Fake phone company consumer group wants to tax VOIP

Bruce Kushnik at Teletruth says there is a fake phone company consumer group (read: astroturf organization backed by telcos) that is pushing to increase the universal service fund tax, place it on voice over IP and influence the FCC. Bruce writes:Bruce Kushnik at Teletruth says there is a fake phone company consumer group (read: astroturf organization backed by telcos) that is pushing to increase the universal service fund tax, place it on voice over IP and influence the FCC. Bruce writes:

A few weeks ago, the “Keep Universal Service Fund (USF) Fair” Coalition congratulated FCC Commissioner Martin on his new appointment to Chairman and suggested increasing Universal Service Fund up to 40% and adding new taxes to Voice-over-the-Internet” (VOIP). They claim that this would be good for Seniors, Hispanics, families with disabilities, and consumers.

The USF charge is currently an 11+% tax you pay on every long distance, wireless and DSL bill, and is even applied to parts of your local phone bill — Do you want your taxes raised 40%? Aren’t you paying enough? Is that “fair”?

The hidden secret is that the “KeepUSFFair” coalition is another Bell (SBC, Verizon and BellSouth) skunkworks campaign. The group is mainly comprised of astroturf and co-opted groups funded by the Bell companies and are being coordinated by Washington-DC based Issue Dynamics and Sam Simon, to push the Bell monopoly agenda — not your agenda. This group includes TRAC, Alliance for Public Technology (APT), American Association of People With Disabilities, World Institute on Disability, League of United Latin American
Citizens, the Gray Panthers, and others.

And these actions are even more insidious when you realize that APT, and other phone company funded-related groups, are trying to influence the FCC. APT, in fact, is on the FCC Consumer Advisory Committee — as a “consumer group”.

Bruce believes the USF has become a massive corporate subsidy. It has increased 185% since 1999, even though the costs to offer service continues to decline. Also, the largest part goes back to the phone companies and no one has audited the money. Worse, various states have added additional USF taxes — double-quadruple taxation.

Teletruth believes that these non-profits groups should be investigated for being nothing but a front for phone companies to control the broadband, Internet, wireless, municipality-deployment, competitive markets.

TAKE ACTION: To see the KeepUSFFair press release, links to learn more about skunkworks, astroturf groups, or about the Universal Service Fund, or to write your own letter to the FCC Chairman and Commissioners denouncing this fake group and calling to investigate Universal Service, go to:


Here is Teletruth’s letter to FCC Commissioner Martin:

April 25th, 2005
Dear Chairman Martin,

First, congratulations on your new job title as Chairman of the FCC. We look forward to working with your office. However, beware of those groups who bear words of wisdom, claiming to represent the public interest. In particular, look behind the curtain when you hear from the “Keep Universal Service Fund (USF) Fair Coalition” members. They have an agenda — the Bell phone company agenda and not the public interest that they supposedly represent.

Some background. The KeepUSFFair press release, (April 6, 2005) that welcomes your arrival to Chairman is funded by the Bell companies – Verizon, SBC, BellSouth – through a Washington-based firm called Issue Dynamics, run by Sam Simon. Here’s a link to the release.

As we will discuss, this group proposes to increase the USF charges and place this tax on new services, including VOIP. They claim this will help seniors, Hispanics, the disabled, and consumers in general. We, of course, disagree with that analysis.

This release is signed by groups that are also funded by the Bell companies, including TRAC and Alliance for Public Technology, as well as American Association of People With Disabilities, World Institute on Disability, League of United Latin American Citizens, the Gray Panthers, and other groups that are also tied to Issue Dynamics, Sam Simon and the Bell companies.

For example:

* Alliance for Public Technology (APT), is funded by BellSouth, Verizon, and SBC and run through Issue Dynamics. It has run numerous
campaigns, from lobbying to allow the Bell companies into long distance, or giving the Bells exclusive rights to the customer funded networks, to now this put-on job for the Bells on Universal Service and taxing VOIP. Daniel B. Phythyon, APT’s Public Policy Director-General Counsel, is also Senior Vice President, Law and Policy of the Bell companies’ main lobbying arm, the United States Telecom Association(USTA).

We should note that APT is on the FCC Consumer Advisory Committee as a “Consumer Group” and Teletruth filed a separate complaint about this, (and other groups) since they do not represent the public interest but those who have paid them, the phone companies. As a former member of this Committee, we have seen first hand how industry interests have overtaken the public interest.

To read our Complaint:
Other members of “KeepUSFFair” are (more details about there groups here):

* American Association of People With Disabilities (AAPD) receives major donations from both Verizon and the Verizon Foundation, and put a Verizon VP on its own board. AAPD is on the APT board.

* Gray Panthers, ran $100,000 ad campaign against Worldcom, paid for through Issue Dynamics and Verizon, according to “GRAY PANTHERS ADS TARGETING WORLDCOM FUNDED BY ISSUE DYNAMICS”, Corporate Crime Reporter, 6/2/03

* Latino Issues Forum. The Executive Director’s bio includes “Ms. Gonzales worked for Pacific Bell for eight years where she served as manager in cost analysis and accounting. Ms. Gonzales represents Latino Issues Forum in various corporate partnerships with major utilities, such as Verizon… She also serves on Verizon’s National Consumer Advisory Board.”

* League of United Latin American Citizens, received $500,000 from Verizon Foundation in 2000, $200,000 from Verizon Foundation in 1999, $180,000 from SBC Foundation in 2001, $160,000 from SBC Foundation in 2000, and $200,000 from SBC Foundation in 1999.

* National Hispanic Council on Aging, receives money from the SBC Foundation and the Verizon Foundation. Is on APT’s Board of Advisors.

* Telecommunications Research & Action Center (TRAC), is run by Issue Dynamics, and its founder is Sam Simon, founder of Issue Dynamics.

* World Institute on Disability, received $25,000 from SBC Foundation in 2002 and Verizon Foundation is a member and Sam Simon is on the board.

How insidious does it get? According to one of the KeepUSFFair member, the National Association of The Deaf (NAD), The American Association of People with Disabilities (AAPD), American Foundation for the Blind (AFB), American Council of the Blind (ACB), National Association of the Deaf (NAD), Self Help for Hard of Hearing People (SHHH), TDI formerly known as Telecommunications for the Deaf, Inc.), and World Institute on Disability (WID), all use a ‘Primer’ “designed for advocates to use in working on these urgent issues.” It is funded by the Verizon Foundation. “The Primer contains information that will help you to advocate effectively on Broadband, Peer to Peer Signing, Telecommunication Relay Services (TRS), Wireless, VOIP, Universal Service, and Unbundling.”

These ties go deep. For example, NAD’s broadband report was done in conjunction with another Verizon-Issue Dynamics creation, the New
Millennium Research Council, the same group that is creating research to block municipalities from offering broadband.

In fact, almost every KeepUSFFair member has been involved in multiple campaigns at the FCC which include helping to raise the FCC Line Charge in what is known as the “CALLS Proposal”, helping the Bells enter long distance, and harming competition in various broadband and competition proceedings.

Teletruth has no problem with non-profits taking donations from large corporations. This is different. This group of non-profits is being heavily funded and coordinated to be proactive in lobbying for decisions that will ultimately be harmful to their own constituencies, such as low income families, or seniors. These groups may say that the money they take from the phone companies is only a part of their total. However, it is clear that it represents 100% of their telecom policy work. And while these groups may actually be doing important work, it is clear that the money they’ve taken has biased any telecom and broadband related public interest.

The KeepUSFFair Coalition’s position is to increase the current USF taxes as well as tax new services, such as VOIP.

According to the details of their “Fair Share” plan, they would: “… establish a contribution factor cap to be applied to the revenue-based approach, e.g., between 12 and 15 percent of revenues derived from interstate telecommunications (including VOIP) (the contribution factor for 1st quarter 2005 is 10.7%)”

It’s a shame the press release didn’t mention this massive increase — from 10.7%, the USF rate they quote, to 15%, — up to a 40%+ increase! Maybe, if the press release had stressed this point, co-opted groups may have changed their position on this plan that harms low income families. We also need to note that the USF is also taxed, which raises this tax burden even higher.

This plan would also tax VOIP: “…would expand the USF contribution base to include all revenues derived from telecommunications, including services using Voice over the Internet Protocol (VOIP) technology.”

The Universal Service Fund is now a fat corporate subsidy that should be investigated, not increased or applied to new services such as VOIP.

Teletruth believes that the Universal Service Fund has turned into an
out-of-control phone company corporate subsidy and needs to be investigated. We’re for wiring schools, not billion dollar corporate giveaways and new taxes.

As you know, the Universal Service Fund is currently an 11.1% tax on interstate wireline and wireless services, and DSL, and represents a number of different funds including the Erate (wiring of schools and libraries), the High-Cost Fund, Lifeline, and other funds.
Let’s look at some simple stats:

* 185% increase in five years: The Universal Service Fund has increased from 3.9% on long distance services in 1999 to 11.1% in 2005 – a 185% increase.

* The largest part of this fund is NOT for wiring of schools and libraries, but to “High Cost Funds”, which are corporate subsidies to the phone companies. The High Cost Fund represents over 60% of the total collected, doubling from $1.7 in 1999 to $3.4 billion in 2004 — and growing.

* These funds are NOT going to corporations that need this money. Many of the phone companies receiving funds have 55% profit margins (EBITDA), in a large part. from this High Cost fund.

USA Today (November 14, 2004) found that one small telco, XIT Rural Telephone Cooperative, which serves only 1,500 customers in the Texas Panhandle, received $2.9 million in USF subsidies. It was so profitable that it gave a “dividend to its customers, who also own XIT, an average $375.”

* Declining Local Service Costs: The costs to offer local service has continued to drop over the last 5 years. The USF increases have been against a backdrop of construction cuts, down 50%, and employees-per-line plummeting 65% since 1984.

* Regulators no longer examine profits — 90% of the states no longer examine these companies’ profits because of local phone deregulation. How can the FCC give billions in High Cost funds when costs are not taken into account?

* Double-Quintuple Taxation? Many states have also added statewide High-cost funds, Erates, Lifeline services and other services covered under the federal program, and NO ONE has examined the totality of taxes from multiple funds!

* Questionable taxation? The Universal Service Fund is being applied to charges on the local phone bill, including “Local Number Portability” and the “FCC Line Charge”, which are not interstate by definition. Also, the USF charges are being taxed multiple state and federal taxes as well, adding insult to injury.

* The E Rate, the schools and libraries fund, has an excess of $3.4 billion yet to be given out. Also, the phone companies are also the largest recipient of the Erate because they get paid back on network charges in full, for any discounts the schools receive.

* Major Fraud and Lack of Audits — Everyone from the FCC Attorney General and other regulators are finding Erate fraud, and a lack of audits.

In fact, in May 2004, the FCC Inspector General stated he had “…numerous concerns about the Erate program and believes that the program may be subject to a high risk of fraud, waste, and abuse through noncompliance and program weakness.” And in February 2005, the General Accounting Office (GAO), released a report titled “Greater Involvement Needed by FCC in the Management and Oversight of the Erate Program.”

Any rational consumer group worrying about rising costs to their constituency should be demanding an investigation into this Tax. Instead, these groups are advocating giving the phone companies more money.

Issue Dynamics and this astroturf cabal wants to make the USF a consumer issue, so they use scare tactics, couching the argument that other plans would be even worse for low income or low-use families. If there was any truth in this, then they should be advocating cleaning up the corporate subsidies to lower all rates.

Taxing VOIP? Voice-over-the-Internet is under siege, with
monopoly-phone-company-based lobbying and legal initiatives to blanket this service with new taxes and surcharges, or simply close it down. Shouldn’t the current taxes and surcharges be investigated before any new tax on new services?

In sum, good luck with your new position. Teletruth stands ready to supply you with more data on USF and these fake groups. We ask that when your are confronted with groups who state that they represent the
public interests, look behind the curtain. We also ask you to take a personal interest in the FCC Consumer Advisory Committee’s business ties.

Teletruth, is a former member of the FCC Consumer Advisory Committee, (CAC) and is independent, not funded by any phone company, lobbying organization or political group.

To see the KeepUSFFair Press Release, links to learn more about Issue
Dynamics, skunkworks and astroturf groups, our complaint about the CAC,
see: http://www.teletruth.org/USF.html or the links below.

Bruce Kushnick, Teletruth
Tom Allibone, Teletruth

* The Teletruth Complaint pertaining to APT and other members of the FCC Consumer Advisory Committee
* Information pertaining to Issue Dynamics, Skunkworks and Astroturf groups. http://www.newnetworks.com/skunkworks101.html
* Keep USF Fair Press Release On FCC Chairman Martin
* KeepUSFFair Coalition Members
* Keep USF Fair Plan
http://keepusffair.org/USF_Proposal_13105.pdf (PDF)
* National Association of the Deaf Telecommunications Primer, paid for by Verizon Foundation
* Testimony, FCC Inspector General, Subcommittee on Oversight and
Investigations of the Committee on Energy and Commerce, U.S. House of
Representatives on “Problems with the Erate Program: Waste, Fraud, and About Concerns in the Wiring of Our Nation’s Schools to the Internet” Statements, 1/6/2005

Click to access FCCattorneygeneralEratestatement.pdf

* General Accounting Office Report (GAO), “Greater Involvement Needed by FCC in the Management and Oversight of the Erate Program” February 2005

Click to access GAOonusfd05151.pdf

* FCC Inspector General Semiannual Report, for April 1-September 30, 2004, released January 2005

Click to access FCCInspectorGeneral112204.pdf

* Congressional Budget Office Report “Financing Universal Telephone Service”, March 2005 http://www.teletruth.org/docs/CBOUSF03-28-Telephone.pdf


Note from Muniwireless:

Issue Dynamics, which is mentioned above, has appeared in Glenn Fleishman’s blog, Eweek and others:

The most recent cameo appearance of Issue Dynamics is on my post about San Antonio’s citywide Wi-Fi plans:

And now for something totally predictable: Laura Lorek, the author of this article, called the NMRC’s director, Allen Hepner (you recall the NMRC’s anti-municipal broadband paper masquerading as independent research), but he hung up on her! If you have been reading Muniwireless, you know that Glenn Fleishman and Carol Ellison (EWeek) have exposed NMRC as an offshoot of Issue Dynamics, a consulting firm that has done work for SBC and Verizon.

Issue Dynamics and their ilk have figured prominently in Glenn’s and Sascha’s blog posts. Go to their sites and type in “astroturf” in the search boxes.