contribute an estimated $2.25 billion a year, or about $25 per household phone customer.

After several phone companies announced they would reveal the tax as a separate line item on customers' bills, the FCC trimmed the tax by about 40 percent to $15 per household.

However, the tax will probably be hidden in consumers' phone bills rather than appearing as a separate charge.

The Internet "universal access" requirement echoes other telecommunications taxes used to make some users pay more, so others can receive services below cost. For instance, long distance telephone customers pay for a "universal service" fund that subsidizes below-cost residential phone service. However, that charge is broken out on phone bills.

Source: Stephen J. Entin, "Hidden Phone Tax a Bad Way to Pay for Internet Access," IRET Congressional Advisory No. 66, December 30, 1997, Institute for Research on the Economics of Taxation, 1300 19th Street, N.W., Suite 240, Washington, D.C. 20036, (202) 463-1400.

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