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In this edition of Views and News, ETI examines the evolving video delivery business in the wake of the remarkable success of third party content providers. We also examine the internet tax exemption and question the justification for its continuation as the internet moves beyond a "nascent" state. We are proud to announce a new publication in the Federal Communications Law Journal.
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De-linking video content from video delivery: Are longstanding business models now at risk?
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From their birth as "community antenna television" (CATV) systems that were created to capture the weak over-the-air broadcast TV signals in fringe areas and distribute them to subscribers via coaxial cable, to modern broadband digital hybrid fiber/coax systems owned by national multisystem operators (MSOs) such as Comcast, Cox, TimeWarner and Cablevision, all have one thing in common: The cable operator is in total control of the video content that is delivered over its facilities. The early CATV systems had a passive relationship with the content they carried – they picked up the broadcast TV signals using large antenna arrays, amplified those signals and re-transmitted them over their cable networks. The earliest systems had extremely limited capacity – sometimes as few as 12 video channels – and produced little or no content of their own. But even though current state-of-the-art digital systems have the capacity to support hundreds of individual channels, the cable operator maintains absolute control over their assignment to specific content providers – broadcast TV stations, "free" and "premium" cable channels, and on-demand and pay-per-view content.
Those early CATV systems were typically locally owned and not affiliated with any regional or national parent company. But by the mid-1990s, large-scale consolidations had become the norm, and when the dust had finally settled some 83.9% of all US video subscribers were being served by one of ten large MSOs. Significantly, that massive restructuring of the US cable TV industry fundamentally changed the relationship between those that produced video content and those that distributed it....
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Has the Internet matured to the point where its tax exemption can be safely rescinded?
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When Congress originally passed the Internet Tax Freedom Act (ITFA) in 1998, the measure was intended to bar the states from imposing "multiple and discriminatory" taxes on the nascent Internet access market and to provide the time necessary for the development of policy guidelines that would help avoid widely varying and inconsistent frameworks of State and local taxation.
The original Internet Tax Freedom legislation was narrowly tailored to achieve these goals. Actually, with respect to the first goal, it is unclear whether any additional Congressional mandate was even required. At the time, the FCC was already treating Internet and other online services as "information services," making them exempt from rate regulation. The ITFA's goal of preventing "multiple" and "discriminatory" taxation was also narrowly addressed. While barring the taxation of ISP services, the law nonetheless permitted states to tax the underlying telecommunications furnished to the Internet access provider and used by it as an input to its Internet access services. In other words, while Internet access was not to be "double-taxed," the telecommunications used by the ISP to create its Internet access information service would be treated no differently than other telecom services. Finally, as enacted, the law was temporary in nature, and was set to expire after six years, in 2004. During that time, a special advisory commission on electronic commerce was established to study and prepare a report on various aspects of Internet-related taxation (including, inter alia, the impacts upon e-commerce activities and on state/local tax collection) That report was completed in 2000.
Since 1998, the ITFA has twice been extended beyond its original 2004 expiration date, and some have advocated that the law be made permanent. Meanwhile, the ITFA as modified no longer serves its original goals. Clearly, there remains nothing "nascent" about Internet access and the Internet economy in general, such that the emerging industry tax preferences embodied in the ITFA can no longer be justified....
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ETI paper on reclassification of broadband Internet access to be published in December 2010 Federal Communications Law Journal
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As the debate over net neutrality and reclassification of broadband Internet access to Title II common carrier status heats up, ETI's Lee Selwyn and Helen Golding have weighed in on the discussion with a new article reviewing the factual and legal bases for a far more expansive approach to reclassification than the limited proposal put forth earlier this year by the FCC. The paper is being published in the December 2010 issue of the Federal Communications Law Journal.
In their article, "Revisiting the Regulatory Status of Broadband Internet Access: A Policy Framework for Net Neutrality and an Open Competitive Internet," Selwyn and Golding explore how a decade of broadband access deregulation has landed the FCC at a legal dead-end. After the DC Circuit's Comcast decision last April, the Commission now finds itself unable to enforce its "net neutrality" goals. To reassert its jurisdiction over "net neutrality," the FCC proposes to reclassify broadband Internet access as a Title II "telecommunications service" while continuing to forbear from most other facets of common carrier regulation....
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About ETI. Founded in 1972, Economics and Technology, Inc. is a leading research and consulting firm specializing in telecommunications regulation and policy, litigation support, taxation, service procurement, and negotiation. ETI serves a wide range of telecom industry stakeholders in the US and abroad, including telecommunications carriers, attorneys and their clients, consumer advocates, state and local governments, regulatory agencies, and large corporate, institutional and government purchasers of telecom services. |
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