Death and taxes

June 13, 2012 – 11:08 am

Chart of FUSF rates from 1998 to 2012, rising from four percent to fifteen percent

The Federal Universal Service Fund fee has spent the last decade climbing upward without any apparent end in sight. This next quarter it is set to drop a little, but this isn’t an indication of a change in the overall trend: upward. A Sonic.net Fusion customer pays roughly $2.40 monthly toward the Federal Universal Service program today.

The goals of universal service are laudable. In particular, connecting schools which lack adequate broadband access and computers can only pay dividends through better education. However, the Universal Service fund and E-Rate programs have seen plenty of waste, fraud and abuse. Tens of millions of dollars have been misspent under the E-Rate program. And, three US carriers have received subsidies (pg32) of over $10,000 for every home phone line per year!

This program cannot continue to grow without an upper bound. The first two years of the FUSF program were reasonable and consistent, with a contribution factor of around 4%. Then, as the scope of the program increased, and as carriers learned how to dip deeply into the system, costs began to rise.

The FCC is working to reform the programs, with a cap on the size of the program. But, I believe we should push for rates to return to much lower levels. The reforms of the universal service system address support levels, price caps and inter-carrier billing methods. Hopefully as these changes are finally implemented, we will begin to see a more consistent rate. Reversing this chart is long overdue.

  • Discouraged

    These taxes are indeed outrageous.  Why don’t you offer a broadband-only product so you get out of this whole regime?  

    Your Fusion product is $40/month – I’m willing to pay a setup fee and $45/month for broadband only: I’d save money compared to Fusion!

  • sonicnet

    I wondered how many hours it would take before someone responded to my article with exactly this feedback and request.

    As a strategic choice, we have elected to offer only one product, which includes all features. These features includes the FaxLine number, personal web hosting and domain name, fifteen email boxes, shell access, and of course landline with nationwide calling and free calls to Canada.

    Clearly we could make features all optional and reduce costs – and where land line was eliminated, reduce taxes too. But strategically our goal is to have only one very simple product, which does include all of the features. This simplifies marketing, billing, product design, software tools and support. While I’ll agree it’s not ideal to pay for features that some customers don’t want or need, this “one product” philosophy is a key part of our strategy.

    I’m hopeful we can continue drive more value into the land line for you – international calling, call blocking and forwarding features, etc, in hopes that at some point it tips the balance such that you DO find it of value.
    -Dane Jasper

  • http://www.ivpcapital.com/blog Michael Elling

    These numbers correspond with the farcical Telecom Act of 1996 and the death of equal access in 2004.  Moore’s and metcalfe’s law disconnected from bandwidth pricing around 10 years ago.  That said, as Sonic proves, a horizontally scaled, or simple, vertically complete model whose price reflects marginal cost can win against overpriced vertically integrated monopoly incumbents.

    On the plus side, Steve Job’s legacy will be that he resurrected equal access and there is hope that we can once again witness robust competitive markets and a renewed trend towards horizontal scaling and every layer.  Only then rapid technological obsolescence be accounted for in service provider models.

  • http://twitter.com/zandr Aleksandr Milewski

    It does seem like there needs to be a third product in the mix: 2-pair bonded data with a single voice line.

    Between the higher price for the second pair, the high taxes on the voice line, and the extra charge for a single static IP, the bonded product is 2.4x the price for ~2x the bandwidth.

    Even though I wouldn’t avoid the taxes on the second POTS line, it does make me think about getting two single-line residential services and doing my own load balancing. I’d end up with two static IPs, pay Sonic $20/mo less, and it can’t actually be easier for sonic to manage/provision than a single bonded service. What am I missing?

  • sonicnet

    There are obviously many potential configurations we could offer – we’ve just made a choice to pare it down to only one for “residential” and only one for “business”. This lack of options may be frustrating to some, who would appreciate more flexibility. I’m sorry.

  • http://twitter.com/zandr Aleksandr Milewski

     Completely understood. We’ll see what 6150′ of Berkeley copper can deliver and figure it out from there. :D

  • Cynic13

    Simplification is a fine thing… but I’d much rather pay you the entire $52/month for broadband only, than pay you $40 plus $12 in taxes for features I don’t use.

  • http://www.facebook.com/people/Soren-Spies/1359820255 Soren Spies

    I for one appreciate Sonic creating a product that is incredible affordable, rich, and simple. One of my church’s business lines and several church members have switched to Sonic in large part due to the simplicity. If Fusion ever becomes available in my neck of San Jose, I will jump on it in a heartbeat so that I can continue to have high-quality “real” phone service w/o having to deal directly with AT&T. Until then, I’m doing okay with rock-solid sub-6Mbps DSL. :)

    -Soren

    ps, that Sonic is advocating to fix the tax structure is exactly what they should be doing as good corporate citizens. Instead of trying to game the broken system like other carriers are evidently doing.