Speeches & Floor Statements

Remarks Of Sen. Alexander - High-Speed Internet Access

Posted on September 10, 2004

Mr. President, the purpose of my remarks this morning is to suggest a way to come to a solution in the debate we have been having about to what extent Congress should interfere with state and local regulation and taxation of high-speed Internet access. In April, after many months of discussion, the Senate came to a good temporary compromise on this issue. The Senate legislation allows states already collecting taxes on Internet access to continue to do so for two to four years, depending on the type of access taxed. It makes clear that state and local governments can continue to collect taxes on telephone services, including telephone calls made over the Internet. Our work here modified legislation that came over from the House of Representatives that would have permanently taken away state and local authority to include high-speed Internet access in its taxation plans and would have put at risk literally billions of dollars in revenues that states, cities and towns now depend on to pay for police, schools, parks and other local services. Both sides have legitimate points to make here. It is a conflict of the principles of federalism and free markets. And, I believe, it is a debate about whether there is any justification for giving additional government subsides to the high-speed Internet access industry, which so far as I can tell must be already the most heavily subsidized new technology in America today. For now, I would respectfully suggest that the logical course would be for the House of Representatives to adopt the Senate modifications. This would provide temporary certainty in this policy area, but it is an unsatisfactory long term solution. For the long term, here is my suggestion: I propose that representatives of states, cities and counties and the telecommunications industry meet together between now and the opening of the 109th Congress in January and develop a framework to assist Congress in dealing with how to approach this highly technical but very important set of issues. In developing this framework, I suggest the parties should abide by the following principles: 1. First, separate the issues of taxation and regulation. This fall, in some preliminary work on legislation proposed by Sen. Sununu, the Senate Commerce Committee did just that. It produced a bill regarding the regulation of Internet telephony but also preserved the right of state and local governments to make their own decisions about how to tax the industry. Put in its simplest terms, I agree that it makes sense to have a different, simpler kind of regulation of this new technology, which we call "broadband." But I want to achieve this in a way that does no harm to state and local government revenue bases. 2. Second, when making decisions about regulation, the principle to honor should be simplicity so that the new technology can continue to flourish. Voice over the Internet technology is not the same as plain old telephone service, and our regulatory structures need to recognize that. 3. Finally, in determining tax policy, the principles should be simplicity, certainty and doing no harm to state and local governments. There are more than 11,000 state and local tax jurisdictions in the United States of America. Obviously, it would be burdensome for a small Internet telephone company who offers services in most or all of those districts to file that many (or more) tax returns. On the other hand, there is no justification for depriving a state or local government of 5-10 percent of its existing revenues simply to exempt an already heavily subsidized industry from paying its fair share of taxes. Inviting those who will be most affected by our decisions about taxation and regulation to suggest a policy to us is not a new idea. For example, in February of this year, the Voice on the Net Coalition announced that a number of VOIP providers would work together to establish voluntary agreements on how to integrate E-911, access for the disabled, and CALEA (government wiretapping) into this next generation of telephone technology. They might well also consider including universal service in this discussion, providing telephone service to people in rural areas. In another example of groups working outside the Congress, for the last several years, in something called the "Streamlined Sales and Use Tax Project"- states have been building the technical and legal foundations for a system in which online merchants would be required to collect taxes on sales over the Internet and forward the money to the state where the buyer lives. This will make it much easier for Congress to then enact legislation authorizing such collections. In the same way, I believe industry representatives, working with state and local representatives could quickly suggest a framework that would make our work here in Congress simpler and speedier. If this does not happen, I believe we are in for a long debate with the likelihood of a poor result or even no result. This would serve no one's purpose. The telecommunications companies and high-speed Internet access industry would benefit from certainty and simplicity. Governors, legislators, and mayors at the same time need to know where revenues are coming from. They want certainty too. And there are other, bigger fish to fry. The Telecommunications Act of 1996 needs a fresh look in some fundamental ways. State and local governments would like to move ahead with their "streamline tax" project. Neither is likely to happen until the Internet access tax issue is resolved. Let me say one final word about the technology we are discussing  high-speed Internet access, or as we sometimes call it, broadband. There were dire predictions that if states were allowed to keep taxing this access that it would become a terrible burden for the industry, restrict its growth and put the United States in some technological backwater. Nothing could be further from the truth. Almost everyday in my mailbox comes a new offer from someone to sell me high-speed Internet access. From my phone company. From my long distance company. From my satellite TV company. Electric companies are selling high-speed Internet access. Next thing you know, I expect the milkman to show up offering to provide me with high-speed Internet access. And the prices, as usually happens with a new technology and competition, are going down. Most of the offers I have received in my mailbox are in the range of $20 a month. And in many states - Texas is one of them - these costs to the consumer are further reduced by government subsidy. · Market data from the research firm Nielsen/NetRatings shows that in July 2003, 38 percent of home-based Internet users had broadband connections. One year later that number has jumped to 51 percent (Source: NewsFactor Network, "Broadband Usage Hops Past Dial-up," August 19, 2004). · The same report shows that the number of broadband connections altogether in July 2004 rose 47 percent from a year ago (Source: Id.). · Meanwhile, investment in broadband over power lines (BPL) access is gaining steam. According to the Chartwell research firm, the percentage of utility companies planning or considering BPL deployment rose from 6 percent in 2000 to 20 percent in 2003 (Source: Network World, "Broadband Over Power Lines Gaining Steam," August 23, 2004). · Internet telephony - VOIP - is experiencing the same rapid growth. · According to the Telecommunications Industry Association, by the end of this year - in just 4 months - there will be 6 million VOIP access lines. They expect that figure to rise to more than 19 million by 2007 (Source: TIA's TechTrends, May 2004). · Cablevision Systems began offering VOIP service in November 2003 and in two months had 29,000 customers and was signing up new customers at a rate of 2,500 per week (Source: Id.). · The VOIP explosion has hit traditional telephone service providers. In August, The Washington Post reported that both MCI and AT&T's traditional long distance services are suffering in part from the increase in VOIP service (Source: Washington Post, "MCI May Write Down Value of Assets," August 10, 2004). · As a result, even these companies have moved into the VOIP market. AT&T has introduced its CallVantage VOIP service and now has it available in 39 states and the District of Columbia (Source: Forbes.com, "Talk to Me," August 24, 2004). · Sprint has teamed with Time Warner Cable to begin offering VOIP service to 11 million customers and is forging new relationships with other cable providers to expand its service's availability (Source: Associated Press, "Sprint, Mediacom Announce VOIP Deal," August 25, 2004). · Finally, one of the pioneers of the VOIP industry, Vonage, announced in August that investors had sunk another $105 million in venture capital into the company  the largest venture capital deal to date this year (Source: The Deal.com, "VOIP Startup Vonage Collects $105M," August 2004). The bottom line is this: Broadband continues to be adopted at a faster rate than CD players, cell phones, color TVs, and VCRs during the same periods in their development (Office of Technology Policy - Department of Commerce, Understanding Broadband Demand, September 2002). As the Congressional Budget Office has specifically told Congress, there is absolutely no justification whatever for additional government subsidy for this industry. High-speed Internet access is a fine, remarkable, admirable, new technology, but so was television, so was radio, so was electricity, so was the internal combustion engine. It is not the American way to subsidize such new inventions; it is the American way to let them earn their way forward in the marketplace. Americans never got a tax break to buy a TV set and TV manufacturers never got a subsidy, as far as I know, to build them, yet 30 years after they were introduced to the market, almost 90 percent of Americans owned a television set. Telephone companies introduced cell phones without any prompting from the U.S. government and in less than 15 years more than 40 percent of all households now own cell phones. And, of course, what is especially galling to me is that Congress would even consider creating this big tax break for Internet access companies - and then send the bill for that tax break to state and local governments who are already struggling with additional costs because of our failure to create a rational health care policy, and our failure to create a national immigration policy and our bad habit of enacting expensive ideas in Washington, taking credit for them, and then sending the bill for them to mayors, governors, legislators and city councilmen and councilwomen. So my hope is that telecommunications industry representatives, governors and mayors will spend some time with one another during the next three or four months and figure out a framework for resolving how the Congress should approach these issues in the most sensible way. I would be glad to be a part of such discussions if it would be helpful. I am sure other members of Congress would. The Federal Communications Commission could provide technical advice. And may I say one word to governors and to mayors, and perhaps I can do this appropriately because I once was a governor. I know the governors are busy, and they have staffs to help them do their work, but this matter will not be resolved by a few phone calls by governors or by staff members talking to staff members on Capitol Hill. If governors and mayors want the Internet tax issue resolved in a way that does no harm to state and local governments, in a way that does not threaten 5-10 percent of their tax base, in a way that doesn't cost them billions of dollars - the governors and mayors are going to need to become personally involved in helping to resolve this issue, in meeting with telecommunications industry representatives and coming up with a rational way to provide certainty and simplicity for this new technology, and at the same time do no harm to state and local governments. I believe this would be the speediest, most sensible way to resolve the conflict we have here between principles of federalism and free markets and to clear the way for Congress to move beyond the issues of taxing and regulating high-speed Internet access to other larger, more important telecommunications policy issues.