Firms Fighting Net Telephony Tax Measure

Telephone service over the Internet has long promised consumers a way to cheaper calling. But companies in the business say a new last-minute amendment to federal legislation clears the way for taxing Internet calls--a move they say could quash the fast-growing industry.

The legislation, HR 1291, passed the House a few weeks ago and prohibits taxation of the Internet, but includes an exclusion for companies who provide telephone service over the Internet. The measure says explicitly that the Federal Communications Commission can apply fees to those firms.

Leading Internet telephony companies and their backers are planning an “Internet Freedom Rally” Sunday in Washington, to protest the bill’s passage in the House and to try to decrease its chances in the Senate.

Participants include Firetalk, Deltathree, Net2phone, I-Link, ITXC, DialPad and others--many of them companies that provide free or cut-rate phone service through the Web.

Traditional phone companies, however, have a legitimate fear. If the IP--Internet protocol--telephony companies do not contribute to the Universal Service Fund (which supports phone service for low-income and rural regions), income to the national fund will diminish as more phone calls shift to the Internet firms that are not taxed.

If they are taxed, of course, consumers can expect prices to rise for Internet telephone services.

It’s a tricky question, but the Web providers have a powerful advocate in William Kennard, chairman of the Federal Communications Commission.

Kennard has resisted pressure to regulate the Internet phone companies in the same way--and with the same fees--as the nation’s old-line firms. He opposes the amendment to HR 1291, and this week he suggested that the eleventh-hour change was the handiwork of lobbyists for phone companies that have lost business to the Internet firms.

At a phone industry trade show in Atlanta this week, Kennard said, “I know how this works, because I know how Washington works. The regulated industries come into contact with the unregulated industries, and it’s not a fair contest because the folks in the regulated industries have been working government for a hundred years, and these people are very, very good.

“They work the government at all levels. . . . They have the resources to work the process,” he said. “They’re like Ninja warriors, . . . they work quietly and at night, and you wake up and you see things in legislation that none anticipated.”

Further information can be found at https://www.internetfreedomrally.com.

Sleepless in San Diego: The phone book saga continues in San Diego, where Cox Communications in late May discovered that a software glitch had caused the names, addresses and phone numbers of 11,400 of its unlisted local phone customers to be published in new directories printed by PacBell.

When the problem surfaced, PacBell already had delivered 400,000 of the directories, but agreed to suspend deliveries pending a resolution. But while the matter was still being reviewed by state regulators, PacBell resumed delivering the books.

Cox, already facing a mounting bill for damages and restitution to the affected customers, sought intervention from the California Public Utilities Commission to prevent further damage to its customers.

On June 2, the PUC issued a temporary restraining order forcing PacBell to hold the directories pending a hearing June 12.

PacBell said it restarted phone book deliveries in the affected area May 31 and stopped again at the end of the day after Cox complained (and 10,000 more of the tainted books were distributed).

Why did PacBell choose to make the situation worse for the Cox customers by sending out more of the directories? “There were obligations to other providers who had submitted listings to the directories . . . so the decision was made to continue with deliveries,” said PacBell spokesman Brian Brokowski. “The offer to reprint [the phone books] had not been agreed to by Cox.”

Brokowski was reluctant to elaborate, saying, “I don’t think it’s really important at this stage to look back at what happened. We’re focused on the remedy and the solutions.”

A spokesman for Cox said the two companies are discussing plans for reprinting the directories and possibly retrieving the estimated 410,000 books that have been delivered.

Cox has offered the affected customers a new phone number or a package of telephone features that can help protect their privacy. Company spokesman Dan Novak said the affected group of unlisted customers includes several dozen people who are in law enforcement or other situations in which the publication of their phone numbers and addresses can be a safety concern.

* Elizabeth Douglass can be reached e-mail elizabeth.douglass@latimes.com.