Is the FCC Trying to Torpedo the Submarine Cable Industry?

July 12th, 2012 by · 6 Comments

Recently, the FCC came up with a brilliant new way to expand the Universal Service Fund as part of its reform of the system: eliminate the exemptions on submarine cables landing in the US, thereby applying a 15.7% tax on assessable end-user revenues. And by brilliant, I mean bone-jarringly stupid.

Ok, is there anyone that thinks this sounds like a good idea? When USF fees get applied to consumer bills, it just gets passed through and bills go up. But submarine cable operators sell capacity via long term IRUs, and can't pass on the cost of a new tax to capacity they have already sold but are still recognizing revenue.

I mean, they could go to their foreign IRU customers and, like, ask for the extra money to give to the US government I guess. But I don't think they're going to get it. In fact, I'm not sure they're going to find it easy to raise prices on new capacity either, seeing as such a thing may never actually have been done before.

Effectively, it would be a 15.7% retroactive revenue tax that companies couldn't have planned into their cost structure and may not be able to add into future sales either.

The industry would just have to eat the entire tax bill.  That's ok I guess, since everyone out there in the submarine cable industry has 15.7% of revenues to spare right now, yes? <cue the crickets chirping>

It's a very competitive industry with thin margins already, this money just isn't there to be collected.  It would devastate the sector, and thereby undermine the ability to feed the traffic growth monster that the FCC is trying to create by expanding broadband coverage in the first place.

And those considering building new cables to the US or elsewhere via a US landing point are going to do what in response? All of a sudden, those arctic cables linking Asia to Europe by bypassing the US would start to look more feasible, and the proposed BRIC cable too - after they drop the Miami landing station on the one end.

Naturally, the industry is complaining loudly.  Telegeography reports that a coalition that includes Level 3, Southern Cross, OPT French Polynesia, and PPC-1 has already filed an objection with the FCC. But we all know the big wireless carriers have the most lobbying power, and they'd clearly prefer to unload some of the USF burden elsewhere.

Someone had better tell Julius to get his head out of .. the sand, yeah that's it, the sand.

Categories: Government Regulations · Undersea cables

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6 Comments So Far


  • Anon says:

    One idea is to get rid of the USF altogether… Antiquated idea to spread analog copper phone lines to places where there is literally not enough revenue to justify analog copper phone lines.

  • ether says:

    Y’all keep voting for these boobs who have no self restraint or ability to check their spending habits, so…. now the taxman cometh for a new niche that has less chance of getting some lobbyists in place fast enough. What’s not to love about a policy like that?

  • Anonymous says:

    What a brilliant way for politicians to raise money from companies they determine are not giving enough: threaten some segment with a tax, sit back and watch the contributions roll in.

    Essentially, it’s legalized extortion.. is it a coincidence this is an election year?

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