NARUC'S Concerns with S. 150 As Amended

September 2003

Both the House and Senate versions of the ITFA add a "clarification" to the definition of "Internet access" that could, in our view, be used by the BOCs and other broadband and VOIP providers to achieve a regulatory reclassification of broadband services as an information service and thus be unintentionally exempt from all Title II common carrier safeguards (E-911, CALEA, unbundling requirements under 251, and non-discriminatory access requirements, etc). While the merits of this policy change are currently under consideration by the FCC in their twin broadband proceedings (wireline DSL and cable modem), the language in the bill could be used to embolden the advocacy pressure on the FCC and later on in the courts to deregulate such services. While we support your overall objectives with this bill, I'm not sure this is what you guys really want to do here.

The existing Internet Tax Freedom Act definition of "internet access" says, "Such term does not include telecommunications services." See 47 U.S.C. 151 note -- section 1104(5) of the ITFA. The clarification section in both the House and Senate bills modify this sentence to read "Such term does not include telecommunications services, except to the extent such services are used to provide Internet access."

This "clarification" will effectively reduce local/state tax revenues a ILECs claim that all of their new networks (and part of their old) are exempt from taxes that apply today to "telecommunications services."

NARUC'S CONCERNS WITH THE CLARIFICATION SECTION.

While we understand the argument that this bill simply makes changes in tax law, the same change can also be read to unintentionally blur the regulatory dividing line between Internet access and the underlying transmission service. The bill in its current form finds that if a "telecommunications service" is used to provide "internet access" then suddenly the regulatory treatment (applicability of tax in this case) is different. This regulatorychange is exactly what the incumbent carriers want in order to be relived of any State oversight of their services, including telephone services if they are provided over the internet.

If Congress adopts the bill in its current form and it becomes law, it will be cited as "evidence" that it was Congress' intent to treat the transmission services used to provide Internet access differently than those transmission services not used for Internet access, and more precisely that Congress intends the underlying transmission service to be treated the same as the Internet access service. (not subject to Title II in the DSL and cable modem proceedings) Moreover, it will be used to argue that Congress supports the FCC's revisionist "telecommunications is subsumed into information services" approach that serves as the basis of the FCC's cable modem and wireline DSL proceedings. NARUC is on the record as stating this approach to the statute will cause many more problems than it will solve and result in an enormous amount of wasteful and costly litigation to the States and consumers. We have written several letters to the Hill and comments to the FCC articulating these concerns over the years.

HOW CAN WE LEAVE THE CLARIFYING PHRASE IN TACT WHILE MINIMIZING ITS
POTENTIAL ANTICOMPETITIVE IMPACT ON THE OUTCOME OF THE FCC'S BROADBAND PROCEEDINGS?"
ADD TO THE UNDERLYING TEXT AFTER THE CLARIFICATION (AFTER LINE 22 ON PAGE 3) THE FOLLOWING:

"This unusual definition of "internet access" to include "telecommunications services" applies exclusively to this part only. It can be used exclusively for the purpose of determining if taxes can be assessed pursuant to the Internet Tax Freedom Act. In no other statutory provision in this (or any related federal statutory provision), does the offering of a "telecommunications service" in tandem with "internet access" or any related regulatory classification, allow an agency to ignore statutory provisions that otherwise apply to the telecommunications portion of the combined offering."

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