Real taxes for virtual phones?

By Scott Bradner
Network World, 05/31/99

It doesn't look like many of the charges on my current phone bill would survive a transition to Internet-based telephony. Unless the regulators notice their revenue seeping away and decide to get in the way, Internet phones look like they will be economically attractive. 'Net phones may be attractive enough that many users will tolerate poor quality, as they currently do with cellular phones, to save money.

Inspired by a column in the May issue of Business Communications Review, I looked at my phone bill to see what I am being charged for. My last Bell Atlantic bill for my fax machine phone line totaled about $33. (Well, it actually totaled just over $58 because I forgot to pay the previous bill.) Of the roughly $33 for the previous month's service, $6.94 was for the basic Bell Atlantic service, $1.26 was for various federal and state taxes, $17.94 for mandated fees of one type or another. There were also charges for touch-tone service, an unlisted number and actual phone calls.

Parenthetically, it seems quite strange that I have to pay extra for the number to be unlisted and for touch-tone dialing, both of which help Bell Atlantic reduce its costs.

The mandated fees included a $9.91 access line charge, $6.07 for a federal line charge, $1.70 for an AT&T carrier line charge and a universal connectivity charge.

How many of these charges would I expect to see on a bill from an Internet-based telephone company? Not many. No fee for being unlisted, no touch-tone fee, none of the mandated fees and few of the taxes. Even if one assumed the charge for the calls and the basic service would not change, the result might be less than $10 - one-third of the current bill. But I'd expect that the base charge would be less and that calls would cost less except when made to a non-Internet phone.

Removal of the line charges would mean a loss of revenue for telephone companies, which would break my heart. Removal of these charges would also mean less revenue for state and federal governments that might not like that. The governments' autonomic reaction will be to put real taxes on the virtual phones, but it is not clear if those taxes could look anything like the ones we now have. I can run dozens of virtual phones over my one physical cable-based Internet connection.

Will regulators try to put line charges on what I could do and charge for the potential connections, rather than what I actually do? How can they find out what I do? I can change the protocol I use so the packets do not look like telephone traffic. Might governments have to stop treating voice as a cash cow? That may be wishful thinking on my part.

Disclaimer: Wishful thinking is the main job of any educational institution, including Harvard, but the above wish is my own.