WASHINGTON UPDATE 5/27/97

[Jeff Ogden]

FYI
  -Jeff

>Date: Fri, 30 May 1997 09:49:42 -0400
>To: legup@farnet.org
>From: Heather Boyles <heather@farnet.org> (by way of Garret Sern
><garret@farnet.org>)
>Subject: WASHINGTON UPDATE 5/27/97
>
>WASHINGTON UPDATE --- MAY 27, 1997
>
>IN THIS ISSUE:
>
>* MORE ON THE FCC'S UNIVERSAL SERVICE RULES: WHAT DOES IT MEAN FOR SCHOOLS AND
>INTERNET SERVICE PROVIDERS?
>
>
>* SENATE COMMERCE COMMUNICATIONS SUB-COMMITTEE HOLDS HEARING ON INTERNET
>TAX FREEDOM ACT (S. 442)
>
>^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
>
>
>FCC 97-157: WHAT DOES IT MEAN FOR SCHOOLS AND INTERNET SERVICE
>PROVIDERS?
>
>Following its May 7 ruling to adopt almost all of the Federal-State Joint
>Board's recommendations on implementing Universal Service, the FCC has
>released its Report and Order FCC 97-157. <http://www.fcc.gov>
>
>The FCC agreed with the Joint Board that all providers of
>telecommunications services should make "an equitable and nondiscriminary
>contribution to the preservation and advancement of universal service."
>Such telecommunications services include wireless technologies such as
>pagers and cellular phones.  Because Internet Service Providers (ISPs) and
>Cable Companies do not meet the Telecommunications Act definition of
>interstate telecommunications service providers, they are not required to
>contribute directly into the fund.  This has raised some cries of
>double-standard from the telephone industry, which believes that ISPs and
>cable companies are getting a "free ride" from a fund to which they may
>access, but are not required to contribute.
>
>The FCC's reply to this complaint is that contributions to the fund will be
>based on telecommunications revenues, thereby making Internet Service
>Providers indirect contributors through their purchase of
>telecommunications services.  In addition, by providing Internet access to
>schools, libraries and rural health care providers, ISPs are facilitating
>the goals of competitive neutrality and universal service.  The FCC
>rationale is that if non-contributing ISPs did not receive support via the
>fund, ISPs affiliated with telecommunications carriers would be favored
>over independent ISPs, giving schools fewer options and resulting in their
>paying higher costs.
>
>Keeping this in mind, the FCC cites that Internet services eligible for
>universal service fund support should not only include basic "conduit"
>access to the Internet, but also the routers, hubs, network file servers,
>and wireless local area networks (LANs) necessary for internal access as
>well.  Any equipment that is not essential for the TRANSPORT of information
>to individual classrooms, such as Personal Computers, fax machines and
>modems, would not be covered under the Universal Service Fund.  The
>bundling of services supported and unsupported by the Universal Service
>Fund will be allowed only if such services are priced separately.  Beyond
>the physical mechanisms, it is not clear whether training and technical
>support will be eligible for universal service fund discounts. The FCC
>notes that Section 254  provides the commission the option of designating
>"additional services" needed for support mechanisms for discounts.  This
>provision, probably vague on purpose due to the FCC's inability to discern
>what services will be needed in our rapidly changing technical world, may
>be utilized by different schools and libraries to meet their unique needs.
>
>The FCC believes that the customers (schools and libraries) are in the best
>position to evaluate the relative costs and benefits of different
>technologies and services.  When applying the 20-90% discount matrix
>determined by the Joint Board, the FCC and states will have some leeway to
>allocate discounts based on a community's ability to pay.  It is the
>individual schools and libraries responsibility, however, to seek out
>competitive bids prior to discounts being determined.  The Joint Board did
>not recommend the FCC require schools and libraries to accept the lowest
>bid.  Supposedly, service quality should be an integral part in the bidding
>selection.  The FCC, while agreeing with this policy, makes it a point that
>"price should be the primary factor in selecting a bid."  In terms of
>Internet access, the Joint Board requires that the most "cost-effective"
>supplier of access be selected.  So-called "cost-effectiveness may include
>past performance, personnel qualifications, schedule compliance and even
>environmental objectives.  Although sending mixed messages on the weighing
>of cost in selecting a bid, the FCC does not impose any method of how bids
>are to be solicited.  At the same time, this does not exempt schools and
>libraries from adhearing to any state or local bidding regulations.
>
>In order to take the best advantage of the bidding system, the FCC agreed
>with the Joint Board that schools and libraries should create consortia in
>order to attract more competitors and negotiate lower rates.  Where the FCC
>diverges from the Joint Board, however, is what entitites may join such a
>consortium.  Disagreeing with the Joint Board's recommendation which would
>allow large private firms such as commercial banks to form consortia with
>schools and libraries, the FCC believes such arrangements would compromise
>federal and state non-discriminatory pricing.  Instead, only consortia
>comprised of eligible schools and libraries, rural health care providers,
>and public sector (governmental) customers will be eligible to receive
>universal service discounts.  Large state networks are also cited as being
>eligible to participate in a consortia.  This being the case, one could
>safely assume that university programs which are contracted out by state
>governments to provide Internet access to public school districts, would be
>eligible to join a consortium.
>
>Who will be responsible for applying for universal service discounts, the
>customer or provider?  While as explained above, schools and libraries will
>initiate requests for bids for service, the FCC agreed with the Joint Board
>that telecommunications service providers will have to seek compenstation
>from the universal service administrator.  Compensation can come in two
>guises; the provider may either apply the amount of the discount afforded
>to schools and libraries as an offset to its universal service fund
>obligations, or receive a reimbursement from the fund.  The FCC concluded
>that it would be an unfair administrative and financial burden on schools
>and libraries to pay for services in full and apply to receive a
>reimbursement later. The exact application process was not specified.
>Whether the reimbursement application paperwork required will discourage
>carriers from servicing schools and libraries remains to be seen.
>
>
>SENATE COMMERCE COMMUNICATIONS SUB-COMMITTEE HOLDS HEARING ON INTERNET TAX
>FREEDOM ACT (S.442)
>
>May 22 - Taxes and the Internet was on the agenda as the Senate Commerce
>Sub-Committee on Communications listened to testimony from a panal
>comprised primarily of federal and state officials involved with tax
>policy. At issue is whether states and local authorities can tax Internet
>commerce, how taxes would be implemented and who would earn the revenues
>from such a tax.  Currently, there is no clear definition or set standards
>as to how the Internet should be taxed.  Some states consider the Internet
>to be a telecommunications service and tax the actual time usage of the
>telephone lines, while others view it as an information service, taxing the
>actual amount of data content being transmitted. And because Internet
>commerce can span several local, state and even national jurisdictions, it
>is not clear as to whether one or all governments have a fair claim to tax
>revenue.
>
>Because of the rapidly changing nature of the Internet, Rep. Chris Cox
>(R-CA) and Sen. Ron Wyden (D-OR) introduced The Internet Tax Freedom Act
>(H.R. 1054 and S. 442), which would establish a two year moratorium on state
>and local taxation of Internet commercial activity. The bill's primary
>objective is to provide Congress with the time necessary to develop a fair,
>functional tax, that would not hinder commercial growth of the Internet.
>The moratorium would grandfather normal business income taxes and allows
>sales and use taxes that are the same as those imposed on mail and
>telephone orders.  Some critics fear that the moratorium
>would seriously infringe on local and state government's rights to levy
>taxes needed to generate desperately needed revenue.  During his testimony
>Timothy Kaine, Richmond City Councilman, expressed concern that the
>proposed bill would be perceived as favoring those businesses that conduct
>most of their transactions on-line.  He believes that businesses not
>relying on the Internet for their transactions would be unfairly burdened
>with supporting the state tax coffers.
>
>Proponents of the bill believe that U.S. companies and consumers will have
>the most to gain in today's global economy.  According to Rep. Cox, in 1995
>U.S. exports of licensing fees for Internet services earned U.S. companies
>more than $25 billion;  and with over a third of Internet users being
>American, the absence of taxes on the Internet will "disproportionately
>benefit the American consumer".
>
>The Internet Tax Freedom Act is on a fast track for a floor vote, with a
>full Senate Commerce Committee markup expected the first week in June.
>
>
>^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
>
>Written from FARNET'S Washington office, "FARNET's Washington Update" is a
>service to FARNET members and other interested subscribers.  We gratefully
>acknowledge EDUCOM's NTTF and the Coalition for Networked Information (CNI)
>for additional support.  If you would like more information about the
>Update or would like to offer comments or suggestions, please contact
>Heather Boyles at heather@farnet.org.
>
>
>-------------------------------------------------------
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>FARNET
>1112 16th Street, NW Suite 600
>Washington, DC 20036
>202-331-5342 phone    202-872-4318 fax
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