[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




 
THE TRUTH IN TELEPHONE BILLING ACT OF 1999 AND THE REST OF THE TRUTH IN 
                     TELEPHONE BILLING ACT OF 1999

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON TELECOMMUNICATIONS,
                     TRADE, AND CONSUMER PROTECTION

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   on

                        H.R. 3001 and H.R. 3022

                               __________

                             MARCH 9, 2000

                               __________

                           Serial No. 106-127

                               __________

            Printed for the use of the Committee on Commerce


                     U.S. GOVERNMENT PRINTING OFFICE
63-103CC                     WASHINGTON : 2000






                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
    Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
                   James E. Derderian, Chief of Staff
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

   Subcommittee on Telecommunications, Trade, and Consumer Protection

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio,              EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio                BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California          ANNA G. ESHOO, California
NATHAN DEAL, Georgia                 ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma              ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JAMES E. ROGAN, California           RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
    Mississippi                      JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)







                            C O N T E N T S

                              ----------                              
                                                                   Page

Testimony of:
    Breen, Kevin, Vice President, Consumer Operations and 
      Billing, AT&T..............................................    11
    Eisenach, Jeffrey A., President, Progress and Freedom 
      Foundation.................................................    14
    Hotka, Cathy, Vice President, Information Technology, 
      National Retail Federation.................................    29
    Lassman, Kent, Deputy Director of Technology and 
      Communications, Citizens for a Sound Economy Foundation....    32
    Moir, Brian R., Partner, Moir & Hardman, on behalf of 
      International Communications Association...................    36
    Norquist, Grover G., President, Americans for Tax Reform.....    22
Material submitted for the record by:
    American Library Association, letter dated March 9, 2000, to 
      Hon. W.J. Tauzin...........................................    49
    Neel, Roy, President and CEO, United States Telecom 
      Association, prepared statement of.........................    49


THE TRUTH IN TELEPHONE BILLING ACT OF 1999 AND THE REST OF THE TRUTH IN 
                     TELEPHONE BILLING ACT OF 1999

                              ----------                              


                        THURSDAY, MARCH 9, 2000

              House of Representatives,    
                         Committee on Commerce,    
                    Subcommittee on Telecommunications,    
                            Trade, and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:06 a.m. in 
room 2322, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members present: Representatives Tauzin, Oxley, Cox, 
Largent, Cubin, Bliley (ex officio), Markey, Eshoo, Engel, 
Wynn, Luther, Green, and McCarthy.
    Staff present: Linda Bloss-Baum, majority counsel; Cliff 
Riccio, legislative clerk; and Andy Levin, minority counsel.
    Mr. Tauzin. Good morning, and welcome.
    The Chair will recognize himself for an opening statement.
    Before the deregulation of the Bell System in 1984, 
telephone service was provided by a few companies that were 
generally subject to public utility taxes. These taxes were 
typically passed on to consumers as part of the rates they were 
charged. These taxes have always been an accepted expense of 
the carriers, who paid them in exchange for the special 
monopoly status granted to them by the local authorities.
    But we all know that the telecommunications world is much 
different today than it was in 1984. Thanks to the 
Telecommunications Act of 1996, in fact, special monopolies 
have been subject to special utility taxes and are now 
competing with new entrants--in fact, new technologies 
altogether. However, many taxing authorities continue to levy 
the same types of taxes that traditionally were reserved for 
wire line monopolies on the competitive technologies of today. 
In fact, so many of these taxes exist today that it is nearly 
impossible for consumers to understand who is taxing their 
phone service and how much of those charges are dedicated to 
Federal, State, and local government programs.
    I might add parenthetically that these taxes on the 
carriers, according to one survey, went up 62 percent in a 12-
year period, and those taxes on carriers end up being real 
taxes now on the Internet, as the carriers become Internet 
service providers.
    In response to this, I have joined with Chairman Bliley 
last fall in introducing H.R. 3011, the Truth in Telephone 
Billing Act of 1999. The bill requires that telecommunications 
carriers identify the government programs for which the carrier 
is being taxed, the form in which the tax is being assessed, 
and a separate line item that identifies the dollar amount of 
the subscriber's bill that is being used by the carrier to pay 
for the government program.
    Today, many municipalities have decided to extend the 
traditional public utility type taxes to telecommunications 
services. In recent years, additional fees have been imposed on 
consumers' bills to fund special public service programs such 
as 911 emergency services and hearing impaired services. In 
some municipalities, the total amount of monthly service that 
is attributable to State and local taxes is as high as 35 
percent.
    These local fees, of course, are all in addition to the 
Federal tax requirements such as the Federal excise tax, the e-
rate tax, and the Federal universal service fund fee. That is 
even hard to say.
    The result is that in some States hundreds of different 
State and local taxes and fees apply to the sale of 
telecommunications services. Consumers, we believe, have the 
right to know what these charges are and to understand where a 
large percentage of their phone bill is going every month.
    Among our panel of esteemed witnesses this morning we have 
with us Mr. Jeffrey Eisenach, president of the Progress and 
Freedom Foundation. His organization has recently released a 
report entitled, ``The High Cost of Taxing Telecom.'' This 
report finds that high telecommunications taxes slow the spread 
of Internet access and discourage the deployment of broad-band 
networks needed for the next generation of Internet growth.
    I, of course, am very concerned about this unintended 
circumstance resulting from telephone taxes. If 10, 20 percent 
of the American public will not have access to Internet 
services because of the level of telephone taxes, that ought to 
be a concern to everyone on this panel and everyone in the 
Congress.
    I hope that by educating consumers about the magnitude of 
these taxing programs we might be able to simplify the process 
and speed the deployment of new technology in the future.
    Of course, part of our wish is that, by putting the 
spotlight on this huge tax burden being paid by telephone 
consumers in America, we might just discourage taxing 
authorities, including the one in which I am a member, to 
consider repealing or reversing some of this taxing policy.
    I look forward to the testimony from this fine panel this 
morning. I am anxious to hear your thoughts on the bill, 3011, 
and Mr. Markey's complementing bill, H.R. 3022, which requires 
disclosure of not only the taxes but all the subsidies that are 
received by consumers on each month's bill.
    I want to thank you for being here and yield to my friend, 
Mr. Markey, for an opening statement.
    Mr. Markey. Thank you.
    I want to commend Chairman Tauzin for calling this hearing 
this morning on telephone billing issues. I believe that this 
is a useful exploration of universal service issues.
    Legislation introduced by our esteemed committee 
colleagues, Chairman Tauzin and Chairman Bliley, seek to assure 
that telecommunications fees and taxes are adequately listed on 
consumer telephone bills.
    This legislation is designed to get at one of the critical 
issues in telephone billing, which is that some of the 
universal service fees simply are not listed on customers' 
consumer telephone bills.
    This is true most notably of access charges, which are 
often significant dollar amounts on a consumer's bill, but do 
not appear anywhere listed as a separate fee.
    I think most consumers would be shocked to see how much 
they pay in access charges, and the legislation introduced by 
Chairman Bliley and Chairman Tauzin seeks to remedy that 
situation.
    I have introduced companion legislation called, ``The Rest 
of the Truth in Telephone Billing Act of 1999.'' I offer the 
Rest of the Truth to point out that a listing of fees and taxes 
only provides half of the story. The other half of the story is 
the subsidies in the telecommunications marketplace, which I 
believe need to be made just as explicit on a consumer's bill 
as the fees and taxes, in order to fully inform consumers of 
what they do and do not pay for when they subscribe to 
telecommunications services.
    Mr. Chairman, as most of us are well aware, the 
telecommunications marketplace is rife with subsidies. In my 
view, many of these subsidies are quite noble in intention and 
help to pay for affordable service for the poor and rural 
consumers. Other fees are designed to ensure that kids and 
schools get access to the skill set they will need to compete 
in a post-GATT, post-NAFTA, knowledge-based economy.
    Yet, many of these subsidies reflect a historic monopoly 
marketplace and should be revisited as the marketplace changes. 
The truth is that many consumers in America today pay too much 
to support a bloated subsidy system that was designed to 
support inefficient, monopoly provided service.
    As efficiencies arrive in the marketplace due to 
technological changes and the competitive entry of new 
providers, I believe that many subsidized services could be 
provided at lower cost, and therefore less subsidy than 
previously provided.
    Providing subsidies sufficient to keep costs low in rural 
America and for inner-city poor or to hook up schools and 
libraries ought to be done in a manner that reflects the actual 
cost of providing the service.
    In order to ensure that we give consumers the rest of the 
truth in telephone billing, I suggest giving consumers all of 
that information--what fees and taxes they pay and what 
subsidies they are receiving or delivering.
    If my father in Boston is subsidizing someone in a rural 
part of New England, my father should know that each month, and 
so should the rural citizen know that he is being subsidized by 
my father, a retired milkman. He delivered. He was at the 
retail end of the milk business. He was not out in the farm, 
but he certainly is not someone who has been left the legacy of 
a great pension because of his work, either.
    Consumers should know whether they are paying $8 in fees or 
$18 in taxes. They should know whether they are simultaneously 
receiving a hitherto implicit subsidy to the tune of $2 or 
$200.
    I look forward to working with Chairman Bliley and Chairman 
Tauzin on their legislative proposal and to discussions with 
our other colleagues, both urban and rural, on how we can 
better ascertain the true cost, true taxes, true fees, and true 
subsidies embedded in the telecommunications bills that 
consumers pay monthly.
    Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Markey.
    The Chair is now pleased to welcome the author of the 
legislation, the chairman of our full committee--who, by the 
way, made an extraordinary announcement, of course, yesterday. 
I wanted first of all to acknowledge that announcement and to 
wish Mr. Bliley all best wishes for a new career. But I would 
like to remind you of something which will save him the trouble 
of reminding all of you--he may be leaving, but he is not gone 
yet. He is still chairman of our committee and he is still 
going to have an enormous amount to say about what we do this 
year, and this is one of those issues that he has asked me to 
help him to work this year and to complete into legislative 
form.
    I want to welcome him and congratulate him for his great 
years of service in this Congress and wish him the best with 
the new announcement, but, more importantly, to thank him for 
leading on this issue, as he has led on so many issues in the 
Commerce Committee, and to deliver his opening statement at 
this time.
    The chairman of the full committee, Mr. Bliley.
    Chairman Bliley. Thank you, Mr. Chairman, and thank you for 
those kind words. I also want to thank the ranking member, the 
gentleman from Massachusetts, for the many kind words he said 
last night in his statement. I would hope that he would make an 
appointment down at St. Peter's to go to confession.
    This is an important hearing, and this is an important 
issue for this committee. Our joint Truth in Telephone Billing 
legislation, H.R. 3011, is based on a simple idea that 
consumers should know when their government is taxing them.
    I am going to submit my full statement for the record, but 
this was brought home to me many years ago, when I served on 
the city council in Richmond, and every year, when we needed a 
few nickels to bring the budget into balance, we frequently 
would raise the tax on telephone and electricity.
    Well, finally the telephone company and the electric 
utility got smart and went to the State Corporation Commission, 
which is our version of the PUC, and said, ``We want this 
itemized.'' That was about 1974. The tax on residential phone 
service in Richmond by the city and on electricity has not gone 
up since.
    I had a couple of constituents, as I am sure we all have, 
stop me and say, ``I cannot understand this bloody telephone 
bill, and you ought to do something about it.'' And that fueled 
the idea of putting this in to just put it on the bill and let 
the people know. If the people know how much they are paying, 
the chances of it being increased are extremely remote, I can 
tell you that.
    With that, I yield back and look forward to hearing the 
testimony of the witnesses, Mr. Chairman.
    Thank you.
    [The prepared statement of Hon. Tom Bliley follows:]
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Thank you Mr. Chairman for holding this hearing on what, we all 
agree, is an important issue for the telecommunications industry.
    Our joint Truth in Telephone Billing legislation, H.R. 3011 is 
based on a simple idea that consumers should know when their government 
is taxing them.
    Taxes for telecommunications services have sky rocketed over the 
past several years. Thanks to the growth of the industry, 
telecommunications carriers are now a ``cash cow'' for politicians and 
regulators. Consumers ought to be aware of the level and degree of this 
taxation on their monthly bill.
    The E-Rate or ``Gore Tax'' is only one example of what has become a 
widespread problem not only at the Federal level but at state and local 
levels as well. We can debate the merits of the E-RATE, and other such 
spending programs all day. But regardless of whether these programs are 
worthy of tax-payer dollars, I say consumers have the right to know 
what they are paying for in their monthly bill. Our Truth in Telephone 
Billing Act of 1999 would ensure that consumers see these charges 
plainly on their phone bills every month.
    The legislation would require carriers to identify who sets the 
tax: where the money goes, the assessment, and how much of the bill is 
being used by the carrier to pay for the government program.
    This is better than today's system. Today, governments levy the tax 
on telecommunications service providers. The providers, in turn, pass 
the cost on to American consumers in the form of higher rates. The tax 
is buried in rates.
    I know this because, last year, the Committee on Commerce conducted 
a thorough investigation of the Federal Communications Commission 
(FCC's) implementation of the Gore Tax. We found that the FCC put 
pressure on the Nation's largest long distance carriers (on whom the 
Gore Tax is levied) to withhold information from their subscribers 
about the true cost of the Gore Tax.
    Congress has enacted similar legislation dealing with taxation of 
cable services. As part of the 1992 Cable Act, I included a provision 
in the law that permits cable operators to place a line item on 
consumers' monthly bills that identifies the portion of the bill that 
is attributed to ``franchise fees'' that cities and counties typically 
extract from cable operators as the ``price'' for offering service. 
Again, while we may differ on the merits of a spending program, 
consumers are entitled to know when they're being taxed, and for what 
purpose.
    I want to thank the witnesses for appearing before the Subcommittee 
today on this important issue. I look forward to your testimony on this 
important issue for all American consumers.

    Mr. Tauzin. I thank my friend.
    The Chair now yields to the gentlelady from California, Ms. 
Eshoo, for an opening statement.
    Ms. Eshoo. Thank you, Mr. Chairman.
    I want to start out this morning by following up on your 
introduction of our chairman, Mr. Bliley. I think it is sad 
news, and I was really quite rocked when I heard it in 
California.
    Mr. Bliley, I want you to know that you will be missed here 
enormously. You still have a ways to go before you walk out, 
but I just cannot help but think of your very first meeting as 
the chairman of the full committee, when you quoted from St. 
Francis. I felt privileged to be joining a committee that had 
you as the chairman and your starting out that way. You know 
that I have a great deal of respect and regard for you. You 
have been fair and tough, but I think that we have gotten a lot 
done together, and I look forward to working with you for the 
rest of this Congress.
    I really feel that I have made a friend. Whether you are in 
the Congress or back in Richmond, I know that our paths will 
cross, and I want you to know that you always have a friend in 
me and I wish you godspeed.
    I am glad that we are having this hearing. I think that the 
testimony today is intended to provide consumers with greater 
detail in the billing information they receive. The legislation 
I think attempts to accomplish this goal by listing every tax, 
as well as subsidies, included in a customer's bill.
    I commend you, Mr. Chairman, and the other sponsors of the 
legislation, for seeking to improve the accuracy of billing for 
the consumer.
    I believe in the simple goal that consumers have a right to 
know what they are paying for when they pay their telephone 
bill. I also think we should apply some common sense to these 
efforts.
    Most consumers review with great interest, as I do--when I 
got into my apartment very late last night, my telephone bill 
was awaiting me, and I went right to the extra sheets to see 
how the total amount of the bill had been calculated. So I 
think they have a great interest in the calls that they make 
and the charges that are listed in their monthly bill, but I do 
not think that they quite understand the confusing and 
complicated explanations of surcharges and other regulatory 
information they receive.
    I just, on my long distance bill, for 3 months been trying 
to, with telephone calls to the Congressional liaison of AT&T, 
figure out what the extra bill was that I was paying. It went 
to my California address.
    So I think that there is something to be done about the 
complicated and confusing information that we need to take into 
account, but I also do not think that we need accountants to 
decipher them.
    So the goal of the legislation to educate the consumer on 
the taxes they are paying when they receive their phone bills 
is an important goal.
    Those of us who support public policies like the e-rate or 
ensuring that 911 service is available to every citizen must be 
willing to explain to our constituents why we support 
legislation that made the services possible. I did that when I 
voted for the Telecommunications Act, and I am proud of that 
vote.
    Consumers should be made aware of the costs and benefits of 
the program, but it should also be done in a way that avoids 
confusion and even more cost to the consumer.
    I compliment you, Mr. Chairman, on your goal of increasing 
the accuracy of billing information, and I hope in achieving 
that goal we can avoid a Federal mandate that turns a telephone 
bill into a telephone book and forces the consumer to have an 
assist from their CPA.
    I think that we need to marry these goals. We need to be 
very clear about how we accomplish one and avoid the other.
    I look forward to hearing the witnesses today, and I thank 
you again, Mr. Chairman, for the hearing.
    Mr. Bliley, let us make optimum use of the days that are 
left in this Congress, and I pledge to you that I will with 
you.
    Mr. Tauzin. I thank the gentlelady. I suggest to you I know 
the chairman will.
    The Chair is now pleased to recognize the vice chairman of 
the subcommittee, Mr. Oxley.
    Mr. Oxley. Thank you, Mr. Chairman.
    Let me also express my gratitude and support for the 
chairman and wish him well in his retirement.
    As I stated in my statement yesterday, Mr. Chairman, with 
his announcement, I will miss the exchange of bow tie and 
funeral home jokes versus golf and basketball jokes that we 
have shared over the years. We thank him for his leadership, 
and we want to----
    Mr. Tauzin. Would the gentleman yield?
    Mr. Oxley. I would be glad to yield.
    Mr. Tauzin. I just want to remind you, the chairman has 
told me he has renewed his embalmer's license. I wonder if you 
could get on a basketball team.
    Mr. Oxley. Well, anyway, let me just point out that this 
tax that we are interested in has been a hidden tax and it has 
been with consumers for a long time. As a matter of fact, staff 
tells me that the 3 percent Federal excise tax was originally 
enacted in 1897 to fund the Spanish American War. The gentleman 
from California and I were discussing it--it probably makes 
that the most expensive war in history, as it continues to draw 
money from the ratepayers.
    Currently, telecommunications carriers have no obligation 
to reveal to consumers what these taxes are, and our bill would 
certainly improve that.
    I wish we could make more progress on the actual issue of 
the e-rate and other taxes. By enacting the e-rate, the FCC 
clearly stretched Congressional intent far beyond any 
reasonable limit of the language in the 1996 Telecommunications 
Act, and, as a conferee on that important piece of legislation, 
I can tell you that it clearly was not the intent, that the FCC 
has pushed well beyond the intentions of the Conference 
Committee. It set a goal far beyond its means and then stuck 
consumers with the tab, which they continue to pay.
    If we can at least shed a little light on the telephone 
bill, that is an improvement I am happy to make, and so I thank 
the sponsor of the bill and look forward to a spirited debate 
from our panel.
    Thank you.
    Mr. Tauzin. I thank the gentleman.
    The gentleman, Mr. Luther, is recognized.
    Mr. Luther. Thank you, Mr. Chairman. And I thank you for 
holding this hearing. I think there is some excellent 
information we can gain on this particular issue.
    It seems to me--and I really address this to the 
panelists--that the bills that we are talking about talk about 
disclosure, and, obviously, disclosure is one step, but beyond 
that we should, it seems to me, be talking about how do we 
disclose the information in a meaningful way that is 
understandable to consumers; because to just disclose and then 
feel like we have accomplished it by having a bill, as other 
members here have said, that looks like a telephone book or 
looks like a bill where there are all these numbers and 
different acronyms and whatever--that really does not get to 
the heart, I think, of what consumers are asking for.
    I get complaints. I am sure many other members here get 
complaints from consumers who are simply unable to grasp what 
is going on with their telephone bills today. And I think we 
are talking about a couple thousand telecommunications 
companies operating in our country.
    So it seems to me our challenge extends beyond disclosure. 
Disclosure is one step, but then, beyond that, how can this be 
put in an understandable form so that the average person can 
understand what this bill is about? Then they will be empowered 
to do something. Short of that, I do not think the average 
consumer is going to feel empowered unless they can actually 
understand this and then take action based on what they have 
learned.
    So that is the point I simply wanted to make, and I thank 
you very much again for the hearing and I look forward to the 
testimony.
    Mr. Tauzin. I thank the gentleman for his statement.
    The Chair recognizes the gentleman, Mr. Cox, for an opening 
statement.
    Mr. Cox. Thank you, Mr. Chairman.
    I am pleased that we are holding this hearing today on the 
need to improve disclosure to consumers about the taxes that 
governments impose on telephone service, and I support Chairman 
Bliley's Truth in Telephone Billing Act, H.R. 3011, which will 
require explicit disclosure to consumers of the many hidden 
taxes and cross-subsidies that are now embedded in our phone 
bills.
    I routinely get letters from constituents complaining about 
this, and I would just like to share a few of them with you, 
because they make the point so well.
    Maurice from Laguna Hills wrote, ``If you want to do 
something about taxes, start with our monthly phone bills. As 
you can see, on my most recent bill my phone charges are $9.87 
and my taxes are $6.19. This amounts to a 62.7 percent tax on 
my phone bill. I suggest you read your phone bill line-by-line 
some day. Even Cunard cannot figure his out.''
    Sam from Newport Beach writes, ``The Pacific Bell phone 
bill includes what I refer to as a `penalty charge' for having 
more than one phone line per residence. As I read it, these 
taxes have nothing to do with access but are just a burden to 
my pocketbook. All these confusing and gray words are 
camouflaged for additional charges.''
    Ron from Alisoviejo writes, ``Why does the network access 
for interstate calling tax represent such an outrageous amount, 
34 percent? Why are additional telephones in the household 
singled out for a higher tax, 54 percent?''
    Ken from Irvine writes, ``Recently I had a second telephone 
line installed for Internet access. That line is used for 
nothing else, not even local calls. All Pacific Bell charges 
came to $11.75 a month, but my bill was $17.92 due to taxes, 
and a $6.06 a month charge imposed by the Federal 
Communications Commission. This one tax, a tax not even imposed 
by Congress, accounts for 51.6 percent of my bill.''
    I am hopeful that today's hearing will provide us with the 
impetus to mark up not just the Truth in Telephone Billing Act, 
to make it easier for Americans like Maurice, Sam, Ron, and Ken 
to understand how government contributes to high phone bills, 
but also legislation to reduce or repeal the taxes that they 
are complaining about.
    Today, telephone use is the most heavily taxed service in 
America, and, except for tobacco, it is the most heavily taxed 
good or service in America. The tobacco taxes are intended as a 
penalty for smoking. We should not be punishing telecommuters 
and people who use the Internet at the same time that we are 
complaining about the digital divide.
    In addition to the FCC-regulated taxes and fees we are 
talking about today, the Federal Government also imposes a 3 
percent excise tax on telephone service. As my colleague, Mike 
Oxley, pointed out, this tax was put in place originally in the 
19th century to finance the Spanish-American War, making that 
the most expensive war in American history.
    It is time that we bring an end to this war, that we end 
the tax, and we declare victory.
    The tax currently costs consumers nearly $6 billion a year. 
By the time one adds in State and local telephone and sales 
taxes, telephone use is taxed at an average rate of 18 percent, 
according to a study by the Committee on State Taxation. And 
that does not even include all the hidden taxes and cross 
subsidies that we will be looking at today.
    Telephone taxes are also among the most regressive taxes on 
the books. This is a point of rare agreement between Congress' 
Joint Committee on Taxation and the Treasury Department's 
Office of Tax Analysis. Everybody agrees on this. Poor people 
are disproportionately hurt by these taxes.
    To make matters worse, telecommunication taxes are growing 
higher still. This is what has happened just in the last 3 
years. The FCC pushed through the famous e-rate, or I should 
say the ``infamous Gore tax,'' which is costing consumers $2.25 
billion this year. Congress did not approve that tax.
    The FCC also required every household with a second phone 
line to pay the local phone company an additional tax of $1.50 
a month, even though the actual costs of maintaining a second 
phone line are virtually nil.
    The collection burdens, alone, act as a significant barrier 
to entry for new competitors. The chairman of the National 
Governor's Association, Governor Mike Levitt, recently reported 
that a telephone company that wants to do business nationwide 
has to ``maintain information on 310 separate State and local 
taxes that are applied to 687 tax bases.'' That can translate 
into as many as 50,000 tax returns a year. That is why he calls 
this a ``horse and buggy tax system that is unsuited to the 
exploding telecommunications market.''
    Repealing the 3 percent Federal telephone tax, dismantling 
the rest of our obsolete system of telephone taxes, will 
significantly reduce the cost of local and long distance 
service, it will remove barriers to more vigorous competition, 
it will facilitate the deployment of broad-band Internet 
services, and it will reduce the cost of e-commerce for U.S. 
firms that do business on line.
    I look forward to the hearing. I look forward to the 
testimony of our witnesses. And I look forward not only to 
enacting the bill we are having a hearing on today, but the 
repeal of these onerous taxes, Mr. Chairman.
    Thank you.
    Mr. Tauzin. I thank my friend very much.
    The Chair is now pleased to recognize the gentlelady from 
Wyoming, Ms. Cubin, for an opening statement.
    Ms. Cubin. Thank you, Mr. Chairman, for holding this 
important legislative hearing that will hopefully get to the 
heart of why consumers' telephone bills look more like tax 
statements than utility bills.
    When I purchase a box of cereal at the store, I am charged 
for the price of the cereal and maybe sales tax. I do not pay a 
grocery store access toll or a local seed growers toll or a 
flour milling charge or a tractor fuel tax or a cereal box 
processing fee. I just pay for the cereal. It is simple, it is 
clear, and it is straightforward.
    Telephone bills are not simple, they are not clear, they 
are certainly not straightforward.
    Although it seems as if the costs associated with providing 
telephone service have declined, the average cost to telephone 
consumers has risen dramatically in the past two decades.
    The intent of the 1996 Telecommunications Act was to lower 
telephone rates, not to increase them. The act was designed to 
bring competition to the telephone marketplace, thus driving 
down the prices.
    Well, we have seen some competition, but my constituents 
are asking me why their telephone bills are more now than they 
were 5 years ago.
    A simple answer seems to be that the government has not 
seen a tax that it will not levy on the hard-working men and 
women of America. The telephone is a luring revenue generator 
for the Federal Government and for State governments.
    Now, we have all talked about how a tax that was assessed 
to fund the Spanish-American War is still being assessed. I do 
believe that Teddy Roosevelt was a great man and I think he was 
one of our finest Presidents, but I think we have held this tax 
in his honor long enough, and I, too, would like to completely 
abolish this Federal excise tax on telephones, and I have co-
sponsored Chairman Tauzin's bill.
    If and when taxes or fees are deemed inappropriate or 
arcane, they should always be eliminated. There is no question 
that phone bills are confusing. We have to work to make sure 
that telephone bills are more customer friendly and work hard 
toward educating the American consumer so that they know 
exactly what they are paying for and why they are paying for 
it.
    I am glad to support Chairman Bliley's bill. Again, Mr. 
Chairman, I thank you for having this hearing.
    Mr. Tauzin. I thank the gentlelady for an excellent opening 
statement.
    I might point out, as I introduce the panel, that we live 
in a free speech society, and yet we have deregulated trucking 
and abolished the ICC, and yet we have this amazing regulatory 
structure over speaking in America, and taxes, Mr. Cox, that 
actually exceed the taxes on tobacco in some local 
jurisdictions of America. That is strange.
    We are pleased to have a great panel of witnesses this 
morning, starting with Mr. Kevin Breen, the vice president, 
consumer operations and billing at AT&T Mr. Eisenach, who I 
referred to before, with Progress and Freedom Foundation; Cathy 
Hotka, the vice president, information technology, of the 
National Retail Federation; Kent Lassman of the Citizens for a 
Sound Economy, who has been here often before--and we welcome 
you again; and Brian Moir, partner with Moir & Hardman, on 
behalf of the International Communications Association; and Mr. 
Grover Norquist, president of Americans for Tax Reform, who has 
often been here to visit with us on issues common to us.
    We thank you all for being here.
    We are pleased now to welcome Mr. Breen, the vice 
president, consumer operations and billing of AT&T.
    Gentlemen and lady, your written statements are part of our 
record. I put up with members reading their statements, and I 
read my own often, but I do not want you to do that please 
today. We have got your written statement. Please kind of 
conversationally summarize for us.
    We have some beautiful new electronic equipment that is 
going to sort of time you, kind of watch it. It will give you a 
sum-up warning and a stop warning at 5 minutes, so stick with 
the 5-minute rule, if you will.
    We will begin with Mr. Breen, with our great appreciation 
for your being here, sir.

STATEMENTS OF KEVIN BREEN, VICE PRESIDENT, CONSUMER OPERATIONS 
AND BILLING, AT&T JEFFREY A. EISENACH, PRESIDENT, PROGRESS AND 
 FREEDOM FOUNDATION; GROVER G. NORQUIST, PRESIDENT, AMERICANS 
   FOR TAX REFORM; CATHY HOTKA, VICE PRESIDENT, INFORMATION 
 TECHNOLOGY, NATIONAL RETAIL FEDERATION; KENT LASSMAN, DEPUTY 
DIRECTOR OF TECHNOLOGY AND COMMUNICATIONS, CITIZENS FOR A SOUND 
ECONOMY FOUNDATION; AND BRIAN R. MOIR, PARTNER, MOIR & HARDMAN, 
     ON BEHALF OF INTERNATIONAL COMMUNICATIONS ASSOCIATION

    Mr. Breen. It is an honor to be here today to have this 
opportunity.
    My name is Kevin Breen. I have been in AT&T for over 20 
years, and the last 10 years has been spent performing various 
and sundry billing-related functions, starting with endeavors 
to take back billing responsibilities from the local exchange 
carriers into AT&T managing within-network recording, where 
the actual capturing of the data from the switch is done, which 
ultimately ends up on a consumer's bill; and then, for the past 
4 years, I have presided over billing operations for consumers. 
What that essentially entails is everything from getting a 
message onto the proper invoice, betting the invoice sent to 
the consumer, handling the processing of the payment, and then 
the actual updating of the account.
    Several of the points I want to make, or highlights, if you 
will, is to emphasize that AT&T has a vested interest of its 
own volition to make sure that we are offering consumers the 
most accurate, complete, and timely billing experience that is 
achievable. Competitive forces would dictate that we do no 
less.
    The reality of this is that we put, from an investment 
standpoint, tremendous resources, in terms of dollars, some of 
our very best people, and leverage our technology to the hilt 
to ensure that that can become a reality.
    This investment ends up manifesting itself in a variety of 
functions that, when I look at my budget, which let us say is 
about $175 million to support consumer billing operations, 
about a third of that is directed toward preventative and 
corrective actions to enhance that billing experience.
    We have capabilities to actually monitor the end-to-end 
billing process. When there are problems that occur, we go to 
great lengths to make sure, down at the individual account 
level, that the proper steps are taken to make sure that that 
customer has the highest confidence that AT&T is looking to be 
straightforward and forthright with them in terms of their 
billing experience, and that, in fact, we will go the extra 
mile to make sure they have a positive feeling about what we 
are doing.
    The truth is today that a largest portion of the customer 
inquiries that we get are due to what I am going to call the 
``confusion factor,'' or an uncertainty that is associated with 
the complexity of the billing. I think you have heard some of 
the comments made earlier today which would substantiate that.
    The fact of the matter is that that places great burden on 
our costs, from an infrastructure standpoint, and ends up 
cycling back to represent higher pressures in the overall cost 
that a consumer would be charged.
    The question then on the table is: what could be done? What 
are some of the highlights? They are captured in my testimony, 
but I want to make sure that they come forward.
    No. 1 is to be real clear about what problem we are trying 
to solve. I think, as a matter of fact, that most consumers 
would agree that being able to clearly and simplistically 
understand what is on their bill, giving them that reasonable 
assurance when they open that envelope that the charges are 
there makes sense, that they were, in fact, actually incurred 
by them is of our foremost concern.
    Some of the ways that we can do that, I believe, are to get 
behind support of things like the Coalition for Affordable Long 
Distance and local, make sure that we have a highly competitive 
local marketplace to ensure that companies like ours are 
putting the very best foot forward that they have toward that 
consumer experience. I think the repeal of the Federal excise 
tax has been talked about here. Certainly, that works toward 
giving the consumer confidence that they know what they are 
paying for.
    And then, finally, I think it is to have the recognition 
that natural competitive forces are the primary thing that 
causes me to do what I do in the course of my day-to-day 
execution of responsibilities.
    The reality is, for AT&T to stay in business as a viable 
telecommunications company makes it imperative that we maintain 
that above-board, very honest, open relationship with our 
customers, where they, at the end of the day, say, ``The brand 
of AT&T represents a trustworthy brand, the quality that we get 
from this company is first cabin, and it is a company we want 
to continue to do business with.'' Thank you.
    [The prepared statement of Kevin Breen follows:]
   Prepared Statement of Kevin Breen, Vice President, AT&T Consumer 
                           Billing Operations
    Thank you for the opportunity to speak about customer billing and 
customer care operations. AT&T strongly supports the principle that 
consumers are entitled to receive accurate billing information from 
carriers about the communications services they offer. After all, the 
ability of consumers to make informed purchasing decisions is the 
foundation of a competitive marketplace. Because consumers depend on 
such information, AT&T goes to great lengths--and incurs significant 
expense--to provide clear information to customers and also to respond 
promptly and accurately to customer inquiries. We believe that AT&T's 
billing practices consistently meet, or exceed, common industry 
standards.
    In a nutshell, AT&T's policy is to provide every reasonable 
assurance that its customers can determine (1) if the AT&T services 
listed on their bills are the ones they have requested, and (2) if the 
charges for those services are consistent with their service 
arrangement. This policy, which AT&T takes very seriously, is not 
merely consistent with sound legal principles. It also makes good 
business sense. Good billing practices are essential to create consumer 
trust and loyalty, both of which are critical to maintaining AT&T's 
reputation and brand name. At the same time, providing consumers with 
clear information helps to avoid the costs required to handle 
individual customer inquiries and complaints, which are typically at 
least several dollars per call. The best consumer billing practices 
really are best for the industry.
    As a result, AT&T and other responsible carriers take great care to 
assure that their customers have the information they need to make 
informed decisions. AT&T over the past year has provided billing 
notices and inserts to tens of millions of customers that describe line 
item charges and the reasons for them. Customers with questions about 
AT&T's billing phrases usually had their questions clarified through 
discussions with AT&T customer care representatives. Overall, AT&T 
spent millions of dollars to educate its customers on these matters. 
And our work isn't done. AT&T constantly conducts consumer research to 
assure that our billing services keep pace with consumers' needs.
    Given this context, the ``confusion cost'' involved in changing 
terminology to mandated language would substantially outweigh any 
benefits of retooling descriptions on consumer bills. There is also a 
very real financial cost involved in changing complex billing systems. 
Industry members have demonstrated to the FCC that billing system 
changes are neither simple nor cheap, and they can take significant 
time to implement. For example, Ameritech managed to cut corners when 
they reformatted their bills recently because the carrier intentionally 
left legacy software and hardware systems intact. Even so, the project 
cost $8 million and took 18 months to complete. In an effort to ensure 
optimal responsiveness to changing conditions in the highly competitive 
long-distance marketplace, AT&T tries to maintain a relatively flexible 
bill format. Nonetheless, many changes and/or new requirements to the 
bill, which appear inconsequential on the surface, necessitate 
alterations of a more systemic nature. This subsequently requires long 
and costly lead times to accommodate necessary design, development, 
testing and implementation related activities. It is not uncommon for 
more ``permanent'' oriented changes to necessitate lengthy intervals 
ranging from several months to over a year. Imposing additional systems 
costs would be bad news for consumers, who ultimately bear the cost of 
regulation.
    Existing market forces already provide reputable carriers with 
powerful incentives to provide their customers with clear information. 
Billing provides a great opportunity for local competitors to 
differentiate themselves from the capabilities offered by incumbent 
local exchange carriers. ALTS, an association of facilities-based local 
competitors, filed comments at the FCC opposing extensive new billing 
rules, noting that they ``would tend to mandate mediocrity in billing 
rather than superior billing practices.'' We agree.
    In fact, a number of sound practices are common in the industry 
today. A toll-free number is the easiest and most direct way for 
consumers to reach vendors, including telecommunications carriers. If a 
toll-free number is provided, consumers may raise a question, register 
a complaint, or obtain information (such as an address) that may be 
needed to pursue matters that the customer wants to follow up in 
writing. Reputable carriers and consumers should not be forced to 
implement or pay for cumbersome billing system changes because of the 
questionable practices of a small number of bad actors.
    Promulgating new billing regulations would be an unnecessary use of 
the FCC's limited resources, which are much better spent on assuring 
that access rates are cost-based and that universal service supports 
are fairly and equitably developed and applied. The telecommunications 
industry has formed a coalition that is, so to speak, ``bipartisan'' in 
nature, having the support both of incumbent local exchange carriers 
and members of the long distance industry. The Coalition for Affordable 
Local and Long Distance Service (CALLS) is promoting a plan that would 
unify the SLCs, PICCs, and minute-based carrier common line charges 
into a single SLC. In other words, the CALLS plan would thin out the 
``alphabet soup'' and simplify the bewildering rate structure in place 
today. If Congress truly wants to help clear up consumer confusion, I 
would encourage you to support the CALLS plan.
    Another positive step that Congress could take is to repeal the 
Federal Excise Tax, which was first introduced as a ``temporary'' 
luxury tax in 1898 to fund the Spanish American War. More than a 
hundred years have passed, yet consumers still see the Federal Excise 
Tax as a line item on their phone bill every month--despite the fact 
that the war is long over and phone service is hardly a luxury these 
days. Repealing this line item from phone bills would benefit consumers 
in every part of the country.
    Ultimately, consumers are depending on Congress to ensure that real 
competition develops in the local telecommunications markets. Full 
competition will drive inflated local phone bills closer to cost--just 
as long distance prices have plummeted under competitive pressure, 
price competition in the local markets would be great news for 
consumers. Already, in just the past year, we've witnessed phenomenal 
price breaks for high-speed Internet access. SBC originally charged $89 
per month for their entry-level DSL service--now it's down to $39 
because of competitive pressure. Competitors are working hard to create 
competition in the local markets, but we need your help. Strict 
enforcement of the Telecommunications Act is the best way to deliver 
benefits to the consumer pocketbook.
    To sum up, AT&T believes that the marketplace demands integrity 
from reputable carriers. It is in our best interest to provide 
consumers with the clearest information possible about the programs 
that they are supporting. The long distance industry provides ample 
proof that consumers, if given the chance, will indeed use available 
information to decide between carriers. Accurate billing gives 
consumers the ability to make informed choices, which is essential in a 
competitive marketplace. And most would agree that competition delivers 
the greatest consumer benefits.
    Thank you.

    Mr. Tauzin. Thank you.
    We have a vote on the floor. I think we will have an 
opportunity for one more witness before we will temporarily 
recess the hearing.
    Mr. Eisenach?

                STATEMENT OF JEFFREY A. EISENACH

    Mr. Eisenach. Mr. Chairman, members of the subcommittee, 
thank you so much for having me here. It is an honor. I will 
summarize my testimony.
    As Mr. Tauzin indicated, we are doing a good bit of work on 
the issue of telecommunications taxes at the Progress and 
Freedom Foundation.
    It might be useful for me to indicate how we got into that 
process.
    I had the great pleasure and joy of being married 2 years 
ago, and my wife moved into my home in Oakton, Virginia, and 
soon thereafter I came home from work, and she had been busily 
having phone lines installed in her home office. She has the 
pleasure of being able to work from home.
    And so, as I walked into her office, I found my new wife 
sitting there in a state of some agitation and irritation, and 
I said, ``Honey, what is the matter?'' And she showed me the 
phone bills that she just started receiving on these two new 
lines.
    As we attempted to sort out what was on those phone bills, 
it emerged that the taxes accounted for more than 20 percent of 
the phone bill--over $12, I think, a month--on her two lines. 
She found this a source of great irritation.
    And I said, ``Honey--'' being a newly wed husband--``let me 
see what I can do about that.'' Since then, I have had the 
opportunity to speak to the National Governor's Association, to 
testify before the Advisory Commission on Electronic Commerce, 
to now testify before this subcommittee, and I am doing my best 
to help my wife with the problem that she identified, and I can 
say we are very happily married today, maybe, in part, as a 
result of my efforts.
    But, having said that, here we are 2 years later, and I 
must say to you that, while we have a much better understanding 
of the nature and extent and level of telecommunications taxes, 
I still could not do what I could not do that day, which is sit 
with my wife and go through the items on our telephone bill 
line by line and sort them out in any comprehensible fashion.
    Now, telecommunications taxes are extremely high. Just to 
make three quick points, if the current level of 
telecommunications taxes in the United States were applied to 
broad-band services, DSL services, cable modem services from 
the cable company, which they may or may not be, depending on 
where you are, and if I were to go to the store and buy my 
daughter a $600 personal computer, which I can do today, and if 
I were to want my 12-year-old daughter to have access to the 
Internet through a broad-band line, I would hook her up to a 
DSL line. And if I were to do so, I would pay more in taxes on 
that line during the 3-year life of the computer than I paid 
for the computer. I would pay more in telecommunications taxes 
on the phone line to hook me up to the Internet than for the 
computer, itself.
    Now, in a world where getting 12-year-old daughters hooked 
up to the Internet is a major and legitimate public policy 
goal, why our first response would be to levy, in effect, a 100 
percent marginal tax rate on the ability to do that I find a 
little bit mystifying.
    But it is not just the level of taxes that matters, it is 
the complexity of taxes. In my testimony I talk a good bit 
about the source of that complexity.
    Simply put, a lot of the complexity, most of the 
complexity, results from the fact that telecommunications, 
despite the Telecommunications Act, remains as regulated, 
arguably more-heavily regulated, today as it was in 1996 when 
we passed the Telecommunications Act. Indeed, 
telecommunications prices are essentially nothing but a 
patchwork of cross-subsidies mandated by government regulation.
    Add on to that taxes from franchise fees to the taxes, Mr. 
Cox, that you mentioned--over 300 separate State and local 
taxes applied on 700 different tax bases, over 55,000 tax 
returns filed by a single national telecommunications provider. 
In my home State of Virginia, nearly 4,500 tax returns are 
filed per year for any company hoping to do business in the 
State.
    It brings to mind a quotation from Appeals Court Judge 
Learned Hand, who said, in looking at the income tax, ``In my 
own case, the words of such an act as the income tax, for 
example, merely dance before my eyes in a meaningless 
procession. Cross-reference to cross-reference, exception upon 
exception, couched in abstract terms that offer no handle to 
seize hold of, leave in my mind only a confused sense of some 
vitally important but--'' and I think this is particularly 
apt--``successfully concealed report which it is my duty to 
extract but which is within my power, if at all, only after the 
most inordinate expenditure of time.''
    I thought that was particularly appropriate in thinking 
about all of our efforts, as has been talked about here, to 
understand our telecommunications bills. It is practically 
impossible.
    I think the bills before the committee represent good faith 
efforts to move in the right direction. I think there are 
clearly things that can be done to improve the transparency of 
telephone bills. But I also think, as some people have 
suggested, that a certain amount of reasonableness needs to be 
applied to the workability and ability of a billing process to 
fully inform consumers of what is an unreasonably complex 
pricing process mandated by government.
    Thank you.
    [The prepared statement of Jeffrey A. Eisenach follows:]
  Prepared Statement of Jeffrey A. Eisenach, President, Progress and 
                           Freedom Foundation
    Mr. Chairman and Members of the Subcommittee, it is an honor to 
appear before you today to discuss H.R. 3011, the Truth in Billing Act 
of 1999 and H.R. 3022, the Rest of the Truth in Billing Act of 1999.
    Before continuing, I should note that while I serve as President of 
The Progress & Freedom Foundation, a non-partisan research and 
educational institution,1 and also on the faculty of the 
George Mason University Law School, the views I express are my own and 
do not necessarily represent those of the Foundation, its board or 
other staff; nor those of George Mason University. However, my 
testimony is based in large part on research now underway at The 
Progress & Freedom Foundation to examine the nature, extent and 
consequences of taxes on telecommunications services.
---------------------------------------------------------------------------
    \1\ The Progress & Freedom Foundation was founded in 1993 to study 
the digital revolution and its implications for public policy. A 
501[(c)(3) research and educational organization under the Internal 
Revenue Code, PFF is funded entirely by private contributions and 
accepts no government contracts or funding of any kind. More 
information on PFF is available at its Web site, at www.pff.org.
---------------------------------------------------------------------------
    H.R. 3011 and H.R. 3022 represent efforts to make it easier for 
consumers to understand what they are paying for telecommunications 
services. Both of the bills correctly identify the main source of 
complexity in telecommunications billing, and hence of confusion among 
consumers, as the extremely complex array of taxes, fees and cross-
subsidies imposed on telecommunications services by government. My 
testimony this morning focuses on the nature of these taxes, fees and 
cross-subsidies.
Telecommunications Taxes in the U.S.
    Telecommunications services in the United States are subject to an 
almost incomprehensible array of taxes at the local, state and Federal 
levels. Indeed, there are so many taxing entities levying so many 
taxes, fees and other charges that there literally is no comprehensive 
data source from which a complete listing can be obtained. 
Nevertheless, it is possible to paint a fairly accurate picture of the 
overall level of telecommunications taxes.2
---------------------------------------------------------------------------
    \2\  A major new study by the Committee on State Taxation (COST) 
provides a wealth of data on state and local taxation of 
telecommunications services. See Committee on State Taxation, 50-State 
Study and Report on Telecommunications Taxation (Washington, DC: 
Committee on State Taxation, 1999). This study will make possible far 
more sophisticated analyses of telecommunications taxes than have been 
possible in the past.
---------------------------------------------------------------------------
    Federal Taxes: The Federal taxes on telecommunications are of three 
main types. First, the Federal government levies a three-percent excise 
tax on all telecommunications services. Second, it imposes fees on 
telecommunications carriers that are used to subsidize the provision of 
telecommunications services, wiring and computer-related equipment at 
schools, libraries and rural health care centers. Third, it oversees a 
complex ``universal service'' system designed to lower the costs of 
telecommunications services below costs for some consumers while 
raising them above costs for others.
    The Federal telecommunications excise tax (FET) adds three percent 
to the cost of every telecommunications bill. It covers both long 
distance and local telephone service for both residential and business 
customers. Revenues from the tax are treated as general revenues. The 
FET is projected to raise about $6 billion in FY 2000. As shown below, 
this makes it the third largest general revenue excise tax in the U.S. 
budget, just behind alcohol and tobacco.

                Table One: General Fund Excise Taxes \3\
------------------------------------------------------------------------
                                   Revenue (FY 1998,  Share of On-Budget
             Product                   millions)        Federal Revenue
------------------------------------------------------------------------
Alcohol.........................             $7,215               0.53%
Tobacco.........................             $5,657               0.44%
Telecommunications..............             $4,910              0.38%
------------------------------------------------------------------------
\3\ Beginning in 1998, revenues from the excise tax on motor fuels were
  removed from general revenues and dedicated virtually entirely to the
  highway trust fund. At nearly $40 billion, the tax on motor fuels is
  far and away the largest Federal excise tax in terms of revenue
  raised. Source: Office of Management and Budget, Budget of the United
  States: Historical Tables (Washington: Government Printing Office,
  1999).
Source: Office of Management and Budget

    The second major tax on telecommunications services is the tax 
levied on telecommunications carriers to support the Federal 
Communications Commission's ``e-rate'' program. In May 1999, the FCC 
voted to raise the annual amount of this tax by approximately $1 
billion to $2.25 billion annually.4 These taxes are passed 
through by telecommunications carriers as part of their universal 
service charges to individual customers.5 Under the FCC's 
so-called ``truth in billing'' rule, of course, phone companies are 
prohibited from identifying the e-rate fee as a ``tax.''
---------------------------------------------------------------------------
    \4\ See Federal Communications Commission, In re: Federal-State 
Board on Universal Service: Twelfth Order on Reconsideration in CC 
Docket No. 96-45 (May 27, 1999). See also Dissenting Statement of 
Commissioner Harold Furchtgott-Roth (August 5, 1999). The FCC has gone 
to great lengths to ensure that the charges associated with the e-rate 
are not seen by the public as taxes. [See, for example, In re: First 
report and Order and Further Notice of Proposed Rulemaking, Truth-in-
Billing and Billing Format; CC Docket 98-170 (May 11, 1999). In this 
``truth in billing'' proceeding, the FCC effectively prohibited long 
distance carriers which pay into the fund from including on their bills 
a line showing the portion being passed through to consumers.] All 
documents available at www.fcc.gov.
    \5\ The e-rate program has been roundly criticized by academic 
economists. See, for example, Jerry Hausman, Taxation by 
Telecommunications Regulation: The Economics of the E-Rate, 
(Washington: The AEI Press, 1998).
---------------------------------------------------------------------------
    The third major category of Federal taxes levied on 
telecommunications services resides in the system of charges and fees 
access charges associated with "universal service." While a 
comprehensive analysis of this system is beyond the scope of this 
testimony, it includes both explicit cross-subsidies, typically 
identified as ``universal service charges,'' and implicit cross-
subsidies that are incorporated in the access fees local service 
companies charge long-distance companies for use of the local loop.
    Finally, the Federal government oversees the pricing rules that 
require telephone companies to charge ``subscriber line charges'' (a 
different amount for the second line than for the first) and number 
portability charges. These items are essentially discrete components of 
the price of local telephone service, distinguished from the remainder 
of the bill by regulatory fiat.
    State and Local Taxes: While Federal taxes on telecommunications 
services are both high and complex, state and local taxes are both much 
larger and far more complex.
    As shown in Table Two below, there are approximately 37 different 
types of taxes levied on telecommunications services by state and local 
governments in the United States. These include excise taxes, franchise 
fees, right of way charges, gross receipts taxes, license fees, 911 
fees, public utility taxes and even special levies for programs such as 
poison control centers. In some cases these taxes apply to local 
telephone services only; in others they extend across state borders and 
apply to long distance services as well. Wireless services are often 
taxed differently from landline services, and telecommunications 
services offered by non-traditional carriers such as competitive local 
exchange carriers (CLECs) may in practice be taxed differently from the 
same services when offered by traditional carriers.

           Table Two: State and Local Telecommunications Taxes
------------------------------------------------------------------------
                   State                           Local/Municipal
------------------------------------------------------------------------
 Franchise Taxes                     Franchise Taxes
 Sales & Use Taxes                   Sales & Use Taxes
 Telecommunications Excise Taxes     Local 911 Tax
 Gross Receipts Taxes                Excise Taxes
 License Fees                        Telecommunications
                                             Taxes
 Utility Taxes, Utility User         Gross Receipts
 Taxes, PUC Fees                             Taxes
 Rental/Lease Taxes                  License Fees
 Utility Sales Taxes                 Utility Taxes
 Business & Occupation Taxes         Access Line Tax
 Infrastructure Maintenance Fees     Rental/Lease Taxes
 911 Fees, Emergency Operation       Telephone Relay
 Charges, 911 Database Charges, 911          Surcharge/Universal
 Equalization Surcharge                      Lifeline Surcharge
 Intrastate Surcharge                Public Service
                                             Taxes
 High Cost Fund Surcharge            Utility Users Tax
 Relay Service, Communications       Infrastructure
 Devices Surcharges, Universal Access        Maintenance Fees
 Charges
 Access Line Charges                 Right-of-Way
                                             Charges
 Infrastructure Fund Reimbursement   911 Fees
 Poison Control Surcharge (TX)       Business &
                                             Occupation Taxes
 Public Utility Commission Fees      Teleconnect Fund
 Universal Service Charges,         ............................
 Universal Lifeline Telecommunications
 Surcharge
------------------------------------------------------------------------
Source: AT&T, The Progress & Freedom Foundation

    A recent study by the Committee on State Taxation (COST) found 
that, taking into account all of the various state and local taxes on 
telecommunications in the United States, there are over 300 separate 
state and local taxes and fees applied to almost 700 different tax 
bases. Altogether, the COST study finds that a telecommunications 
provider operating throughout the U.S. would have to file over 55,000 
tax returns annually. In just one state, my home state of Virginia, a 
statewide telecommunications company files 4,341 tax returns each year.
Are Phone Taxes Too High?
    While the main focus of my testimony is on the complexity of 
telecommunications prices, including taxes, it should be noted that 
consumers may well be frustrated not just by the complexity of all of 
the various taxes and fees, but also by their level. Not counting 
universal service charges, access charges, subscriber line charges or 
number portability charges (that is, counting only funds that go to the 
government to fund government programs), the average tax rate on 
residential telecommunications services in the U.S. is over 18 percent. 
Federal taxes account for roughly four percent of this total, while 
local and state taxes account for 14 percent. In some localities, taxes 
account for over one third of a typical telephone bill. (See Attachment 
One.)
    The research now underway at The Progress & Freedom Foundation 
suggests that these levels of taxation are excessive when judged by 
generally agreed upon standards of tax analysis.6
---------------------------------------------------------------------------
    \6\ See Jeffrey A. Eisenach, ``The High Cost of Taxing Telecom,'' 
Progress on Point 6.6 (September 1999).
---------------------------------------------------------------------------
Is Truth in Billing an Achievable Goal?
    Given the complexity of the system described above, it is worth 
considering whether truth in billing is an obtainable goal--that is, 
whether it is possible in any global sense to provide consumers with 
sufficient information for them to fully understand what is on their 
phone bills. The unfortunate but obvious answer is that it is not. This 
does not mean, however, that we should not try to create as much 
transparency as possible. As I understand it, H.R. 3011 would represent 
a step in the right direction. H.R. 3022, while its objectives are 
laudable, would appear to be a step too far.
    Before commenting further on the two bills, let me discuss briefly 
why global transparency does not seem to me to be an achievable goal. 
Simply put, while the transition to a competitive environment initiated 
by the Telecommunications Act of 1996 is well underway, the 
telecommunications business remains very heavily regulated--more 
regulated, arguably, than in 1996 when the Act was passed. From the 
subscriber line charge (higher for second lines than for first lines) 
to the geographically averaged rates mandated by state regulatory 
commissions, from access charges (levied on traditional long distance 
service but not IP service) to ``life-line'' services for low-income 
consumers, from the Federal universal service fund (subsidizing rural 
and high cost areas) to the TELRIC pricing scheme (intended by the FCC 
as a subsidy for new entrants), telecommunications prices are 
essentially nothing but a patchwork of cross subsidies mandated by 
government regulation.
    Taxes only complicate the picture further. As the National 
Governors' Association points out in a report released last month, 
``Taxes imposed on telecommunications are a remnant of the days when 
the industry was a regulated monopoly.'' 7 Indeed, tax 
policy has not kept up with either the move towards competition nor 
with technological change.
---------------------------------------------------------------------------
    \7\ Scott Palladino and Stacy Mazer, Telecommunications Tax 
Policies: Implications for the Digital Age (Washington, DC: National 
Governors' Association, 2000).
---------------------------------------------------------------------------
    For example, broadband services offered by cable companies appear 
generally to be subject to cable franchise fees levied by local 
governments. Similar services offered through the telephone company 
infrastructure are, of course, not subject to cable franchise fees, but 
may or may not be subject to telecommunications taxes, depending on who 
is offering the service and what other services (e.g. Internet access) 
are bundled with it. Such inconsistencies represent discrimination in 
favor of some companies (and their consumers) and against others.
    As Mr. Bliley accurately pointed out in his remarks last October 
upon introducing H.R. 3011, ``rather than make the case for more 
government spending directly to the people, governments instead levy 
the tax on telecommunications service providers . . . [R]egulators then 
pressure the service provider to bury the tax in its rates.'' 
8 The result of this process is the extraordinarily complex 
set of local and state taxes discussed above.
---------------------------------------------------------------------------
    \8\ Rep. Thomas Bliley, Congressional Record, October 5, 1999, p. 
E2027.
---------------------------------------------------------------------------
    Again, changing technology is exacerbating the problem: Last week, 
for example, CTIA President Tom Wheeler testified on legislation in the 
Senate that would provide for ``uniform sourcing'' on taxes applied to 
cellular telecommunications services by state and local government. In 
his testimony, he pointed out that, during the course of a trip from 
Baltimore, MD to Philadelphia, PA, a cell phone user passes through 12 
different taxing jurisdictions, each with its own rates and rules--
rates and rules which are not only complex but may well be 
inconsistent.
    With all this in mind, imagine trying to provide today's 
telecommunications consumers with a ``global'' understanding of their 
phone bills. It brings to mind what Supreme Court Justice Learned Hand 
once said of the Income Tax:
          In my own case, the words of such an act as the Income Tax, 
        for example, merely dance before my eyes in a meaningless 
        procession; cross-reference to cross-reference, exception upon 
        exception--couched in abstract terms that offer no handle to 
        seize hold of--leave in my mind only a confused sense of some 
        vitally important, but successfully concealed, purport, which 
        it is my duty to extract, but which is within my power, if at 
        all, only after the most inordinate expenditure of 
        time.9
---------------------------------------------------------------------------
    \9\ Jeffrey L. Yablon, ``As Certain as Death--Quotations About 
Taxes (Expanded 2000 Edition),'' Tax Notes, January 10, 2000.
---------------------------------------------------------------------------
    In short, we have created a system which is complex beyond the 
ability of even the experts to understand. Only by reducing the 
complexity of the system can we hope to achieve the ultimate objective 
of more comprehensible telecommunications prices.
    We can begin this process by adopting incremental reforms that 
reduce complexity. At the Federal level, some proposals now under 
consideration would represent important moves in the direction of 
greater simplicity:

 implementing the so-called ``CALLS'' proposal, which would 
        simplify access fees, the Subscriber Line Charge, and the 
        universal service system,
 adopting the uniform sourcing legislation mentioned earlier,
 repealing the Federal Excise Tax on telecommunications 
        services.
    States should also be looking at incremental reforms, including 
simplifying their own universal service programs and following the 
recommendations of the National Governors' Association report 
referenced above to consider tax reduction and simplification.
    Ultimately, however, complexity is an unavoidable consequence of a 
regulatory system designed for the very purpose of driving prices away 
from the levels that would be set in the marketplace. Thus, 
simplification of telecommunications pricing will come only with 
thoroughgoing deregulation of the telecommunications marketplace.
Truth In Billing: What Can Be Done
    In the meantime, as I indicated earlier, public policy can and 
should pursue a more limited goal. Specifically, it should attempt to 
provide consumers with as much information as is practicable about the 
nature and level of telecommunications taxes and fees.
    Insofar as it requires telecommunications providers to identify and 
accurately describe specific assessments levied under Sec. 254 of the 
Telecommunications Act, H.R. 3011 would appear to achieve this goal. To 
the extent the bill goes beyond Sec. 254, to include ``any other 
governmental mechanism, fund, tax or program,'' I would hope the 
Subcommittee would take into account some of the discussion above with 
respect to whether such a requirement would be workable in practice.
    H.R. 3022 goes still further than H.R. 3011, essentially requiring 
receiving carriers to identify not just the payments side of the 
equation, but also any offsetting subsidies. While the idea may seem--
as the name of the bill implies--to simply require the telling of ``the 
rest of the story,'' in fact the two sides of the story are 
fundamentally different.
    As a general matter, taxes are levied for the purpose of providing 
``public goods,'' which is to say goods that would be underprovided by 
the marketplace because of economic externalities or insufficiently 
defined property rights. In the case of universal service programs, for 
example, it is generally agreed that there are ``network 
externalities'' associated with universal access to telephone services. 
With respect to the schools and libraries program, an argument can be 
made that there is a strong public goods element to having a well 
educated population, and that access to the Internet is an important 
aspect of achieving that goal.
    In both cases, the benefits associated with these programs accrue 
to the public at large, as well as to individual citizens. By their 
very nature, these benefits are impossible to measure and difficult to 
estimate. Furthermore, any estimates would be subject to the same type 
of controversy that typically accompanies benefits estimates for other 
government programs--e.g., environmental programs--and there would be 
considerable debate, and certainly no ultimate consensus, over the 
correct numbers to put on individual bills. The costs, by contrast, are 
both known and easily assigned. We can observe directly the precise 
amount of tax collections and the persons from whom they are collected.
Summary
    To the extent that the bills now before this Subcommittee would 
force telecommunications carriers to provide consumers with information 
about specific, easily-identified taxes, they would contribute 
significantly to a better public understanding of the tax component of 
telecommunications prices. H.R. 3011, as it relates specifically to 
programs under Sec. 254 of the Telecommunications Act, would represent 
a positive step towards the goal of greater transparency and better 
informed consumers in the telecommunications marketplace.
[GRAPHIC] [TIFF OMITTED] T3103.021

    Mr. Tauzin. I thank you.
    For our remaining four witnesses, I will ask that you bear 
with us. We have, if I am correct, about 4 minutes left in the 
vote on the rule, which will be followed then by a vote on the 
journal, and if the vote is held open, as I expect it will be, 
probably the earliest members could get back here would be 
about 10 minutes after. So, to be on the safe side, why don't 
we adjourn until 11:10. The hearing will reconvene at that 
time.
    Thank you.
    [Brief recess.]
    Mr. Tauzin. The meeting will come back to order.
    I will skip over our next witness to Mr. Norquist, who has 
a flight to get to.
    Mr. Norquist?

                 STATEMENT OF GROVER G. NORQUIST

    Mr. Norquist. Thank you very much, Mr. Chairman.
    I will not read my testimony.
    Americans for Tax Reform receives no government money, 
Federal, State, or local.
    I serve on the Commission for Electronic Commerce, and 
people think that that 19-member commission that has its final 
meeting in Dallas is supposed to decide whether or not we 
should tax the Internet. One of the first things we discovered 
with the testimony that we had was that the component parts of 
the Internet are extremely heavily taxed now. So it is not a 
question of should we tax electronic commerce and the Internet, 
but, given how heavily taxed it is now, should we perhaps be 
reducing taxes there.
    We have seen the average of 14 percent excise tax on 
telecommunications by States, the 3 percent Spanish-American 
War tax that people talk about, the Gore tax that is laid down 
on top of that, and then some politicians have the nerve to 
talk about a digital divide that some poor people cannot afford 
access to the Internet because their telephones and 
telecommunications are so heavily taxed they are priced out of 
the market.
    So step one on the digital divide is to reduce these taxes, 
and I want to endorse the legislation that Mr. Tauzin and Mr. 
Bliley are putting forward to make it clear to taxpayers and to 
people who are taxpayers, because they use phones, exactly what 
they are paying.
    If you do not have visibility, if it is not transparent, 
people get mad at the phone company when the price of their 
phone service goes up and they do not understand that State, 
local, and sometimes Federal Government are piling these things 
on.
    One of the reasons the American economy does better than 
other economies and our business community gets the investment 
it does is we have transparency. You can look at AT&T and you 
can know what is there. You go to some other countries, and 
they have very big companies. You have no idea what is really 
inside those. You have got a black box for company books.
    Too often, taxpayers see a black box when they are trying 
to understand what they are paying for and who. Over time, 
politicians have loved to put taxes, State and local, in 
particular, on government monopolies, and the local monopolies, 
whether they are power plants or phone companies, have not 
fought them because they just passed it on, but those have 
really piled on to the point where, both in power generation 
and in telecommunications, taxes have gotten excessive on those 
fields.
    I would urge, as a taxpayer advocate, that we enact this 
legislation, Truth in Billing, so that people understand what 
is there, but not just for telecommunications. I think you 
should consider similar efforts on power companies, because 
State and local governments--I am told that some States forbid 
the power companies from letting their consumers know that they 
are not just paying for the power generation but they are also 
paying for State and local add-ons, taxpayer add-ons. I think 
that is a time when State and local governments are 
deliberately obscuring their part of the tax burden to 
consumers for the Federal Government to step in.
    One other thought is the four-R law, which forbids--and 
this has come up at the Electronic Commerce Commission--the 
four-R law stops State and local governments from passing 
discriminatory taxes on railroads, pipelines, and other things 
that are part of the national grid. Both with power generation 
and with telecommunications, those are now part of a national 
grid, now that we are in the process of deregulating and 
undoing the mistakes 100 years ago of deciding that these 
should be government-run monopolies.
    I think it would pay to have a Federal law which says, just 
as a railroad cannot find--you run a railroad from Chicago to 
L.A. Utah cannot have a 1 percent property tax on all business 
property but 10 percent on the rail road line.
    We have now State and local governments that have one tax 
rate for goods and services but a higher one for power plant 
generation, both in property tax and on sales and excise taxes, 
and on telecommunication.
    I think those are options.
    I would urge the committee to consider sunsetting the Gore 
tax, the e-rate tax. If we cannot repeal it, let us say, okay, 
you wanted $10 billion. At the end of $10 billion we are going 
to audit, which you did, but, also, it ends. If we do not 
sunset the Gore tax, our great-grandchildren will be paying the 
Gore tax, just as we are still, 100 years later, paying that 3 
percent Federal excise tax.
    I would simply close by saying the Commission on Electronic 
Commerce did have a test vote. Of the nineteen members, all but 
four were for recommending to Congress abolishing the 3 percent 
excise tax. Of those four, there is one Bolshevik from South 
Dakota who always votes for tax increases, but the other three 
were the Clinton Administration appointees on the Commission 
from Commerce, USTR, and Treasury. So everybody except the 
Gore/Clinton representatives wanted to get rid of that 3 
percent telecommunications tax.
    Thank you.
    [The prepared statement of Grover G. Norquist follows:]
Prepared Statement of Grover G. Norquist, President, Americans for Tax 
                                 Reform
                           executive summary
    Americans for Tax Reform endorses the Truth in Telephone Billing 
Act (H.R. 3011), sponsored by Chairman Tom Bliley (R-VA) and Rep. Billy 
Tauzin (R-LA). That legislation would require every telephone bill in 
the country to indicate clearly exactly what taxes are being assessed 
on the consumer's bill.
    For our democracy to work, voters must know exactly what taxes they 
are paying and under whose authority. In other words, taxes must be as 
transparent as possible. Only then can voters decide whether the taxes 
are worthwhile and know who to hold accountable. Taxes buried in the 
charges for telephone service or otherwise hidden are consequently 
subversive of democracy.
    The proposed bill would eliminate this problem for telephone taxes. 
It would ensure that each taxpayer is given full information regarding 
the taxes assessed on his or her telephone bill each month. Telephone 
customers would know what they are paying and why, and then they can 
take appropriate action at election time.
    Total taxes on phone bills are excessive. About 50% of what the 
consumer pays in phone bills ends up going to the government in various 
taxes. At a minimum, the FCC's e-tax, the federal excise tax, and 
Universal Service Charges should be eliminated, reducing phone bills 
for average workers by around 25%.
    Finally, ATR opposes H.R. 3022, The Rest of the Truth in Telephone 
Billing Act of 1999, sponsored by Rep. Ed Markey (D-MA), as it does not 
make clear that the government subsidy that some phone users receive 
are provided at the expense of other workers.
    As President of Americans for Tax Reform,1 I heartily 
endorse the Truth in Telephone Billing Act (H.R.3011), sponsored by 
Chairman Tom Bliley (R-VA) and Rep. W.J. Billy Tauzin (R-LA). That 
legislation would require every telephone bill in the country to 
indicate clearly exactly what taxes are being assessed on the 
consumer's bill.
---------------------------------------------------------------------------
    \1\ Neither Americans for Tax Reform nor the witness, Grover 
Norquist, has received and federal grant or subgrant or any federal 
contract or subcontract, during the current fiscal year or either of 
the two preceding fiscal years.
---------------------------------------------------------------------------
    In particular, the legislation would require each telephone bill to 
name each tax assessed on the bill, the government authority that 
requires the tax to be assessed, the dollar amount the consumer must 
pay for each tax, and the method of calculating the tax, whether a flat 
fee for each line or subscriber, or a percentage of total charges, or 
some other basis.
    For our democracy to work, voters must know exactly what taxes they 
are paying and under whose authority. In other words, taxes must be as 
transparent as possible. Only then can voters decide whether the taxes 
are worthwhile and know who to hold accountable. Taxes buried in the 
charges for telephone service or otherwise hidden are consequently 
subversive of democracy. Such taxes abuse working people who are busy 
struggling to maintain their homes and raise their families.
    The proposed Truth in Telephone Billing Act would eliminate this 
problem for telephone taxes. It would ensure that each taxpayer is 
given full information regarding the taxes assessed on his or her 
telephone bill each month. As a result, telephone bills would no longer 
be the confused jumble of hidden and poorly labeled taxes they are 
today. Telephone customers would know what they are paying and why, and 
then they can take appropriate action at election time.
    Among the numerous fees and assessments on their phone bills voters 
will learn more about is the outrageous e-tax. The Federal 
Communications Commission (FCC) imposed this tax on phone bills without 
Congressional authority. The Telecommunications Act of 1996 gave the 
FCC authority to set discounted rates for Internet access and other 
services to schools and libraries. But instead of these discounts, the 
FCC imposed the e-tax on phone bills across the nation to raise money 
to subsidize such Internet services. The tax raises monthly phone bills 
by about 5%, imposing a total $2.4 billion annual burden on phone 
users. The FCC can only be expected to raise this illegitimate tax more 
in the future.
    The funds raised by the tax are provided to a government controlled 
corporation, the Universal Services Administering Corporation (USAC), 
which gives grants to schools and libraries to fund Internet access. It 
took over 2 years after passage of the 1996 Telecommunications Act for 
schools to get any money under this system. A major portion of the 
funds are now siphoned off to help finance the USAC bureaucracy 
dispensing the grants.
    This bureaucracy and the e-tax it administers are redundant and 
unnecessary, as well as ineffective. Since 1995, Federal funding for 
education technology has increased by 2,300%, even apart from the e-
tax. More than 20 distinct federal programs, and countless state and 
local programs, help finance upgraded technology to schools and 
libraries. As a result, 78% of all schools were connected to the 
Internet by 1997, with an average of one computer for every 8 students.
    In addition to the e-tax, all Americans today pay a federal 
telephone excise tax equal to 3% of their monthly telephone bill. 
Congress first adopted the telephone excise tax in 1898 to help finance 
the Spanish-American war. The war ended within a year or so. One 
hundred years later, the telephone excise tax is still with us.
    The tax is an object lesson in how supposedly temporary government 
programs and taxes, once adopted, never end. For the telephone excise 
tax has been continued for 100 years now on one temporary excuse after 
another.
    The tax was actually phased out after the Spanish-American War, but 
was reimposed on long distance calls in 1914, and then fully reinstated 
to help finance World War I. It was brought back to bolster government 
revenues during the Great Depression, and then to help pay for World 
War II and the Korean War.
    In 1966, the tax was increased from 3% of telephone bills to 10% to 
help pay for the Vietnam war. After the war it was phased down to 3%, 
and then extended repeatedly in the 1980s to help cover the deficit. 
Now the deficit is long gone and the budget is in surplus, but the 
telephone tax is still with us.
    The tax was originally adopted as a luxury tax on the rich, as only 
higher income people had phones 100 years ago. Today, the tax is a 
regressive burden on low income workers, as it amounts to a much larger 
share of the meager incomes of the poor than of the rich. Another 
lesson: taxes first adopted on the rich always end up being paid by the 
middle class, where the real money is. Often, even the poor end up 
paying.
    The telephone excise tax imposes a total burden on the public of 
$5-$6 billion per year. It is one part of the oppressive overall tax 
burden, which costs the average family more than food, clothing, and 
shelter combined. Taxes overall take 40% of national income, which is 
far too high. There is no justification for the telephone excise tax 
and it should be repealed, as part of a broader, overall tax reduction 
program.
    Still another phone tax burden results from the Universal Service 
Program. Under this program, universal service charges are assessed on 
the phone bills of most people so that fees can be reduced below cost 
for others. Higher phone bills are charged in particular to lower cost 
service areas in the highly concentrated northeastern U.S. and in urban 
areas.
    Universal service charges cost most people more than the 3% 
telephone excise tax. These charges amount to a $7 billion per year 
Federal tax today, increasing to over $13 billion in 2003. State 
required universal service charges add another $17 billion in 
redistributed fees, for a total current universal service charge burden 
of $24 billion today, rising to over $30 billion in a few years. This 
tax could grow even more rapidly in the future if it is used to finance 
more advanced telecommunications services over phone lines, such as 
video services and Internet access.
    These universal service charges amount to a huge hidden tax that 
often charges poor urban dwellers to subsidize prosperous rural 
dwellers. As Stephen Entin of the Institute for Research on the 
Economics of Taxation says, ``A widow in urban New York City or Boston 
scraping by on Social Security pays a federal line fee that helps to 
subsidize below-cost phone services to ski chalets in Aspen or Vail.''
    The Universal Service Charges should be abolished and any necessary 
subsidies for the poor to pay for phone service should be provided 
through the welfare system. This along with elimination of the 
telephone excise tax and the e-tax would reduce most phone bills by 
around 25%.
    But these are not nearly all the taxes that are effectively paid 
through the average worker's phone bill. Overall, consumers also pay on 
their phone bills state and local sales taxes, a state gross receipts 
surcharge, a franchise charge, a charge for Interstate Toll Access, 
Emergency 911 charges, and a county manhole fee.
    But that's just for starters. Out of the remaining amount the 
consumer pays for phone service, the phone company must pay federal 
income taxes, state income taxes, federal payroll taxes, unemployment 
insurance taxes, workmen's compensation taxes, state franchise taxes, 
local property taxes, and any local income taxes.
    Altogether this means that about 50% of what the consumer pays in 
phone bills ends up going to the government in various taxes. This is 
excessive overreaching by overly burdensome government.
    Finally, I oppose H.R. 3022, The Rest of the Truth in Telephone 
Billing Act of 1999, sponsored by Rep. Ed Markey (D-Mass.), in its 
current form. That legislation would also require the phone bill to 
state any subsidy the phone user receives from any government program 
and the amount of such subsidy effectively reducing the phone user's 
bill. The problem with this required statement is that it is out-of-
context and effectively misleading. For it does not make clear that the 
government subsidy is provided by the phone user at the expense of 
other workers.
    Consequently, the Markey proposal should require that the bill also 
tell the phone user that any such subsidy was harnessed by taxes on 
their neighbors and other workers. Then voters would be in a position 
to make a complete judgment on the issue.

    Mr. Tauzin. There are no other members here, and, with your 
indulgence, I want to do something in order to accommodate 
Grover. Let me recognize myself right now just to maybe throw a 
few questions at you, Grover, before you are required to leave.
    Without telling me, obviously you have to have a meeting 
and you have to take votes on it, which you do.
    Mr. Norquist. Sure.
    Mr. Tauzin. We have heard talk that one of the options of 
the Commission might be, in fact, to settle the issue of the 
State and local's ability to tax sales on the Internet, 
conditioned upon their willingness to reduce the level of 
taxation on the lines, on the carriers, the Internet. Is that 
at all on the table with the Commission?
    Mr. Norquist. It is on the table and it is pushed very hard 
by some of the pro-tax representatives on the Commission. There 
are a block of commissioners who are pro-taxpayer. I am the 
consumer representative on the Commission, but the chairman, 
Governor Gilmore, has made it very clear that he will vote 
against any Commission recommendation, and I also would vote 
against any Commission recommendation which said, ``If you do 
X, then we automatically overturn the commerce clause and the 
Quill decision and say that States and local governments can 
raise taxes.''
    Mr. Tauzin. But that is on the table? It is something that 
people are pushing?
    Mr. Norquist. It is being pushed by Governor Levitt of 
Utah.
    Mr. Tauzin. Will the Commission give to the Nation and to 
the Congress a clear understanding of the discriminatory 
features of telecommunications taxes as among the 
telecommunications providers?
    Mr. Norquist. I think there will be a majority vote for a 
majority position. I do not believe there will be a two-thirds 
vote.
    Mr. Tauzin. Yes.
    Mr. Norquist. There will be a majority vote that outlines 
and recommends abolishing some of these taxes, sunsetting the 
Gore tax, abolishing the 3 percent telecommunications. 
Perhaps----
    Mr. Tauzin. What I am asking is: will the report give us--I 
mean, what we are doing in Truth in Billing is trying to give 
consumers an understanding of what taxes----
    Mr. Norquist. Yes.
    Mr. Tauzin. [continuing] apply to what phone services, but 
one of the things that would be extremely helpful for us in 
understanding your recommendations is to have a clear 
understanding of which set of taxes applies to which one of the 
telecommunications carriers so that we can have an 
understanding of the discriminatory effects of taxation as they 
all go to the Internet.
    I mean, one of the concerns we have in looking at Internet 
taxation is the concern that, as all of the carriers move 
toward a converging pattern of digital broad-band informational 
flows, which contain voice and video and data all in one 
stream, they are all doing the same business eventually, and 
that they all need to be taxed very differently, and therefore 
some consumers will end up paying discriminatory taxes because 
of the carrier they choose.
    We are, obviously, interested in that. I am wondering if 
the commission is going to do any work at all in identifying 
those differences for us.
    Mr. Norquist. That has been highlighted in some of the 
testimony before the Commission, and yes, that will come 
forward. There will be an effort by the Commission to recommend 
to State and local governments that they harmonize some of 
their conflicting and discriminatory taxes, and that, at the 
end of, say, 5 years, we can revisit the question of Quill and 
the commerce clause, but there will not be an automatic, ``Once 
5 years is over, the commerce clause gets thrown away.''
    The commerce clause was a good idea when it was put in and 
it remains a good idea, despite some State and local political 
leaders who would like to wish the commerce clause was not 
there.
    Mr. Tauzin. Finally, the question I want to ask you is: we 
obviously have watched e-commerce grow.
    Mr. Norquist. Yes.
    Mr. Tauzin. We have begun to hear the concerns of local 
taxing authorities about the loss of their base. The local 
sheriff back home, Harry Lee, called me the other day. He was 
buying a $1,400 piece of equipment at a store. Right before he 
bought it, somebody said, ``You had better check on the 
Internet.'' He went on the Internet and found he could get it 
for $400 cheaper because most of taxes he was not going to pay.
    And it dawned on him, you know--he is the sales tax 
collection agency--that his law enforcement abilities are going 
to be reduced if more and more people did what he did, and he 
called me to tell me about it.
    I wonder, is the Commission beginning to hear those kinds 
of stories, too? And are you going to speak to that when you 
speak in your final report?
    Mr. Norquist. Yes. Absolutely. It will address both that, 
and also the interesting concern a lot of the State and local 
elected officials who feel that, as people use the Internet 
more, they will not get as much sales taxes, one of the 
questions commissioners have asked these elected 
representatives is: every business in America is expected to 
become more efficient and more cost-effective because of the 
Internet. Why do we hear from State and local governments only 
that the Internet is not going to be a reason for you to spend 
less, but for you to raise taxes? And at some point it seems to 
me that we ought to expect State and local governments to 
become more productive and, therefore, less expensive to 
taxpayers because of these new technological tools.
    Not everything that happens in the world is an argument for 
a tax increase, despite the fact that some State and local 
politicians seem to think it is.
    Mr. Tauzin. Finally, Mr. Norquist, you do not need to do it 
now, but I would appreciate your comments on the Upton bill. 
Fred Upton, as you know, has filed a bill dealing with the 
charges or fees for Internet access. We are going to probably 
take up a hearing on March 23. Since it relates to the work you 
are doing on the Commission and to this hearing, it would be 
interesting to also have your comments on that for the record.
    Mr. Norquist. We had one other test vote, and I pushed 
these, and then they decided they did not want to have a formal 
vote in San Francisco, but I pushed the one. It was my 
resolution to say, ``Let us get rid of the 3 percent 
telecommunications tax''--15 yes, 4 no.
    I put one forward suggesting a permanent Federal ban on 
taxation on Internet access, and that one even the Gore/Clinton 
people voted for. That was unanimous.
    Mr. Tauzin. Good.
    Let me announce to the committee what I have done here.
    We have not received all the testimony of the panel yet, 
but we were told Mr. Norquist has to catch a 12 noon flight, 
and so I wanted to accommodate him, so let me ask if there are 
any members who would like to ask Mr. Norquist any questions 
before he has to leave us.
    Mr. Green?
    Mr. Green. Mr. Chairman, just one before he leaves.
    Having served 20 years in the legislature with Texas, sales 
tax is the basic form of revenue, at least for Texas. In fact, 
we fought against the income tax because we had the sales tax. 
If we do not address that, we will see reductions in sales tax 
collections not only for the State, but also for our local 
governments. That is the frustration I think I have.
    I do not want to tax the Internet, because I want to let it 
grow, but I also see the problem of local legislators and local 
officials.
    I think the city of New Orleans has, counting State taxes, 
about a 9 percent sales tax. Some States have used the sales 
tax in place of the income tax.
    My concern is that if we see a reduction in that, then you 
will push States like Texas who have no income tax to go to 
some type of income tax. Has that been addressed?
    Mr. Norquist. It has been discussed. We have also been 
reminded that all of these concerns were raised when catalog 
sales began to grow 40 and 50 years ago, and all of the 
scenarios that some State and local politicians spun out back 
then, that everybody would buy everything by catalog, turned 
out not to be the case. In fact, most of the growth of Internet 
electronic commerce sales is at the expense of catalog sales, 
so it has zero impact on State and local revenues, and that 
which is not out of catalogs is business-to-business.
    So the lost revenue--it is not lost, it is in the hands of 
consumers and taxpayers--but lost revenue in some people's eyes 
is actually this year may be $180 million, which is one-tenth 
of 1 percent of sales tax revenue. Sales tax revenue in all 
States is increasing--tax revenue in all States and localities 
is increasing.
    The idea that they are short of cash is not accurate, but, 
as I mentioned just before you got here, those of us on the 
Commission have asked some of these political leaders who said 
the Internet is a reason to raise taxes, our question is: why, 
when everyone in the business community has expected that the 
Internet will reduce their costs and reduce their prices and 
make them more effective, is nobody at State and local level 
making that case and showing those kind of productivity 
increases that could lead to tax reductions.
    Mr. Green. I think you can see productivity increases, and 
you are right, the tax reductions--again, in Texas, our 
Governor has talked about the tax cuts that were done last 
session.
    Mr. Norquist. Fine tax cuts.
    Mr. Green. Yes. But my concern, though, was that if we do 
see--you know, this could be astronomically different than 
catalog sales, but I am glad to hear that the catalog sales--
the sales on Internet are taking away from catalog, because we 
fought that battle before I got here in Congress. Of course, 
that is an issue that our State comptroller, no matter which 
party they are, talk about the loss of revenue to catalog sales 
if they do not have that nexus in the State.
    Mr. Norquist. The good news is that it is really not having 
that big an effect, and it will not have that big of an effect, 
even as Internet sales increase, largely because it is 
business-to-business, which either is taxed or is not taxed 
outside of Quill. It just is not having that problem.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, Mr. Green.
    Anyone else?
    [No response.]
    Mr. Tauzin. Mr. Norquist, thank you. I know you have to 
make that flight. You are welcome to take off any time you need 
to, sir.
    Mr. Norquist. Okay. Absolutely. Thank you.
    Mr. Tauzin. Thank you.
    We will now go to Cathy Hotka of the National Retail 
Federation here in Washington, DC.
    Cathy, present your testimony, please.

                    STATEMENT OF CATHY HOTKA

    Ms. Hotka. Thank you very much, Mr. Chairman and members of 
the committee. The National Retail Federation appreciates the 
opportunity to be here today.
    In case you do not know us, we are the largest trade 
association representing retailers, and we represent all kinds 
of retailers--very large ones and very small ones.
    We have a Telecommunications Committee, which has on it 60 
of the telecommunications managers for the country's largest 
retailers. To prepare for this meeting today, I phoned a number 
of them. I did not have much notice. I could not make a date 
with them. I had to simply say, ``Do you have a few minutes to 
talk to me?'' Everyone said, ``Gee, I have got to run,'' until 
I told them what the subject matter was, and suddenly they were 
not so busy. They dropped everything they were doing to talk 
about this, because this is a hot-button item for them.
    I want to give you a mental picture.
    There is a retailer--and I wish I could tell you who it 
was--the regional retailer. They are based in North Carolina. 
They have about 100 stores. Each store is about the size of 
this room. They use 109 different carriers, so every month the 
mailman comes with a canvas bag, dumps the bills out on the 
desk, and the person that they have hired to go through the 
bills--this is their only job--goes through these bills to see 
what is correct and what is not correct. It is a gigantic job. 
They said it is worse than any other billing job they have. 
Many retailers have literally thousands of suppliers. They use 
all different utilities. They have got supplies in the Far 
East, people who speak different languages. Nothing they do is 
as difficult as this.
    Part of the problem is that the charges that appear on 
these bills, in some cases, are applied in different ways. Some 
of them are implicit. They are, as they call it, trying to 
compare apples and Buicks when it comes to choosing carriers. 
It is very difficult for them.
    So they have asked us to spread the word that if there is 
anything that can be done to make these charges easier to 
explain, it is going to make their life a lot different and a 
lot easier.
    Now, one of the things that I wanted to mention is, as has 
come up this morning that you had mentioned and Mr. Green had 
mentioned, the Internet is here now. We find it very important 
that our brick-and-mortar retailers bring the Internet into 
their stores and not rely simply on WATS lines in the store, 
but to bring broad-band into the store, use the advantage of 
having physical retail with the Internet.
    Frankly, so many of our people are so bamboozled by what 
they see on their phone bill, they are not anxious to cozy up 
to our friends at the telecommunications carriers and become 
partners, as they probably should, to expand their business.
    They are so worried about the cost and the complexity that 
they just want it to go away. Frankly, retailers are cheap. 
They are going to look at anything they can which is going to 
impact their bottom line. And, while telecommunication rates 
have decreased--thanks, in some part, to the Telecommunications 
Act of 1996--the bills have increased. They have not decreased.
    So I think, if we are going to move the country ahead and 
ensure that the information age reaches retailers, as we would 
like it to do, certainly your bill would do a great deal to 
accomplish that, and if we can help you in any way we would 
like to offer our services.
    Mr. Tauzin. Thank you very much. We will take you up on it.
    Ms. Hotka. Great.
    [The prepared statement of Cathy Hotka follows:]
    Prepared Statement of Cathy Hotka, Vice President, Information 
                 Technology, National Retail Federation
    Chairman Tauzin, Members of the Subcommittee, the National Retail 
Federation appreciates your invitation to appear before you today to 
discuss telephone billing. This is a subject of great interest to our 
members, both large and small.
    The National Retail Federation (NRF) is the world's largest retail 
trade association with membership that comprises all retail formats and 
channels of distribution including department, specialty, discount, 
catalog, Internet and independent stores. NRF members represent an 
industry that encompasses more than 1.4 million U.S. retail 
establishments, employs more than 20 million people--about 1 in 5 
American workers--and registered 1999 sales of $3 trillion. NRF's 
international members operate stores in more than 50 nations. In its 
role as the retail industry's umbrella group, NRF also represents 32 
national and 50 state associations in the U.S. as well as 36 
international associations representing retailers abroad.
    Mr. Chairman, telecommunications managers from America's retail 
companies are anxious to complain about their bills from communications 
providers. While service from these companies is generally extremely 
good, bills are unintelligible, they're incorrect, they show federally-
mandated surcharges applied in different ways, they present simple line 
items differently, and they show discounts in a way that makes them 
almost impossible to understand. One of these managers complained to me 
that the bills he receives are as complex as the tax forms he and his 
wife must negotiate each spring. And while the subject of today's 
hearings is surcharges and the manner in which they are collected, when 
taken in the context of companies' overall dissatisfaction with the 
billing process, the problem is particularly severe.
    While most analysts acknowledge that rates for long distance and 
data services are falling, bills generally are not. These charges, 
whether explicit or implicit, raise the bottom line of the bill. And 
the manner in which they are presented on that bill can make it very 
difficult for customers to shop for carriers in a cost-effective way.
    There are some key reasons why retailers are hit particularly hard 
when phone bills are hard to understand.
    Line item surcharges are presented in language that lay people 
don't understand. They're not explained in the one-syllable words that 
customers need. Even very large companies, experienced 
telecommunications managers from America's top ten retailers, are hard 
pressed to explain what these charges are; they just know that they're 
there.
    Many retailers have hired analysts or outsourcers to handle their 
telephone bills. These analysts do not simply pay these bills--they 
check them for accuracy and duplication, determine whether discount 
formulas have been applied, and keep track of anticipated billing 
amounts to check for toll fraud. Retailers do not have to do this for 
their gas bills or electric bills or bills from suppliers in Singapore 
and Malaysia. Only telecommunications bills are this complex, and 
generally this incorrect. The expense that this incurs to retailers 
should not be underestimated. One chain of about ten furniture stores 
has someone on staff full time to check phone bills.
    Telephone bills are complex before these surcharges are added. This 
is particularly acute for retailers, who must cope not only with 
telecom use from headquarters, but also from stores. Larger retail 
companies can find that three or four of their stores have been slammed 
each month despite PIC freezes. Store personnel use dialarounds which 
raise rates. Carriers present fraudulent contracts for store telephone 
volume then demand that they be paid. The potential for mischief is 
significant. Many retailers find that it's easier to pay the bill than 
fight it.
    Many companies report that, when they contact carriers for 
information on billing problems, particularly with surcharges and how 
they have been applied, they cannot get a straight answer. Our 
telecommunications managers indicate that carriers give varying stories 
about what these surcharges are. In some cases they have cut back staff 
so severely that customer service to explain these charges is 
essentially unavailable.
    Because the surcharge line items on bills are generally very 
difficult to understand, their carriers' account representatives give 
coy answers when asked about the charges. Many claim that they don't 
know what the charges really are or what they're used for. Certainly 
this fosters an atmosphere of distrust which could be easily remedied.
    I don't have to tell you that the Federal Communications Commission 
is not adequately staffed to answer a wide variety of billing questions 
from corporate customers either.
    And the FCC's mandate that carriers make these charges implicit has 
resulted, our members believe, in inaccurate bills. Most of NRF's 
members we contacted on this issue believe that their bills are 
inflated by carriers who apply surcharges in different ways and who 
don't pass along savings that might be realized when rates are 
decreased. There's no doubt but that this increases suspicion among the 
customer base that there's a sort of conspiracy between the federal 
government and carriers to wrest more money from customers.
    The timing of this dispute could not be worse. For the past ten 
years America's businesses have been considering whether to 
significantly upgrade their telephone networks. A recent poll of our 
large-company members revealed that very few had anything less than 
POTS lines into their stores. This is troubling because if these 
retailers are to survive the onslaught of virtual-only Internet 
companies, they must fully integrate the Internet channel into their 
operations. This means that they must not only have fully functioning 
Web commerce sites, but they must integrate the Web into their stores. 
Certainly if rates are made to be artificially high through surcharges, 
they will not be inclined to take these progressive steps. The 
imposition of PICC charges, for instance, hit retailers particularly 
hard because there are so many phone lines in each store. The knowledge 
that each telephone line in the lingerie department, the candy 
department, the lamp department would incur surcharges did nothing to 
encourage retailers to upgrade their communications presence in the 
store. Retailers are particularly bottom-line oriented, and rather than 
make essential investments in communications upgrades, many retailers 
have chosen instead to scale back on investment.
    Mr. Chairman, the National Retail Federation supports your effort 
to bring some common sense to the process of surcharge imposition. If 
you are successful, we believe that there will be a ripple effect which 
may result in communications carriers' bills becoming not only easier 
to read but more accurate.
    Many thanks for this opportunity to appear before you today.

    Mr. Tauzin. Next we will hear from Mr. Lassman with 
Citizens for a Sound Economy here in Washington, DC.
    Kent, welcome. We will take your testimony, sir.

                    STATEMENT OF KENT LASSMAN

    Mr. Lassman. Thank you, Mr. Chairman and members of the 
subcommittee. We appreciate the opportunity to join you today.
    In 1861, President-elect Lincoln said, ``I am for those 
means which will give the greatest good to the greatest 
number.'' It is evident that the proponents of the legislation 
before us today share in his wisdom. Both pieces of proposed 
legislation share a common attribute--namely, public policy 
should not impede the flow of information so that consumers can 
make the best decisions possible.
    I represent Citizens for a Sound Economy Foundation, and we 
recruit, educate, train, and mobilize hundreds of thousands of 
volunteer activists to fight for less government, lower taxes, 
and more freedom. As evidence of this grassroots focus, I offer 
the following statistic:
    Last year we hosted five policy events that focused on 
telecommunications or technology policy in Washington, DC. In 
the same year, we hosted or participated in more than 150 
events around the country that focused on telecommunications or 
technology policy. Everywhere we go, people are talking about 
their telephone bill. They are not too happy. Now, it is our 
job to educate your constituents so that they, in turn, can 
educate you.
    Fortunately, the proposed legislation provides an initial 
step away from both extensive rate regulation and taxation of 
telecommunications services. As I have outlined in my written 
statement, I encourage you to seek support from your colleagues 
on the Judiciary Committee. They have already held a hearing on 
a similarly oriented measure, the Taxpayer Defense Act.
    The basic problem addressed by all three pieces of 
legislation is rooted in administrative or regulatory taxation. 
The hearing today amplifies the problem faced by consumers on a 
daily basis. Unelected officials use the regulatory process to 
impose taxes upon telecommunications services. The Taxpayer 
Defense Act would make this process more difficult. The two 
pieces of legislation before us today, H.R. 3011 and H.R. 3022 
would provide consumers with more information about these taxes 
through mandates on the service providers.
    Both of these objectives are desirable; however, I urge you 
to remain steadfast in pursuit of a solution to the root 
problem. Taxation through regulation must be eliminated, not 
simply discouraged or made more transparent.
    My written statement includes a thorough legislative 
analysis, including minor technical amendments, and I would 
just like to highlight to you a bit of context for today's 
deliberations.
    Consider the last time you took your car to a mechanic for 
an oil change. Despite the fact that consumers at Al's Auto 
Shop might get a bill that looks very different from consumers 
at Charlotte's Car Shop, there are distinct similarities. The 
type of service provided, the various new parts installed, and 
the charges for labor are all listed.
    As such, we might require telecommunications providers to 
provide an explanation of the governmentally mandated taxes, 
fees, and charges on telecommunications services, just like the 
services, parts, and labor are explained for an oil change.
    However, because information can be costly, there is a 
point beyond which the cost of collecting information is 
greater than the benefit that it provides.
    For example, it might be beneficial to provide information 
about regulated access fees to consumers. It would likely be 
cost prohibitive to distinguish the exact percentage of the 
access fee that is cost versus subsidy. This would be like an 
auto repair shop that listed the amount of rent and electricity 
to provide a well-lit garage in order to do that oil change.
    The lesson learned from everyday experience, complaints 
that we hear from our activists and your constituents, say 
that, while price information is necessary in the marketplace, 
it is hard to predict or prescribe the right amount. It is best 
to let Al and Charlotte and all the telecommunications 
providers figure that out on their own.
    So, to conclude where we began, with the wisdom of Lincoln, 
the means to provide the most information to the greatest 
number of consumers is a free market.
    Thank you. I look forward to your questions.
    [The prepared statement of Kent Lassman follows:]
   Prepared Statement of Kent Lassman, Citizens for a Sound Economy 
                               Foundation
        ``I am for those means which will give the greatest good to the 
        greatest number.''
           --Abraham Lincoln, Cincinnati, Ohio on February 12, 1861
Introduction
    Mr. Chairman, and members of the Committee, thank you for the 
opportunity to share my views on H.R. 3011 and H.R. 3022--the Truth in 
Telephone Billing Act, and the Rest of the Truth in Telephone Billing 
Act. Both pieces of proposed legislation share a single attribute. 
Namely, public policy should not impede the flow of information so that 
consumers can make the best decisions possible.
    This is the most important and defining attribute of the 
legislation and should influence your deliberations today. A market 
process, free of regulatory mandates, is the best means to give the 
greatest amount of good information to consumers.
    I present these views on behalf of the members of Citizens for a 
Sound Economy Foundation (CSE Foundation).1 CSE Foundation 
recruits, educates, trains, and mobilizes hundreds of thousands of 
volunteer activists to fight for less government, lower taxes, and more 
freedom.
---------------------------------------------------------------------------
    \1\ CSE Foundation does not receive any funds from the U.S. 
Government.
---------------------------------------------------------------------------
    CSE Foundation believes that individual liberty and the freedom to 
compete expand consumer choices and provide individuals with the 
greatest control over what they own and earn. CSE Foundation's 
aggressive, real-time campaigns activate a growing and permanent 
volunteer grassroots army to show up and demand policy change.
    As evidence of this grassroots focus, I offer the following 
statistic. In 1999 CSE Foundation hosted five telecommunications or 
technology-related policy events in Washington, D.C. In the same time 
frame, we hosted or participated in more than 150 events around the 
country where telecommunications or technology policy was a primary 
focus.
History
    Extensive regulation of telecommunications services predates the 
widespread deployment and use of telecommunications services in this 
country. Taxation and rate regulation are perhaps two of the most 
perverse forms of government intervention. Each should be eliminated to 
the greatest extent possible. Both serve to limit the ability of 
consumers to exchange information efficiently at affordable costs.
    Fortunately, the proposed legislation provides an initial step away 
from both extensive rate regulation and taxation of telecommunications 
services.
    In November of last year, I testified before the House Judiciary 
Committee on H.R. 2636, the Taxpayer Defense Act.2 The 
Taxpayer Defense Act would require legislative action before any new 
administrative tax could be instituted. Like some of the legislators 
here today, the supporters of that legislation are prepared to make 
policy changes to improve the amount of information available to 
consumers about the taxes, fees, charges, and subsidies associated with 
telecommunications services.
---------------------------------------------------------------------------
    \2\ Kent Lassman, Statement to the Committee on the Judiciary, U.S. 
House of Representatives, November 3, 1999, http://www.cse.org/
informed/456.html.
---------------------------------------------------------------------------
    The basic problem addressed by all three pieces of legislation is 
rooted in administrative--or regulatory--taxation. The hearing today 
amplifies the problem faced by consumers on a daily basis: unelected 
officials use the regulatory process to impose taxes upon 
telecommunications services.
    As I testified last year, H.R. 2636 would make this practice more 
difficult. Both pieces of legislation before us today--H.R. 3011 and 
H.R. 3022--would provide consumers with more information about these 
taxes through mandates on service providers. Both of these objectives 
are desirable. However, I urge you to remain steadfast in pursuit of a 
solution to the root problem: taxation through regulation should be 
eliminated, not simply discouraged or made more 
transparent.3
---------------------------------------------------------------------------
    \3\ For a brief summary of the federal excise tax, see also http://
www.cse.org/informed/361.html.
---------------------------------------------------------------------------
Pricing and Information
    Information is a costly commodity. This is true in the marketplace 
for telecommunications services just as it is true of the marketplace 
for shoes, fresh salmon, or stocks. It is also equally true with regard 
to information that explains the price that citizens pay for government 
services.
    Prices play a key role in the transmission of important information 
about goods and services. Changes in price signal changes in scarcity 
and allow consumers to adjust their use of a product accordingly. And 
therefore it is no surprise that consumers are best suited to determine 
which of the competing goods would meet their demand. It is prices that 
provide the information necessary to make these choices. When 
government policies affect prices--even the price of information--they 
can distort the market by altering the prices consumers see in the 
marketplace. To avoid such distortions, the government's impact on 
price should be clarified wherever possible.
    There is widespread agreement that when it comes to government 
action that cannot be, or simply is not, performed by a private market 
that a ``price'' assigned to that government action increases 
responsibility and effectiveness of the government actor. In short, 
consumers should know what they are paying for, especially when it 
comes to government programs.
    Therefore, it is reasonable to expect that the information about 
the cost of government mandates provided to consumers as a result of 
either H.R. 3011 or H.R. 3022 would have a positive effect. First, it 
would allow consumers to have more complete information about the costs 
associated with telecommunications services. Second, it would provide a 
rough proxy for the price of the government taxes, fees, and other 
collections levied on telecommunications services.
    While the discussion today is focused on telecommunication services 
and the billing practices of telecommunications providers, it is 
instructive to look at an analogous situation. Consider the last time 
that you took your car to a mechanic for an oil change. Despite the 
fact that consumers at Al's Auto Shop might get a bill that looks very 
different from a consumer's bill at Charlotte's Car Shop, there are 
distinct similarities. The type of service provided, the various new 
parts installed, and charges for labor are all listed.
    As such, it might be reasonable to require telecommunications 
providers to provide an explanation of the governmentally mandated 
taxes, fees, and charges on telecommunications services. However, 
because information can be costly, there is a point beyond which the 
cost of collecting information is greater than the benefit it provides.
    For example, it may be beneficial to provide information about 
regulated access fees to consumers. It would likely be cost prohibitive 
to distinguish the exact percentage of the access fee that is a 
``cost'' versus ``subsidy.'' This would be like an auto repair shop 
that listed the amount of rent and electricity necessary to provide a 
well-lit garage to perform an oil change. It is more efficient--for the 
service provider and for the consumer--to provide a reasonable estimate 
of the costs associated with the service.
A Legislative Analysis
    The proposed ``Truth in Billing'' initiatives are quite similar. 
The Chairman's legislation, H.R. 3011, would require telecommunications 
carriers that contribute to governmental programs to provide more 
information to consumers than is currently made available. This appears 
to conform to the overarching goal stated at the beginning of this 
testimony: Public policy should not impede the flow of information so 
that consumers can make the best decisions possible. With regard to 
generating information about federal telecommunications taxes, 
subsidies, and programs, H.R. 3011 is therefore an improvement upon the 
status quo.
    However, it is not necessary to create new law. In an effort to 
find a solution to the problems associated with little or poor billing 
information, this legislation appears to ignore the fundamental problem 
that is the relationship between, on one hand telecommunications 
services, and on the other hand, federal tax and regulatory policy. 
Federal taxes and regulation stand in the way of a market process that 
would generate clear billing procedures to provide information to 
consumers.
    The ``Rest of the Truth in Telephone Billing Act of 1999,'' H.R. 
3022, is essentially the same as the Chairman's legislation, with one 
important distinction. H.R. 3022 would require carriers to provide 
subscribers of telecommunications services a separate line-item stating 
the amount of their bill that is collected for government programs, 
taxes, fees, and subsidies.
    This provision would continue and extend the basic goal mentioned 
earlier in this statement. That is, it is a means to provide the 
greatest amount of information to consumers as possible. CSE Foundation 
has argued strenuously in the past, and I affirm to you today, that 
individual consumers should know both how much they contribute to 
America's costly subsidy regime and how much individual consumers 
benefit from the subsidy regime.
    The difference between the two pieces of proposed legislation is 
that H.R. 3022 is one step closer to a plain reading of section 254(e) 
of the 1996 Telecommunications Act where universal service support 
``should be explicit and sufficient to achieve the purposes of this 
section.''
    Therefore, a strict policy analysis of H.R. 3022 would suggest that 
it is superior to its counterpart, H.R. 3011. However, absent a small 
technical amendment, the legislation would be difficult to implement 
and probably impossible to pass.
    Three words should augment sections (3)(A) and (3)(B) of H.R. 3022. 
At line 20 of page two and line one of page three the words ``an 
estimate of'' would improve the legislation:
        (3)(A) as a separate line-item, an estimate of the dollar 
        amount that is being attributed to and collected from such 
        subscriber for such governmental mechanism, fund, tax, or 
        program; and
          (B) an estimate of the average amount per month by which the 
        subscriber's service is reduced by any subsidy identified under 
        paragraph (1)(B).
    This change would allow the superior attributes of H.R. 3022 to 
succeed in spite of an ongoing and irreconcilable debate over how one 
fee or another may be the result of a combination of (a) a regulated 
recoverable cost, and (b) a subsidy.
Conclusion
    Information technology is evolving faster than the legal apparatus 
designed to regulate telecommunications services. As one prominent 
authority has concluded,
        Television is leaving the air in favor of the wires; the 
        telephone is leaving the wires in favor of the air. Copper and 
        coax, wired and wireless, terrestrial and satellite: digital 
        data networks are rapidly emerging as the new universal, 
        universally interconnected standard for the transmission of 
        everything--voice, data, video, the lot.4
---------------------------------------------------------------------------
    \4\ Peter W. Huber, Michael K. Kellogg, and John Thorne, Federal 
Telecommunications Law, page 3, 1999, second edition.
---------------------------------------------------------------------------
    The effect of the 1996 Telecommunications Act and the dynamic, 
innovative technology marketplace have brought the exciting possibility 
of competitive forces to all aspects of the telecommunications 
marketplace. Yet, significant barriers still remain. First among them 
are regulated prices, fees, charges, and taxes upon telecommunications 
services. Consumers would be best served if these policies were stopped 
in their tracks and regulators no longer intruded into the price system 
for telecommunications services.
    A second best alternative is to promote the most efficient means to 
provide accurate information to consumers about the federal role in 
telecommunications services. The legislation considered today would 
achieve this second best alternative. Where necessary, an amendment 
should be made to allow for a reasonable estimate of the portion of a 
fee that is in part a subsidy and in part a regulated rate.
    The Truth in Billing Act and its counterpart the Rest of the Truth 
in Billing Act would serve to provide more information to consumers 
about the price of our government. Senator Wyden has identified at 
least 28 different programs or federal agencies that provide 
telecommunications assistance or subsidies. Each of these programs has 
an economic cost associated with it. To the extent that these costs are 
recovered through a consumer's telephone bill, that information should 
be made explicit and available.
    Will Rogers observed that ``If you ever injected truth into 
politics you have no politics.'' Public policy to inject truth into 
consumers' telephone bills is a good start toward taking politics out 
of telecommunications.

    Mr. Tauzin. Thank you very much.
    Our next witness will be Mr. Moir.

                   STATEMENT OF BRIAN R. MOIR

    Mr. Moir. Thank you, Mr. Chairman.
    First, let me start--and I am going to close with the same 
thing--commending you, Chairman Bliley, and Congressman Markey, 
for introducing the two bills. If I was to stop now, I would 
tell you vote as soon as possible on these bills, but I will 
say a few extra things.
    I represent, like Cathy, end users. We use 
telecommunication and IS as a critical part to compete, both 
domestically and in the global marketplace. We have in this 
country a jewel. We are the world leader in telecommunications 
and IS technology. For a long time, we were also the lowest-
priced provider of those areas.
    I am sad to say, since we have been successful in trying to 
bring down rates in various areas around the United States, 
that is now not the case as far as pricing in some areas, 
particularly in Europe and in the Far East.
    It is unfortunate that part of the distortion we are 
getting now in our bills, which you have all mentioned in your 
opening statements and many of the other people have mentioned 
here on the panel, are the huge markups we are seeing on the 
bill from mindless charges. It makes no sense.
    We use these tools to be competitive in a global 
marketplace, and it is not because we are a low-labor market 
country. And so our crucial tool is being disadvantaged because 
of these charges.
    What is really happening? We know what is happening. As our 
prices were coming down, government regulators saw an 
opportunity the hide--you know, typically prices come down for 
a while. They used to be on January 1. Back in the late 1980's 
they started happening on July 1. So when we would have these 
annual reductions in prices driven by regulators--never as big 
as they should have been, but either way--they started to have 
an increased temptation to fold in, at the same time, a series 
of what are really taxes.
    Without commenting on whether they are good objectives or 
not, it is fair to say the FCC was not put in the business to 
be a taxing agency or for dispensing money, so we had schools, 
wiring, we had funds for management of the people to run these 
networks. I mean, we had libraries getting moneys. We had rural 
health care facilities getting moneys. We had pixie charges a 
few years ago, which was new to all of us, which at first the 
FCC was going to put almost totally on Cathy's members and 
mine, just on the businesses. They were not even going to 
allocate it fairly. They were just going to load it all on us. 
Fortunately, we raised hell and got those lowered somewhat, but 
we are still disproportionately paying those.
    And that has only been in the last few years. We have a 
whole string that has been mentioned by others that are on 
bills.
    Without getting to the issues that Congressman Markey 
raised in his bill on subsidies, there is a whole slew of 
subsidies we could spend a whole day of hearings on, also.
    So, in closing, we really urge you to force these 
regulators to put these out on the table so that we can see 
what they are doing and not try to bludgeon the carriers to 
hide these charges, which they try to sneak in every other year 
or so, and hopefully that will take a huge step to getting some 
of these off our bill.
    Thank you.
    [The prepared statement of Brian R. Moir follows:]
Prepared Statement of Brian R. Moir, Partner, Moir & Hardman on Behalf 
            of The International Communications Association
    Mr. Chairman, I am pleased to have been invited to testify before 
the Subcommittee Telecommunications, Trade, and Consumer Protection 
regarding H.R. 3011, the ``Truth in Billing Act of 1999'' and H.R. 
3022, the ``Rest of the Truth in Billing Act of 1999''. Mr. Chairman, 
you, Chairman Bliley, and Congressman Markey, as well as the members of 
the Subcommittee and staff, are to be commended for your efforts to 
ensure that America's telephone customers are explicitly told what 
governmentally imposed taxes, fees, and subsidies they are being 
required to pay in their monthly telephone bills. Clearly, the issues 
addressed in H.R. 3011 and H.R. 3022 are ones that warrant prompt 
action. My testimony will represent the perspective of the 
telecommunications end user, and I hope that the perspective of the 
telephone customer will facilitate the Subcommittee's deliberations by 
on these important matters.
    The International Communications Association (``ICA'') is the 
largest and most broadly-based organization of telecommunications end 
users in the United States. ICA is a not-for-profit league of almost 
500 corporate, educational, and governmental users of 
telecommunications and information equipment, facilities, and services. 
ICA members do not include firms predominantly engaged in the 
production, sale, or rental of telecommunications services or 
equipment. Collectively, ICA members spend over $32 billion per year in 
this area. On average, individual ICA member telecommunications/
information expenditures exceed $30 million annually. Two-thirds of ICA 
member companies employ over 10,000 persons, and only 2% have work 
forces under 1,000. Over 86% of these firms conduct business from 
fifteen or more locations. As always, ICA speaks from a telephone 
customer perspective that is broadly informed on the state of the 
telecommunications and information industries in the United States. If 
the results of this Subcommittee's deliberations become law, and we 
hope they do, the monthly telephone bills of ICA members, and other 
telephone customers as well, could be positively impacted.
Introduction
    ICA believes that competition is the ultimate safeguard for the 
telecommunications industry. In recent years, significant progress has 
been made in developing a competitive telecommunications. ICA 
vigorously supports pro-competitive policies and the extension of such 
policies to all sectors of the local telephone marketplace. 
Unfortunately, whether a market is competitive or not does not impact 
the likelihood that telephone bills will accurately and explicitly 
reflect the numerous governmentally imposed fees, taxes, and subsidies 
that ratepayers are forced to pay. All too often, governmental bodies 
find it in their interest to pressure the telecommunications carrier 
community into not explicitly showing these costs to consumers. Even 
worse, as market prices continue to decrease, some governmental bodies 
have demonstrated an increased incentive to create pet fees, taxes, and 
subsidies in hopes that they will not be noticed by telecom ratepayers. 
These government bodies attempt to time the implementation of their pet 
projects to coincide with a forthcoming rate reduction thereby 
hijacking a portion of the monies that would otherwise have benefitted 
ratepayers in higher savings.
Business Users' Dependence on Telecommunications
     Since ICA members face competitors in both the technologically 
developed countries and the low-wage, less-developed countries, they 
must always be mindful to minimize their operational costs as much as 
possible. To compete in the world marketplace, large business has an 
absolute need for timely, accurate, cost effective information that can 
be made available on demand. To accomplish this, user companies must be 
able to obtain, operate, maintain, and fully utilize state-of-the-art 
telecommunications and information technology at cost based rates.
    With the development of various voice and data based systems and 
applications, large business users have become dependent on efficient, 
reliable, readily available, and reasonably priced telecommunications 
equipment, facilities, and services. If this Subcommittee is able to 
ensure that American telephone customers pay as few governmentally 
imposed telecommunications fees, taxes, and subsidies as possible, then 
America's business users and its economic future will be significantly 
benefitted by your efforts. For this reason, ICA members are fully 
support these deliberations of the Subcommittee.
Legislative Objective of Business Users
    Typically, ICA's objectives in telecommunications legislation have 
been based on several principles:
A. Legislation should ensure economically rational pricing. This is 
        critical to ICA members ability to successfully budget and plan 
        for their information and telecommunications needs. It is also 
        critical to American businesses ability to carefully control 
        costs in an era of rampant global competition. For less than 
        fully competitive markets, ICA encourages the application of 
        cost-based pricing principles by regulators. Of equal 
        importance is the fact that all governmentally imposed fees, 
        taxes, and subsidies should be clearly and explicitly reflected 
        on customer telephone bills and kept to a bare minimum. Since 
        American telecommunications technology leads the world, 
        governmental bodies should not be allowed to needlessly 
        increase its cost to American business by regularly dumping 
        various charges on the bills of American ratepayers.
B. Legislation should increase the availability of services for real 
        user applications and needs--today and tomorrow. It is 
        important that new services be ones that ICA members can really 
        use, not just services that are pre-defined by carriers and 
        other providers. Public policies should promote increased 
        interoperability among services and networks and allow maximum 
        flexibility for the provision of new telecommunications 
        services. If governmentally imposed fees, taxes, and subsidies 
        are fully warranted, they should be fairly and evenly applied 
        to all services so that end user decision making on which 
        services to use is not skewed by unfairly imposed government 
        charges.
C. Legislation should enhance the ability of ICA members to effectively 
        plan and manage their telecommunications service needs. The 
        need for customers to manage their telecommunications resources 
        on a day-to-day basis must be accounted for. A dizzying array 
        of governmentally imposed fees, taxes, and subsidies only makes 
        end user management of the telecom services more difficult.
D. Legislation should contain new incentives leading to worldwide 
        compatibility and uniform access to customers and services. The 
        development of a technologically advanced network based on 
        worldwide standards is critical to ICA members who are relying 
        upon more and more specialized telecommunications applications 
        in order to remain competitive and innovative in a global 
        environment. Ever increasing governmentally imposed telecom 
        fees, taxes, and subsidies retard these incentives in the U.S. 
        and create incentives for investments to be made in those 
        countries that do not have these charges.
    The government imposition of charges for school wiring, 
presubscribed interexchange carrier charges (PICCs), subscriber line 
charges at varying levels, telephone number portability, federal excise 
taxes originally intended to help fund the Spanish American War, 911 
services, infrastructure maintenance, and others does not facilitate 
the most robust use of the telecom networks possible.
    In addition, the imposition of government subsidies is all too 
often at unsupportable levels or not explicitly charged. Last Fall, the 
FCC revised its universal service rules for large local carriers. The 
revised rules reduced the allowable levels of support for some 
companies, but the FCC also adopted a ``hold harmless'' policy that 
effectively negated the ratepayer benefit of these rules by allowing 
the effected carriers to continue to collect subsidies at the previous 
levels provided under the old rules. Also, ratepayers in a number of 
states subsidize the ratepayers in other states without any knowledge 
of this happening. Without questioning the wisdom of these policies, it 
is only fair that ratepayers know what they are paying for. In 
addition, business users are often required to pay higher fees 
(subscriber line charges, PICCs, etc.) than other ratepayers for non-
traffic sensitive costs. All ratepayers should pay fixed costs equally. 
If subsidies are required, they should be explicitly indicated and 
fairly imposed.
                               conclusion
    American businesses and educational institutions rely on 
telecommunications as a strategic resource and will do so even more in 
the future. Telecommunications is one of the keys to increased 
competitive advantage, increased profitability, economic growth, and 
job creation. This reliance places upon government policy makers, and 
in particular members of Congress who want to revise existing policies, 
the responsibility to see that telecommunications equipment, 
facilities, and services continue to be readily available and provided 
at reasonable rates. A dizzying array of governmentally imposed 
telecommunications fees, taxes, and subsidies contradicts these 
objectives.
    ICA stands ready to work with those who want to increase user 
choice by making the telecommunications marketplace, and American 
business generally, more competitive and free of needless 
governmentally imposed fees, taxes, and subsidies. We support your 
quick passage of legislative language consistent with the objectives of 
H.R. 3011 and H.R. 3022.

    Mr. Tauzin. I thank you, Mr. Moir.
    The Chair recognizes himself quickly.
    First of all, Mr. Eisenach, your report indicated that the 
most taxed city in America, telephones, is Richmond, Virginia. 
We heard the chairman talk about how Richmond and other cities 
literally saw the telephone companies and utility companies as 
an easy target, because hidden taxes are a lot easier to deal 
with, to increase, to collect, than taxes that a consumer sees 
up front. So a great deal of what the chairman and I want to do 
is simply to do that, Mr. Moir--to put it all on the table, in 
the hopes that, once people see it all, two things will happen: 
one, there will be less of a desire to increase those taxes, 
because they are no longer hidden and people can see them and 
you have got to explain them in the next town hall meeting; or, 
second, there will hopefully be a real effort at repeal and at 
straightening out some of these incredible messes. And are not 
those two goals served by this legislation?
    Mr. Eisenach. Absolutely, sir. I think Chairman Bliley was 
very eloquent in introducing this legislation, when he talked 
about it this morning and told us that he, himself, had 
experienced the fact that, rather than making the case for more 
government spending directly to the people, governments, 
instead, levy the tax on telecommunications service providers, 
regulators then pressure the service provider to bury the tax, 
and----
    Mr. Tauzin. He is a former mayor telling us that that was 
the way things were done, as long as you could hide it.
    Mr. Eisenach. Yes, sir.
    Mr. Tauzin. And once the change came about that he and the 
other administrators of that city and other cities in America 
could not hide it any more, they stopped not raising it. And 
that is at least a good effect immediately. If this bill 
passes, right?
    Mr. Eisenach. Absolutely. And I would go further to say 
that I think this is fully consistent with the intent of 
Congress. You and I have had many conversations about the 
Telecommunications Act and its imperfections, but it certainly 
has facilitated a move toward competition, and, in its plain 
language, it says that we need, in all of these arenas having 
to do with subsidies, to move from an implicit subsidy regime 
to an explicit subsidy regime.
    Now, the Federal Communications Commission has already lost 
in court in some of its efforts to continue hiding the 
subsidies, its efforts to jigger access charges and subscriber 
line charges, and so forth, to continue hiding the subsidies in 
that program and keeping them implicit and hidden from 
consumers.
    I think part of the effort here is to have Congressional 
oversight to ensure the Commission is not successful in other 
efforts--for example, with the schools and libraries program--
to do the same kind of thing.
    Mr. Tauzin. Now, Mr. Breen, you, obviously, represent the 
view that this is going to be pretty hard for the FCC to do and 
for companies to follow because of the fact that there are now 
so many complex subsidy arrangements and so many taxes coming 
from so many directions that it is going to make the bill not 
only hard to administer for companies like yours, but for 
consumers to understand and it is going to be a pretty hard 
diet to feed the consumers. Give us your take on that.
    Mr. Breen. Well, I think you have accurately characterized 
it. I mean, you need to start from the perspective that says, 
on our very best day, you know, living in the world of billing, 
the best that we can do is not hear from our customers.
    Customers do not pick up the phone, call in to the call 
center and say, ``You know, I just want to let you know this is 
one of the most marvelously formatted bills. It is accurate. 
The aesthetics of the paper are really wonderful, etc.'' Mr. 
Tauzin. We do not get those calls, either.
    Mr. Breen. We have that in common. So anything that 
involves adding to the complexity or the uncertainty associated 
with what is on that bill, by definition is going to be a bad 
thing for us.
    Mr. Tauzin. But, you see, here is the problem we have. Here 
is the tension. One the one hand, what consumers already know 
about their bill is getting them angry. What they can already 
see in terms of subsidies is getting them angry.
    One of the members of the subcommittee this morning told us 
that he was being charged for portability but he does not have 
access to portability systems. Why am I paying that?
    I was on a radio talk show in New Orleans, and I had a 
student call in and say, ``Why am I being asked to subsidize my 
parents on their phone bill?'' And when I got home, my mother 
said, ``And, by the way, Billy, I am subsidizing you in DC, 
too, and I do not like that.'' I mean, they already know that 
there are some crazy subsidies going on and they already 
complain about how complex their bills are--witness, Ms. Hotka, 
your retailer who has to hire special people to go through 
these incredibly complex bills, already.
    We are going to give them a lot more information if this 
bill passes. They are not going to like how complex it looks.
    On the other hand, that is reality. If we are ever going to 
get a solution to all these taxes and all these subsidies and 
reductions and simplification, do not you think the first thing 
we have to do is just doggone burden ourselves with the truth?
    Mr. Breen. I think a lot of it, though, comes down, Mr. 
Chairman, in terms of the way that truth is going to be 
communicated. And I cannot really comment on how the policy 
would play out in other areas, but I know, from a billing 
standpoint, you are dealing, for the most part, with a lot of 
legacy systems.
    Any time you go in to try to introduce levels of change, 
the more micro-level those changes become, whether it is text 
messages, whether it is doing different forms of rate 
calculations, it opens you up to a higher probability of two 
things: one, fundamental problems, i.e., the bill just does not 
get handled properly; and, No. 2, calls from the consumer, 
which is going to drive cost into your cost centers, and 
ultimately flow back into the cost that you go back and charge 
your customer. So that is probably my biggest apprehension.
    Mr. Tauzin. Before I yield, I want to give anybody a chance 
to comment. The choice is, obviously, that we inundate people 
with this massive information and get them angry because we 
have inundated them with all that information. Or do we allow 
people to keep hiding the truth from them.
    Mr. Moir?
    Mr. Moir. Mr. Chairman, your legislation is actually going 
to solve AT&T's billing problem, because the second you have 
the disclosure we know what is going to happen. They are not 
going to be able to do the next pixie. They are going to have 
to fold it into slick. They are not going to be able to do 
rural health care and education and library give-aways at our 
expense.
    Once these are out there and everybody sees this long 
laundry list that he is dreading having to do, what is going to 
happen? All bloody hell is going to break loose.
    Mr. Tauzin. They might even ask Congress to pass programs 
like that----
    Mr. Moir. Absolutely.
    Mr. Tauzin. [continuing] instead of letting the FCC do it, 
right?
    Mr. Moir. And if the FCC is smart, they may eliminate some 
of them before you go beat them up.
    Mr. Tauzin. Mr. Lassman, quickly, and then I have got to 
move on.
    Mr. Lassman. Mr. Chairman, I think it was Louis Brandeis 
who wrote that sunshine is the best disinfectant, talking about 
regulation. And I think the 800-pound gorilla in this room that 
no one has yet mentioned that causes a great shadow and a great 
deal of fear is that any legislation you pass, especially that 
deals with billing, will be put in place by the Federal 
Communications Commission, and their idea of truth in billing, 
if you look at the docket that they have handled in the last 
year, is very different than your own, and that should be 
discussed and part of your deliberations.
    Mr. Tauzin. Amen, brother.
    Mr. Green from Texas?
    Mr. Green. Thank you, Mr. Chairman. I appreciate the chance 
of this hearing, because, like most of us, we have letters all 
the time that come in our office about the complexity of the 
phone bill. One of them is that I have particularly seniors who 
are asking, for example, the $5 charge that our long distance 
carriers charge. Originally, I was under the impression, when 
that was put in, that was in case they did not use it. It was 
just a $5 minimum charge per month, but it was going to be 
reduced out if you used that, if you called more than $5. Now I 
have some phone bills coming in saying no, that is in addition 
to whatever you use.
    When did that change, or was it ever correctly the original 
$5 charge? AT&T, I guess you are the one on the line, but I 
would like to ask it of MCI and everyone else, I guess.
    Is it actually an offset? Is it a monthly fee and it is 
offset against your long distance, or is it in addition to 
whatever you call?
    Mr. Breen. No. I think you have, Mr. Green, appropriately 
stated that the charge you are talking about is typically 
referred to as an OCP or an optional calling plan charge, and 
it essentially gives the consumer an opportunity, based on a 
particular calling plan, to pay a fixed monthly fee in order to 
entitle them to a certain rate structure with a particular 
plan, whatever it may be. That really was the intent initially.
    Mr. Green. But initially I understood from seniors there 
was a charge for just access to a long distance provider. Is 
that on the bill? That is currently on it?
    Mr. Breen. Yes.
    Mr. Green. Okay. And is that charged no matter what? What 
if that senior makes more than $5 worth of calls? Is that 
subtracted out, or is it in addition to whatever calls they 
make?
    Mr. Breen. My understanding is the way that it is currently 
set up is that it is purely additive and that it is independent 
on the amount of usage that a person has during the month.
    Mr. Green. Okay. So if I pick any long distance provider--
AT&T, MCI, Sprint, whatever--that charge will be on the bill?
    Mr. Breen. Yes.
    Mr. Green. Was it confusion that I had, or maybe some of my 
constituents had that originally that $5 charge was just an 
access fee to have a long distance carrier and it would be 
reduced out for whatever you call, for whatever you actually 
called long distance? Was that the original intent and it was 
changed somewhere along the way? There is a lot of folks out 
there who believe that is what it was.
    Mr. Engel. Would the gentleman yield?
    Mr. Green. Sure.
    Mr. Engel. My recollection is exactly as my colleague's 
recollection. We were told initially that that would be a fee 
instituted for people that do not use service, because it 
supposedly was expensive for the companies to carry it without 
anybody utilizing it, and that if the person did make the 
calls, that the amount of money they spent on the calls would 
be subtracted from the fee. That was exactly my understanding 
of it, as well. And we had not discussed this before.
    Mr. Green. There was no collusion on this.
    Mr. Engel. No collusion.
    Mr. Green. We are not that organized.
    Mr. Engel. That is actually a good question, but I actually 
want to say that is my impression, that is was told to us.
    I yield back.
    Mr. Green. Do you have a response?
    Mr. Breen. Well, I am not in a position right now to be 
able to give the chronological set of events that contributed 
to it. I do know that the genesis of it, though, was to 
basically be utilized as some form of an offset, you know, 
cost-to-cost causation with respect to the combination of local 
access to the long-distance network to make sure that, in fact, 
that was applied equitably.
    Mr. Green. Thank you.
    Mr. Chairman, I think that is something that we might need 
to look at, because I know the complexity of the bill and the 
intent of the hearing. That was part of it. There is either 
some misinformation, or that it was an offset and it was a 
basic charge for having access to a long distance carrier and 
it would be reduced out if you made $6 long distance calls in a 
month, instead of paying $11 for $6 worth of long distance 
calls.
    Mr. Tauzin. I think Mr. Eisenach wanted to respond.
    Mr. Eisenach. Well, there are two articles that I brought 
with me, because I find this is--despite the fact I spent a 
good bit of my time studying this, I find this is confusing as 
anyone else. One article is from the ``Washington Post'' and 
one is from the ``Wall Street Journal.'' I would be happy to 
share these with the subcommittee.
    Mr. Green. Hopefully, they agree.
    Mr. Eisenach. They explain, in layman's language, what some 
of these charges are all about.
    Just to clarify, I think there may be a confusion here 
between what is called the carrier line charge, which is the 
access to the long distance network, and that is charged 
whether you sign up with a long distance carrier or not. That 
is typically more in the nature of $1.50 than the $5 charge 
that you are talking about.
    I think what you are talking about with the $5 charge is 
part of a calling plan that a number of the long distance 
providers----
    Mr. Green. I understand that if you have a calling plan. So 
the $1.50--I have been told--and I have to look at my own phone 
bills, I guess--that the actual cost to have a long distance 
carrier access was about $5.
    Mr. Eisenach. That is not what this article suggests.
    Mr. Green. Okay.
    Mr. Eisenach. And that is not my understanding.
    Mr. Tauzin. Without objection, the two documents will be 
made part of the record and we will make copies for members of 
the committee. Thank you, Mr. Eisenach.
    Mr. Breen. Just for further clarification, I think that 
that is probably where the source of confusion lies. There are, 
in fact, two separate fees. One is essentially intended to be 
an access fee to the long distance network. The other one has 
tended to be associated with a specific calling plan that a 
customer would sign up for, and then that is a monthly fee that 
they would pay, independent of the number of calls that they 
made.
    Mr. Green. And those two fees are not something that 
Congress or the FCC set. AT&T or MCI decided that we would have 
one line here for the $1.50, if it is $1.50, and then if I 
select a certain calling plan I pay $5 or $10 or whatever to 
get $0.10 a minute, or whatever the market says at a given 
time. So that was something that the company decided, the long 
distance carriers decided?
    Mr. Eisenach. As I understand the carrier line charge, that 
is something that is approved by, or I would argue mandated by 
the Federal Communications Commission, so that is part of the 
regulated billing process.
    Mr. Green. If the gentleman will yield, the bill we are 
talking about would separate that which is government mandated 
from that which is either charged by the companies or 
voluntarily accepted by the customer. So I think one of the 
reasons for this bill is to end some of that confusion.
    Mr. Green. Yes. I agree. And that is why I think the bill 
is worthwhile.
    I also think we are all guilty of it, though, whether it is 
Congress, whether it is the FCC, or maybe a long distance 
carrier saying, ``Well, we want to break it out,'' and we will 
go to the FCC, and the FCC gives you the authority to break out 
that $1.50. So it is government-mandated, but it was at the 
request of the long distance carriers.
    Again, those balls are in the air, and all of us I think 
are throwing them up there.
    Ms. McCarthy. Would the gentleman yield?
    Mr. Tauzin. The gentleman has an additional minute.
    Mr. Green. Thank you, Mr. Chairman.
    Ms. McCarthy. Gentlemen, I really appreciate your line of 
inquiry, and I wanted to follow up and find out, is the carrier 
line charge--I understand that access fee is required, but is 
the calling plan required?
    Mr. Breen. The calling plan is not required. It is based 
upon the calling plan that a customer would sign up for.
    Ms. McCarthy. What if a customer chooses not to have a 
calling plan but will pay the access fee, the carrier line 
charge, as required?
    Mr. Breen. Those customers, I think, that you are 
describing would be in a non-pick status, where they would not 
be picked, for example, to an AT&T or an MCI, and they would 
not have a calling plan with us, per se, and they would reach 
our network through what we refer to as ``dial around,'' and 
would become casual usage and would not pay that calling plan 
or OCP charge that I was talking about.
    Ms. McCarthy. I have had a lot of inquiries, particularly 
from seniors, who, with their MasterCard or VISA or cell phone 
do not want to pay that $5 or $6 fee each month because they do 
not use that stationary phone to make long distance calls, or 
they just do not make long distance calls. They might use a 
credit card.
    So you are telling me they do not have to pay that? Because 
we have been giving out bad information in my office, then.
    In this day and age of cell phones, a lot of people are 
just getting rid of their phones and using their cell phone for 
everything, or they are using a credit card that gives them 
airplane mileage or some other benefit when they make those 
calls.
    Mr. Breen. I understand. Honestly, short of seeing the 
individual bill and account and going through it, I just do not 
want to comment further on it, because I just think I might 
contribute to further misleading you.
    Ms. McCarthy. Mr. Chairman, if someone on the panel can 
give me a sense of the rule or regulation, could they speak?
    Mr. Tauzin. Mr. Moir, do you know?
    Mr. Moir. Thank you, Mr. Chairman.
    The line charge that has been discussed was coined back in 
May 1997. It is called the ``pixie charge.'' The local phone 
company--and it varies. You know, for single line business or 
the first line at home, it is one charge. For the second line 
and additional lines in homes, it is about a dollar higher. And 
then, for those of us who are at work, it is considerably 
higher. In fact, it varies from State to State, but the 
industry average is about $4.60 or $4.70 a line. Theoretically, 
it is supposed to be coming down, but it actually went up the 
last year.
    Mr. Tauzin. That is just the line charge?
    Mr. Moir. That is just that. And now----
    Mr. Tauzin. What the gentlelady is getting at is the $5 
plan charge.
    Mr. Moir. I am getting there. Right. So what happens is 
those charges are billed by the local phone company, these 
pixie charges, to your designated, or what we call or what they 
call ``pre-subscribed long distance company,'' who then, of 
course, bills it back to the customer on their bills.
    Now, in the very situation you have raised, you can choose 
to not designate a long distance company for that line or 
actually, you know, if you have five lines at home, you can 
have long distance companies for some lines and not for others.
    For any line you do not designate or pre-subscribe a long 
distance company, then the local phone company will bill you 
directly for that line charge, that pixie, but then all of 
these fees that you are getting from long distance companies 
and various plans will not occur on your bill, and then you 
will use, as the gentleman mentioned, a dial-around or some 
other way of getting to long distance.
    Mr. Tauzin. So the answer, in short, is that you can avoid 
these charges if you want, simply by not choosing a long 
distance carrier and using these other systems when you need 
long distance.
    Mr. Moir. But you will still have to pay the pixie charge, 
but you will avoid the minimums.
    Ms. McCarthy. That is that line charge. That is that 
minimal dollar-something.
    Mr. Moir. Well, but if you have two lines it is more than a 
dollar.
    Ms. McCarthy. I understand.
    Thank you, Mr. Chairman.
    Mr. Tauzin. Thank you, ma'am.
    The gentleman from Oklahoma, Mr. Largent.
    Mr. Largent. While we are on this subject, I want to go to 
this pixie charge. If you are on this little bill, it has 
current line charge or carrier line charge, $1.51. That is what 
we are talking about, right, at the top?
    Mr. Moir. For the first line.
    Mr. Largent. Right. Does it make any sense to charge 
anybody a carrier line charge who does not have a long distance 
provider? Anyone?
    Mr. Lassman. Mr. Largent, what you have put your finger on 
is, in common sense terms, no. It does not. However, rates to 
pay for our underlying telecommunications network are 
regulated, and the cross-subsidies involved in that regulation 
require that somebody has to pay for the upkeep.
    What you have identified, that situation, is how we take 
from consumers to pay for that.
    Mr. Largent. Would the same be true, then, for this local 
number portability surcharge over here that is on my bill, as 
well, when I do not have the ability to switch local providers? 
It does not make any sense.
    And the reason this is an issue to me, I mean, not only am 
I being charged for number portability when I do not have a 
choice of local providers, I have a son who is a young married 
guy going to college full time, working a part-time job 30 
hours a week. He does not have a long distance provider. He 
cannot afford long distance, so he just does not have a 
provider, but he is still getting charged this carrier line 
charge.
    Mr. Moir. I would just like to make a slight correction or 
disagreement with what was just said here by my colleague to 
the right.
    When the pixie charge was being debated and decided in May 
1997, so we could get to start seeing----
    Mr. Largent. By whom?
    Mr. Moir. By the FCC.
    Mr. Largent. All right.
    Mr. Moir. The FCC that you all have jurisdiction over here.
    Mr. Largent. Yes. Sometimes.
    Mr. Moir. Yes, even though they do not always listen. That 
FCC, then chaired by your good friend Reed Hunt, that FCC 
decided----
    Mr. Tauzin. Wait. Is he the guy that wrote a book that said 
he was just taking orders?
    Mr. Moir. Something like that. Although I thought the FCC 
was an independent regulatory agency under the commerce clause 
and directly responsible to the Congress, but what do I know.
    Or at least Commerce Committees used to----
    Mr. Largent. Mr. Moir, you are using my time.
    Mr. Moir. All right. The pixie charge came out of access 
moneys, and the idea was to take--and they were saying these 
were fixed costs. What we were saying, before you add that as a 
line item and take it out of access charges, which is being 
billed on a usage-sensitive basis, we want you, the FCC, to 
figure out what the true cost is of that local loop from your 
customer premise to the FCC.
    States have rate cases all the time. The FCC, in its entire 
history, going back to 1934, has never done a cost of service 
proceeding. Back home, in your State and your State, they do it 
all the time. The FCC has never done that and refused to do 
that. And they just took an arbitrary amount of money and 
dumped it there and dumped most of it on business users.
    Our average one, if that was a business bill, would be 
$4.60 or $4.70 for the same figure.
    They just did that without any cost justification 
whatsoever.
    So the more you can highlight these issues, the more they 
are going to, at the FCC, have to cost justify these baloney 
numbers.
    Mr. Largent. Ms. Hotka, I had a question for you, because 
in your testimony you said, ``While most analysts acknowledge 
that rates for long distance and data services have fallen, 
bills generally are not.'' That is true for my house. I just 
have been doing my taxes and figuring my tax bill, and my 
communication bill, telephone bills are $300 a month at my 
house. That is my personal bill. Whereas I used to get one 
phone bill that was local and long distance, I now get a local 
phone bill from Southwestern Bell, I get a cell phone--I used 
to get two cell phone bills--long distance bill, and now an 
ISP. So I have got at least four different bills that come in 
on a monthly basis, and my bills have gone up.
    But now I have got Internet in my kitchen, I have got three 
cell phones, to my knowledge, and so there is a lot of other 
things that I get to do. And I have a fax, as well, in my 
house. So there is a lot of things that the business community 
and individuals like myself are getting to do and have access 
to today that we did not have access to years ago when our 
bills were much smaller.
    So I am not disagreeing that the cost of regulation is a 
burden to all of us, but what I am saying is that I think some 
of the reason that my personal phone bill is going up is my 
wife cannot live without a cell phone, we have to have a fax, 
and we are now on the Internet, so there is a lot of other 
goods that we are receiving that are causing our bills to go 
up, as well as the regulatory burden.
    Would you agree with that?
    Ms. Hotka. Yes. There is no question. And advances in 
technology are doing more to advance retailing at this stage 
than anything. But, at the same time, frankly, when I made my 
phone calls to my Telecommunication Committee members I 
anticipated that the complaints that I would get would echo the 
questions that you have had today, ``What does this mean? How 
does this work? Where does this money go?'' I thought that 
those comments would be made by smaller companies.
    This stuff is not understood by Fortune 100 companies. It 
is just too complicated. It makes it very difficult for them to 
do cost/benefit analysis on different kinds of 
telecommunication technologies.
    When Mr. Tauzin talks about a flood of information, that is 
good. We would like to have a flood of information. It would 
help the people who are tasked with analyzing this stuff make 
much better decisions.
    Right now, frankly, to some degree, they are simply 
retreating from it and saying, ``I do not get this stuff.'' 
Well, they are going to have to get this stuff. It is what is 
going to make them competitive in a global economy.
    Mr. Largent. Yes.
    Ms. Hotka. And so I think any difficulty you have got at 
home plowing through your thick bill, just imagine how awful 
that is for companies which are in many nations. It is very 
difficult. And so anything we can achieve here which is going 
to make this easier for them to understand is going to help 
them use these technologies that you mentioned more 
efficiently.
    Mr. Largent. Yes.
    Mr. Chairman, I understand we have a vote on the floor, so 
I yield back.
    Mr. Tauzin. I thank the gentleman.
    Mr. Wynn?
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Breen, I believe you are with AT&T?
    Mr. Breen. Yes.
    Mr. Wynn. The question I have is: why do some companies 
collect the e-rate subsidy, which appears to be a favorite 
whipping boy today, on a flat rate and some use a percentage of 
the customer's bill? Also, at the same time, how does AT&T 
collect it?
    Mr. Breen. I really cannot answer that at this time. I am 
not absolutely sure on that one, but we can get back to you on 
that.
    Mr. Wynn. I would appreciate that, because there is some 
evidence that there is a discrepancy between the 5.7 percent 
that the FCC collects for e-rate and what is reported in the 
``Wall Street Journal'' at about 8.6 percent, and so obviously 
there is a concern about what happens to the difference if, in 
fact, this is true. So if you would provide that information, 
it would be very helpful.
    Mr. Breen. Understood. We will.
    Mr. Tauzin. Mr. Lassman may have an answer.
    Mr. Lassman. Mr. Wynn, to clarify that, the pricing 
structures that we see from the private companies in their 
interaction with consumers mirrors some of the decisions we 
made 50 and 60 and 70 years ago about regulation, and that is 
that consumers are more important than businesses. That was 
taken as an assumption.
    Today, there are flat rate universal service fees given to 
consumers, residential lines, and percentage-based universal 
service fees applied to business lines.
    So the answer, unfortunately, to your question is both.
    Mr. Wynn. Are you prepared to make that representation on 
behalf of the long distance companies? Not to in any way 
suggest that you are incorrect, but that is a pretty broad 
statement on a pretty critical issue, and if AT&T is not sure 
how they do it, I have to be a little concerned that an 
activist group might not have the latest information.
    Mr. Lassman. I am not speaking for AT&T or any of the other 
450-plus long distance companies in America, but I am trying to 
explain to you at least one distinction about how those bills--
--
    Mr. Wynn. So it is your understanding then that no 
consumers are being charged a percentage rate.
    Mr. Lassman. Business consumers are. Residential 
consumers----
    Mr. Wynn. No residential consumers are being charged a 
percentage rate?
    Mr. Lassman. To my knowledge, they are not. Like I say, I 
cannot speak for each of them.
    Mr. Wynn. We will try to follow up on that, but I thank 
you. That was very helpful.
    Mr. Chairman, in view of the vote, that is all for me.
    Mr. Tauzin. I thank you.
    The record will stay open for 30 days. I would ask you, 
please, if you have further comments on the Upton bill, on some 
of the testimony Mr. Norquist gave about what is going to 
happen when the meeting happens in Texas, any further 
supplements you would like to give us--I know you are good at 
that--we would appreciate it very much.
    Thank you for your testimony today. The hearing stands 
adjourned.
    [Whereupon, at 12:09 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [Additional material submitted for the record follows:]

                               American Library Association
                                                      March 9, 2000
Chairman W.J. Tauzin
Subcommittee on Telecommunications, Trade, and Consumer Protection
House Committee on Commerce
Washington, DC 20515-6115
    Dear Chairman Tauzin: On behalf of the American Library 
Association's 59,000 members, I applaud the committee's efforts to give 
American consumers of telecommunications more information in order to 
ensure ``truth in billing'' and to increase overall understanding of a 
complex billing system. The debate you are undertaking on bills H.R. 
3011 and H.R. 3022 is a laudable activity, especially if the outcome of 
your efforts provides the whole picture to consumers.
    ALA has long been a supporter of openness and access to information 
in the government process and in the marketplace. Librarians are in the 
daily business of providing full and accurate information to consumers. 
However, we would not want to see this concept misused to discredit a 
program that has provided benefits to consumers through schools and 
libraries in hundreds of communities in every state. Just as we provide 
our customers with accurate information that is not misleading, we 
expect Congress to require nothing different from telecommunications 
providers.
    Eighty-seven percent of American voters favor discounts for schools 
and libraries in rural and high poverty areas so they have the same 
affordable access and availability to technology as schools and 
libraries in wealthy areas. These voters are telephone customers and 
they deserve a greater understanding of all the subsidies within the 
telephone system, and how these subsidies are becoming more explicit as 
a result of the deregulation provided for in the Telecommunications Act 
of 1996.
    We look forward to working with you and other stakeholders to 
enhance communication on this complex subject. Please let us know if we 
can provide additional information or comment.
            Sincerely,
                                        Emily Sheketoff    
                          Executive Director, Washington Office    
                                       American Library Association
                                 ______
                                 
   Prepared Statement of Roy Neel, President and CEO, United States 
                          Telecom Association
    Thank you very much, Mr. Chairman, for giving me the opportunity to 
submit testimony for this hearing with respect to H.R. 3011, the 
``Truth in Telephone Billing Act of 1999,'' and H.R. 3022, the ``Rest 
of the Truth in Telephone Billing Act of 1999.'' This hearing is both 
timely and important. As the President and CEO of the United States 
Telecom Association (USTA), I am submitting testimony today on behalf 
of over 1100 local telephone companies that we represent throughout the 
United States. Our members send out millions of telephone bills every 
month. These companies are already regulated with respect to their 
telephone bills, being subject to both state and federal regulations 
and/or mandatory guidelines. To give you an example of this, the 
Federal Communications Commission (FCC) just last year gave us new and 
additional Truth-in-Billing requirements--which it called 
``guidelines''--to follow. Given this experience, I would say to you 
that as a general proposition, government regulation of billing content 
is not a sound legislative or public policy goal, especially in a 
competitive environment.
    I understand and appreciate the billing issue that prompts your 
legislation. What I hope is that you will stop today to consider the 
fact that the statutory requirements that you would place on carriers 
may actually cause more consumer concision than H.R. 3011 or H.R. 3022 
seek to cure. Phone bills are already long enough as it is, and 
consumers do not want to be confronted with even lengthier bills, 
containing detailed explanations of universal service charges and other 
charges. The entire arena of universal service, for instance, is 
extremely complex even to professionals in the telecommunications 
industry. Both pieces of legislation, if enacted, would require 
telephone bills that would raise even more questions for consumers 
rather than answering them. USTA believes that a customer's phone bill 
is not the appropriate place to explain contributions to the universal 
service fund pursuant to Section 254 or any other governmental 
mechanism, fund, tax or program.
    The FCC just last May released its First Report and Order and 
Notice of Proposed Rulemaking (FCC Docket 98-170) In the Matter of 
Truth-in-Billing and Billing Format. The FCC adopted in that proceeding 
binding Truth-in-Billing guidelines for telecommunications carriers. 
The purpose of these guidelines was to provide consumers with basic 
information to make informed choices and to protect them from 
unscrupulous competitors. In this proceeding, the FCC also looked at 
the type of issues that H.R. 3011 and H.R. 3022 contemplate, with the 
FCC concluding that charges associated with federal regulatory actions, 
such as universal service, should be identified through a standard and 
uniform label. The FCC issued a Further Notice of Proposed Rulemaking 
with respect to the specific labels to be used. My message here is not 
to salute the FCC's actions but to point out to you that both the FCC 
and the states are actively engaged with respect to this Truth-in-
Billing issue, even though in many instances we find their requirements 
examples of regulatory overkill. Nonetheless, this is not an area that 
the regulators are treating with benign neglect.
    Added to the above, USTA believes that H.R. 3011 and H.R. 3022, if 
either were to be enacted, would be costly for telephone companies to 
implement. Extreme expense would be associated with changing existing 
billing systems to provide for the lengthy descriptions that either 
piece of legislation calls for. As drafted, these obligations would 
extend to ``any other governmental mechanism, fund, tax or program.'' 
Read literally, telephone bills would be required to have additional 
line items for the subscriber's share of every tax or fee that a 
carrier pays (e.g., income taxes, rights of way fees, number 
portability, etc.). In the competitive environment mandated by the 
Telecommunications Act of 1996 ('96 Act), these costly (and, again, 
customer-confusing) regulatory requirements are ones we are seeking to 
avoid. No longer in a monopoly era, telephone companies simply cannot 
absorb the significant costs of such requirements without resultant 
negative economic consequences.
    The problem you are trying to solve with H.R. 3011 and H.R. 3022 is 
itself the by-product of the '96 Act and the changes wrought by Section 
254, which Congress added because the prior monopoly scheme of 
universal service could no longer be sustained in a competitive 
environment. Regulatory costs are true costs, something USTA believes 
the '96 Act sought to eliminate and/or supplant through increased 
competition.
    Finally, telephone companies regard their customer billing as a 
powerful, competitive marketing tool which allows them to differentiate 
their services from other providers. Aside from raising obvious First 
Amendment concerns, compelled government speech greatly disrupts the 
manner in which companies communicate with, and compete for, customers. 
Moreover, though the phone bill was ``deregulated'' nearly 15 years 
ago, increasing state and federal mandates, along with new legislative 
proposals (as seen in H.R. 3011 and H.R. 3022), signal a disturbing 
trend toward reregulating the phone bill as a common carrier service. 
In a competitive environment, this circumstance must be strenuously 
avoided.
    In closing, there is no existing vacuum that Congress needs to fill 
by legislative mandate. USTA's members have a strong self-interest in 
maintaining the integrty of their phone bills and in making sure that 
customers can clearly understand and read them. Though the concerns 
Congress seeks to address within H.R. 3011 and H.R. 3022 are 
legitimate, USTA respectfully asks that Congress allow our companies, 
and the marketplace in general, to communicate to their customers free 
from further law or resulting regulation.

                                
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