Door to VOIP Tax Left Open

SAN MATEO (05/20/2000) - VOIP (Voice over IP) vendors last week brushed aside the notion that the government will somehow stifle their industry through an amendment to the Internet Access Charge Prohibition Act, which leaves some room for the government to one day impose a surcharge on Internet telephony applications.

The House of Representatives last Wednesday passed the act, which is designed to keep the U.S. Federal Communications Commission from charging ISPs to feed its mammoth Universal Service Fund, a pool of money used for decades to make sure all Americans have access to phone service.

But an 11th-hour amendment to the bill has explicitly left open the possibility that the FCC may eventually levy access charges for VOIP applications.

Vendors shrugged off that possibility, believing that advances in technology will thwart any attempt to tax VOIP products and services.

"We're not that worried about it. If the government tries to do this, the Internet will metamorph itself," said Bill Leslie, CTO at San Jose, California-based Long Board, a startup headed by ex-Cisco Systems Inc. officials that is hawking soft-switch VOIP gear.

Indeed, the fact that voice traffic travels across the Internet as data packets already means that it would be very hard to enforce a VOIP surcharge, VOIP vendors argue.

"It will be very hard for the government to police, and I don't know how they intend to do so," said Dror Nahumi, CEO of I-Link, a Draper, Utah-based VOIP vendor.

Still, Congress' singling out of VOIP supporters riled others.

"I believe the telephony industry should pay something but not charges based on Old World rules," said Jeff Pulver, CEO of Melville, New York-based, which publishes The Pulver Report on emerging Internet technology.

The amendment that sparked the debate was introduced by Fred Upton, a Republican from Michigan. His spokesman said Upton inserted the amendment to keep the bill moving. Upton's intent was to stop VOIP from being an issue with the bill, because those applications are not yet as mainstream as others on the Internet, the spokesman said.

That argument worked for Rob Veschi, CEO of, a VOIP vendor in Germantown, Maryland. "This brings us exactly back to where we were yesterday -- a wait-and-see approach," he said. "Congress wants to wait and see whether IP telephony will eat into the carriers' incomes."

Aimed at shielding ISPs from paying a fee to have their traffic handed off by telephone companies, the bill (H.R. 1291) indeed represents years of back and forth among Congress and the carriers.

At issue is the argument from long-distance companies and the Baby Bells that without access fees they cannot keep paying so heavily into the Universal Service Fund.

As early as 1987, Congress pondered solutions such as a "modem tax" to make sure all were paying to use phone lines. The modem tax idea never took hold, and ISPs and other service providers are still considered end-users, not carriers, and pay no such fees.

Congress signaled that it wants to keep things that way by advancing H.R. 1291, which coincidentally started its life after a notorious e-mail hoax, claiming that a bogus Congressman was out to levy fees for using the Internet.

Getting in on the Act

In its current form, the Internet Access Charge Prohibition Act of 1999 has two main intents.

* It states that ISPs and other data service providers should not have to pay access charges to local phone companies, as telephony service providers are required to.

* It excludes Internet telephony from this exemption and leaves the door open for an Internet telephony surcharge at some point in the future.

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