Raising Taxes To Subsidize Rural Internet

By Lisa Smith | November 18, 2009 AAA

The Federal Communications Commission is considering a tax hike in the midst of the country's deepest economic downturn in decades. Consumers would face higher costs for telephone services, with the revenue used to subsidize internet access for rural areas. The cost estimates to bring internet service to every corner of the nation range from $20 billion to $350 billion.

Other aspects of this effort include the possibility of forcing internet providers to share their networks with competitors and reclaiming airwaves from television station owners in order to auction them off to internet service providers. For most investors, CEOs and employees of private enterprises, an influx of government intervention would not be welcome news.

What's The Point?
Bridging the digital divide, increasing competition and driving down prices are the philosophical underpinnings of this effort. Casting aside the government's less-than-successful track record at such efforts (anybody remember the $400 hammer from the 1980s or the fine state of affairs at the Social Security Administration?), let's take an honest look at internet use to see what our money will be used to purchase.

While most internet providers won't release data on their client's web surfing habits, a variety of other studies are available. The Pew Internet & American Life Project survey released in 2005 indicated that 90% of internet users check e-mail on a daily basis. Just over 50% use search engines, fewer than 50% go online to get news, and just over 40% browse for fun. It also noted that 56% of rural America is already connected.

Of the 75 million Americans not connected at the time of the survey, "I don't want it, and I don't need it" topped the list of reasons for remaining offline. A 2008 survey by comScore.com indicates that 36% of internet uses spend time on a least one "adult" website each month. This traffic fuels $2.8 billion in revenue each year. (This ever-changing industry can leave investors scratching their heads. Find out which metrics matter in Dial Up Choice Telecom Stocks.)

The Bottom Line
The government wants to implement a tax hike of up to $350 billion dollars so that people who don't actually want to be online can check their e-mail and entertain themselves online. With an unemployment rate north of 10%, a housing market on shaky ground, a manufacturing base on life support, a healthcare system in shambles and a 401(k) system that leaves people who hope to retire someday at the mercy of the stock market, there seem to be higher priority uses for tens of billions of dollars.

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