Do you want to hear some good news about surcharges? I could pretend to have some, if that'll make your day! The federal universal service surcharge for the quarter beginning July 1 will be 13.6%. And while that's really high, it's down from the amazing 15.3% of the current quarter.

So why couldn't an optimistic, glass-half-full person treat that as a positive development? Because the quarterly USF contribution factor -- you know, the bit owed by carriers on their interstate revenues that they don't have to pass along, but always do -- is never the end of the story.

The very idea that the landline surcharges with the biggest bite are "revenue-based" is an open invitation for carriers to play with their entire line-up of surcharges so that you never really get a break. And looky here: Verizon at the same time is increasing its "Property Tax Recovery Charge" from 3% to 3.65% of applicable revenues.

That's an extra chunk of money out of the same or similar revenue base, instituted through a quiet change that Verizon has just made in its Service Guide. That move alone cuts in half the benefit of the USF reduction for Verizon's national enterprise customers.

I've had some fun in the past with Verizon's particular love of collecting extra dough out of the property tax allotment, given that the "revenues" in question have nothing to do with Verizon's real estate for its POPs and central offices but rather your revenues to Verizon for voice and data services.

But by no means am I meaning to just pick on Verizon today. Turns out that midyear of 2010 seems to be a red-letter day for AT&T on two other fronts:

-- June 30 happens to be the expiration date for some multiyear regulatory conditions of the AT&T-BellSouth merger -- remember that one? Under the conditions, AT&T had to file tariffs over three years ago that dropped its unregulated rates down to regulated levels in order to get its merger approved. But AT&T's filing will also kick the special access rates back up again automatically when the merger condition expires. That's pretty clever -- where else can you announce price increases three years in advance?

-- The folks at LB3 have noticed that AT&T has started making an interesting, and potentially nefarious, change to proposed Master Agreement wording for enterprise customers. It's technically a replacement for the "Regulatory Charges" clause but it allows AT&T to raise the rates or impose new charges for goods and services, period. Unlike older form contracts, this right is not limited to increases prompted by changes in AT&T's regulatory obligations.

Now, if you have a well-designed current deal with AT&T, neither of those two developments necessarily change your operating and procurement results ... yet. Free-flowing T1/T3 access price negotiations continue to be a crucial part of competitive bids for national data networks. The AT&T special access price move directly affects only those who buy access directly from "AT&T the ILEC" (the legacy RBOCs that it rolled up) or those whose current contracts with the national legacy AT&T fail to stabilize prices.

And of course, the idea that AT&T wants to extend a sense of user helplessness against price increases beyond surcharges to the price of actual services is something you'll want to fight if it's proposed to you!

But all of these things certainly change the procurement environment going forward, and it's a predictable by-product of the looming duopolization of the U.S. market. The leverage you'll want to bring to the table to fight these fights on multiple fronts will have to grow as the big carriers' market positions appear to strengthen.

What you don't want to be is surprised, and TC2 and LB3 stand ready to anticipate and deal with these issues for you. Look for follow-ups on these individual issues soon.

The following is a guest post by LB3's Hank Levine.

Readers of this blog know that LB3 and TechCaliber specialize in helping enterprise customers negotiate agreements for telecom services. They may not know that my [hopelessly nerdy] hobby is collecting books and other material from the dawn of the telephone era -- the years immediately after Alexander Graham Bell famously fetched Watson with a few shouted syllables in 1875.

Last weekend vocation and avocation came together when I happened upon a contract for telephone equipment and service between New England Telephone and the Town of Milton, Massachusetts. It was a three-year deal for four metallic circuits and 12 "suitable iron boxes," each equipped with a magneto transmitter and hand telephone and connected to one of the circuits. NET agreed to furnish and set up the required central office switches, and operate the gear for the town to use as a Police Signal System.

Nothing out of the ordinary here, unless you count the fact that the contract was executed on May 1, 1890, almost exactly 120 years ago.

Cool, of course. But also depressing in a way, because a surprising number of the agreement's terms and conditions are both tilted in favor of New England Telephone and sound familiar today.

For example, under the Milton-NET contract, the customer agreed "to hold harmless the [telephone company] from any and all claims for loss, cost, damage or expense in any way due to or caused by the lines and other apparatus herein leased to" the customer -- even if the claim grew out of something NET did, not an action or failure of the customer. For over a century the courts have been ruling that carriers cannot try to exempt themselves from the consequences of their own willful misconduct or gross negligence, but carriers still routinely try to shift the expense and risk of their own misconduct to their customers.

Another parallel: "No business is to be transacted by or through [the lines or instruments] for any consideration or toll to be paid by other persons than the [customer] or other parties named, nor shall business messages, market quotations, or news for sale or publication, or messages in respect of the transmission ... of which any consideration or toll is to be paid by any other person be transmitted over such line." In other words, no resale or shared use. In the intervening century the FCC ruled that this was anticompetitive, but with deregulation such provisions have reappeared in carrier agreements.

The news is not all bad. The Milton-NET contract included a separate agreement with American Bell Telephone Company to cover the instruments. It provided that "upon nonpayment of any sum due, or any use of the instruments ... improper or contrary hereto, or any removal therefrom, the [telco] may terminate the subscriber's rights by written notice served on him or any occupant of the premises, and sever his wires and connections and remove the instruments..." We've progressed in the last century -- today, you get a 10-day disco notice before the line goes dead.

And lest you think that people just started negotiating deals in the last 20 years, or just started using credits as a way to close a deal, letters accompanying the contract reveal that NET's initial offer was $480 per year on a three-year contract (paid annually, one year in advance) and $380 for a five-year contract. But the town balked, and NET sweetened the deal: if Milton entered into a three-year deal and then renewed it for two more years, "the Telephone Company will make the rate for the whole time as if the contract was originally made for the term of five years; giving the Town credit for the amount over-paid during the first three years."

The contract doesn't say that in the event of a dispute the town will be responsible for the telco's attorney's fees plus interest, or that force majeure events like hurricanes, fires or crimes will excuse the performance of the telco but not the town. Those terms came later, proving (I guess) that 'progress' does indeed come with time ...

The FCC's release this week of its National Broadband Plan inherently affects the issue of Universal Service surcharges. FCC officials have gone on record saying that for "universal service" to continue to make sense, at some level it has to refer to broadband, not POTS.

Only one of the four current universal service programs -- the "E-rate" program that provides support to schools and libraries -- explicitly pays for broadband connections. The other three programs -- for "High Cost" areas with many subscribers far from central offices, for low-income consumers, and for rural healthcare facilities -- are still basically telephone subsidies.

The core proposal in the National Broadband Plan is to shift the High Cost program from POTS to broadband, so that people in low-density areas have access to at least one broadband provider, rather than worry so much about whether they have a long copper tail to the CO. But the plan literally lays out a 10-year timeline for achieving this. In several phases before this happens, the plan advises the FCC to create yet new programs, such as a Mobility Fund that would assist areas to obtain 3G and higher wireless coverage where there currently is none.

Clearly that implies that the FCC will have to broaden the universal service revenue base, so that more services are captured under the surcharge (which increases pressure on the carriers to pass along the charges). But oddly for a 376-page report, the National Broadband Plan, when it comes to stating exactly how to do this, simply repeats longstanding USF reform proposals as possibilities (such as charging USF not as a percent of revenues but per phone number or a data connection of some size), rather than formulating a complete USF reform proposal of its own.

That's partly because the plan doesn't actually have the force of law, and isn't a document "voted" on by the full five-member FCC. Instead, both the FCC as a full panel and Congress are supposed to read it, debate the proposals, and eventually act on it. I probably don't have to tell you how complicated, uncertain, or simply futile that can sometimes get!

Thus, for right now, despite the hoopla over the plan and other telecommunications-related provisions of the federal stimulus, we still have the USF system we're stuck with. And both current pressures and forward-looking ideas point to broadening of the services to which surcharges apply.

Indeed, the whole surcharge issue is notable for the sense of powerlessness it can provoke in even sophisticated telecom managers. It would be wishful thinking to suggest that you can simply demand the non-applicability of all new charges when the carriers are bound and determined to pass along what they think they must in today's more complex and uncertain surcharge environment.

Instead, think of all the latest developments as shifting the boundary of where you have the right and obligation to put your foot down. With universal service moving past legacy voice and data, it's now appropriate to be somewhat more aggressive than before and start drawing some distinctions, as follows:

-- Selective knocking out of surcharges. A "best in class" procurement will at least make carriers justify the applicability of surcharges to all services. Try to capture some of these in the contract -- the more specialized the service, and the less justifiable the surcharge, the more likely you are to get a waiver or credit. You might be able to get a contract-term guarantee of no surcharges on an Ethernet service, for example, much more readily than an entire MPLS network, and it's easier to fight the nakedly greedy property tax and regulatory administration surcharges than E911 or USF.

-- No retroactivity. Let the carriers' current conundrum over whether they'll have to go back and pay retroactive surcharges on their MPLS or other revenue bases be exclusively their problem. Make sure to get a no-surcharge-retroactivity guarantee for all your services. Definitely watch out for explicit statements that retroactive pass-alongs will be allowed (Sprint, for example, has been doing this).

-- Look for offsets, but in the right way. You can actually play recent developments to your advantage, in that the carriers' typical insistence of the right to impose new surcharges in mid-contract term can lead you to say pre-emptively that you need lower rate element charges just in case. Be wary, though, of overly clever carrier responses to this idea. We're hearing talk of carriers "pre-bundling" rate element and USF charges in a way that ostensibly freezes the USF pass-along at its current rate. That's fine if the resulting bundle really captures a market rate for the actual network element (e.g. ports or circuits), but "bundles" have a funny way of not actually doing so. Consider asking for credits, but the same caution applies -- there's a right and wrong way to do credits, as discussed at our recent Telecom Negotiation Conference.

Next week I'll look at how all of these factors are beginning to play out in one of the most important new services available -- SIP trunking. The differences in how carriers are handling this are already becoming object lessons in the application of USF to VoIP, IP-network access over dedicated Internet or MPLS, and other elements we've discussed. Almost no issue is more subject to the quality of the design of an RFP than the surcharge results on new services like SIP. It's worth the effort to understand it, and in the meantime feel free to shoot me questions and comments about this whole arena.

It used to be an article of faith that telecom carriers knew how to be Washington players and IT vendors didn't. Decades of Washington experience gave the "RBOCs" and "long distance carriers" hooks into the regulatory scene. A CEO like Ed Whitacre of SBC, the forerunner of today's AT&T, spent much if not most of his day on public policy and regulatory matters, including all those lawsuits SBC used get into with other carriers and the FCC. I'm sure all that focus on federal issues comes in handy now that Whitacre runs the essentially government-owned GM.

Software and hardware vendors, by contrast, were babes in the woods when it came to politics. Typically their CEOs wanted to spend all their days working on their company's products ... silly them! When the U.S. government hauled Microsoft into court in the 1990s for trying to perpetuate a monopoly in operating software, much was made of Bill Gates' shock and ignorance over the ways of Washington.

In fact, it was the Microsoft antitrust case that began to radically change this perspective among IT vendors. Now the big, famous players have become heavy hitters inside the Beltway. It's partly in that light that telecom managers should understand this week's headlines about Google wanting to get into the telecom business by building ultra-fast broadband connections.

Google sits on one side of a debate in Washington over the concept of "net neutrality." That's the notion, which Google supports, that providers must be essentially "agnostic" about the applications sent over their networks. The companies that control the pipes -- the telcos and the cable companies -- pretty much all oppose this idea, saying that net neutrality is an appealing-sounding euphemism for outlawing traffic engineering. The carriers are happy to assert that the same concept applied to enterprise networks would get in the way of your making sure that voice, video and certain data apps get expedited treatment.

Of course, you buy these services from the carriers, so traffic engineering is necessitated by the resource constraint you face -- your budget for buying overall bandwidth to dozens, hundreds or thousands of sites. The carriers build these networks, so arguably they're in control of rolling out as much capacity as they want. Naturally they can claim that money doesn't grow on trees even for them, but part of Google's point appears to be that the carriers can do better and Google's going to show them how.

But in order to do that, Google is going to have to go through the slog of partnering with municipalities for rights of way, franchise fees and all the flora and fauna of facilities-based telecommunications down to the last mile. And even they say it's really a testbed, not coincidentally announced just before the FCC is due to release a National Broadband Plan. Whether Google would really push for net neutrality after building a network of their own is clearly the impression they want to give, but not at all certain in reality.

So it's easy to toss Google's initial announcement to the side as being impractical and short of any scale to matter to enterprises. But there are a couple of things to keep in mind as more news comes out about this.

One is that IT vendors really do get peeved at the telecom industry for what they see as insolence and manipulation of the timeline for rolling out universal high-speed access. Some years ago Cisco CEO John Chambers castigated the RBOCs for purportedly costing him measurable earnings per share by being more interested in merging with one another than building out fiber to the home (and indeed, it took cable entry into high-speed Internet access to get the telcos off their duff).

The other thing is that Google has enormous capital, even by telecom standards, to do the obvious alternative to building a network: buying a network. When Qwest appeared to get into a failed negotiation over selling its long-haul network to Level 3, the talks reportedly broke down over a price gap somewhere in the neighborhood of $1 to $2.5 billion. A back-of-the-napkin calculation at the high end of that range shows that a Google could step into such talks for lunch money. They'd simply have to issue about 4.7 million shares of Google at today's stock price, hardly any dilution for current holders of Google's 317 million shares.

Of course, Google almost certainly realizes that the real key to network entry is the local loop. So it would either have to leverage its investment in the Sprint-backed Clearwire 4G network to complete the connection, or pair a local build and long distance buy.

Regardless, when you keep in mind that Cisco is now a leading PBX supplier, the famous names of the IT industry are buzzing all over telecom. If they have mixed motives, not always sincerely expressed, in doing so, let's face it: That would be entirely consistent with the culture of the telecom industry! Google and some others may not be making an impact yet, but they're certainly welcome to the club, and welcome to keep telling us what they think they have to offer.

The following is a guest post by TC2 Senior Consultant Mark Sheard, who is based in London.

Did 2009 mark the end of overcharging for text messaging and data applications while roaming in Europe? You might think so because of last year's European Union roaming caps on texting and data and video applications, as well as an accompanying overall mechanism designed to put a brake on soaring mobile bills.

But that's only part of the story. European and multinational enterprises can only get the full benefit of these measures to solve the chronic problem of runaway mobile charges if they take additional steps. These corporate 'bill shocks' (as the EU put it) might not be as immediately obvious as those, for example, on my teenage daughter's mobile, but close inspection could be more shocking than you thought!

Telecom managers with responsibility for users traveling through Europe should remember the unique aspect of mobile cost management within the EU. The "single market" paradoxically can make it more difficult to keep costs under control. Roaming charges often begin at every national boundary even as users freely move about the continent.

Viviane Reding, the EU Telecoms Commissioner, was addressing this when she described the EU's objective in enacting mobile caps: "What we want to achieve is simple: sending text messages or downloading data via a mobile phone while being in another EU country should not be substantially more expensive than at home. This is the logic of the borderless single market."

Accordingly, since July 1st of 2009, roaming charges for SMS (text messages) have been capped by the EU at a retail cost of €0.11, which compare very favorably with the average cost of a "roamed" text message in the EU between October 2007 and March 2008 of €0.29. The key elements of the regulation are as follows:

-- Limits the price for sending a text message while abroad at €0.11. Receiving an SMS in another EU country remains free of charge.

-- Reduces the cost of surfing the web and downloading movies or video programs with a mobile phone while abroad by introducing a maximum wholesale cap of €1 per megabyte downloaded. This limit will be decreased each year.

-- Further reduces prices for mobile roaming calls with a maximum tariff of €0.43 for making a call and €0.19 for receiving one.

-- Introduces per-second billing after the first 30 seconds for calls made and immediately for calls received.

But these regulations are only a start. Most businesses of scale should be securing competitive rates that are better than the regulated capped rates. If a quick review of your contracts shows that you haven't got better rates, yet you have many roaming users, it is time to plan for a review of your wireless telecoms spend. This should start with an early interview with your incumbent provider's account manager.

In negotiated custom corporate wireless contracts, market leading pricing for roaming usage tracks substantially below the regulated price caps. The significance of the roaming rates cannot be underestimated -- for many MNCs roaming spend can be 50% or more of their mobile costs. Hence, securing competitive rates for voice, data and SMS (texting) is crucial.

Determining whether you have good rates for voice, SMS and data might start with a look at the EU provided information on tariffs. The EU site will give you rates for roaming across Europe. Some might find it a useful starting point to see whether or not their negotiated rates are any better than standard supplier pricing.

Remember that this site is restricted to European countries and published rates. As good as it is to see efforts to provide more open information to consumers, spotting whether you are securing rates commensurate with your corporate spend is not in reality possible from the EU's site. But an interesting exercise is to click on the little timeline down the side of the rate tables and see the differences in prices over time. Immediately, it shows the continued downward trend in charges that telecoms managers should be seeking to emulate for their own contracts.

For one thing, it illustrates that operators really do need some help and encouragement to pass on price reductions to the consumer. Note particularly the drop in voice pricing in 2007 when EU regulation was first brought in! Would these have dropped so significantly without regulation?

For SMS and data, the recent step change down is initially likely to mean some stagnation in the rate of change, but in reality for most MNCs, the recent regulation should have a pull through effect on roaming data pricing. But negotiating improved SMS and data roaming rates in isolation may not be straightforward. Ideally, a structured competitive process will bring the greatest returns in terms of cost reduction, and typically the greatest opportunity for the provider to give you the best deal will be if you widen the scope of the procurement.

Mobile SMS and mobile access to the Internet and corporate networks are growing exponentially, and whilst the EU capping on roaming charges is very good news the caps should be regarded as the starting point for your negotiations, not the end.

For as long as anyone can remember, AT&T has been the carrier that's held on the longest to legacy products. In recent times, AT&T has been happy to let users continue to subscribe to its global business dial-up Internet service until they're ready for AT&T's broadband virtual tunneling service. AT&T has also let corporate WANs sail along on frame relay without putting out a marker on ending frame relay orders or contract renewals, as first Sprint and then Verizon have done.

And there will probably be some companies using AT&T for straight-on, long-haul, T1/T3 private lines in the year 2030 just as in 2010.

So it was jarring when AT&T grabbed some publicity at the end of last year with what looked like a request to the FCC to retire the public switched telephone network. AT&T severing itself from POTS, or Plain Old Telephone Service? It didn't seem right.

Understanding AT&T's about-face on maintaining legacy networks requires an understanding of the concept of financial harvesting. One of the best illustrations of harvesting came during an odd period in telecom carrier finance back in the mid-1990s -- basically a few years before and after enactment of the Telecommunications Act of 1996.

Back then, the Internet was emerging in its browser-enabled incarnation as the World Wide Web, the corporate telecom deal culture was thriving, and TV airwaves and telemarketing lines were buzzing with pitches for 10-cent, 7-cent, and 5-cent long distance minutes. Yet when AT&T held its quarterly earnings conference calls, the first question Wall Street analysts would invariably ask was why AT&T had only raised its basic, no-plan long distance rate from 25 cents a minute to 26 cents, not 27 cents. Wouldn't Aunt Mary from Kalamazoo, who would never in a million years switch to MCI or Sprint, overlook a larger increase and happily pay the bill?

AT&T was essentially harvesting its no-plan customers for a revenue stream for as long as these customers existed. And the analysts, almost to AT&T's annoyance, wanted them to do even more of it. Not until somebody rang a bell around 1997-1998 and the analysts realized that AT&T had to compete elsewhere for voice and data business did the harvesting issue start to fade.

Now look at AT&T's situation today. AT&T Mobility is thriving and sales of the iPhone are zooming. AT&T's share of the enterprise networking market is basically what it's been for years, and with the decline of Sprint it's even threatening to establish a virtual duopoly with Verizon.

But AT&T's consumer telephony business seems to be slipping away. Like the incumbent local businesses of Verizon and Qwest, AT&T is losing residential landlines at a remarkable pace, now edging close to 1% a month. The result is the reverse of harvesting: AT&T says it's bleeding from the need to maintain all-copper loops in a mass market that's beginning to reject them, and it wants to get out rather than stay in as long as possible.

Of course, AT&T, Verizon and Qwest get some of their landline customers right back when the same households buy their broadband packages. And the broadband and telephony customers that the cable companies win instead represent fair-and-square marketplace losses for the telcos. But that only seems to reinforce the reverse-harvesting instinct, feeding AT&T's argument that it needs to massively shift resources.

Aside from the fact that AT&T in the meantime hasn't lost its near-monopoly dedicated access business in its local territories, here's the problem with simply accepting AT&T's conclusion that the PSTN should be retired: From a business user standpoint, there's a little more to the legacy network than consumer migration to cell phones and broadband. As our friend Eric Krapf of VoiceCon/NoJitter has already pointed out, AT&T hasn't quite defined the PSTN to be retired, leaving us to assume they mean everything. But what about Class 5 switches and their unique functionality that's still in the process of being emulated in various VoIP services? What about the fact that many of the poles, trenches and conduits are the same for both older and newer services?

And what about all the people who make calls to the businesses who make up the enterprise market? If they don't have a cell phone or a broadband triple-play package, are they out of luck, and your business out of a sale?

Many business customers would benefit enormously if AT&T does what it says that PSTN retirement will free it to do: help create universal, affordable broadband. Widespread remote-agent call center functionality, broad-based telecommuting, and many facets of unified communications do rely on a pervasive broadband network.

But it's important to realize that AT&T is responding in a classic "lobbying" fashion to the current broadband stimulus, which requires the FCC to develop a national broadband plan. In effect AT&T is saying that if there has to be universal broadband, there can't be universal narrowband. That's either one of those unintended consequences that can result from regulatory initiatives, or an unproven assertion of investment motivation by an experienced Washington player.

At this point I think there are two key things for corporate telecom professionals to remember. One is that AT&T, with all of its legacy pressures and characteristic behavior patterns, has many piece-parts. In this case we're clearly talking about an AT&T whose heart is the former RBOC SBC, not the former interexchange giant.

The other is that some of the regulatory nuance got lost in some of the initial reports. What AT&T is supporting, in the context of a question posed by the FCC, is the initiation of a Notice of Inquiry about the PSTN, which is a more preliminary proceeding than even a Notice of Proposed Rulemaking, which itself has many procedural checkpoints before it results in new rules. It's unlikely that AT&T really wants to lose all its POTS customers in one fell swoop right now. More likely, it's just drawing a line in the sand.

So we'll have some time to watch this, and the market will invariably shift more along the way. Let me know if you have thoughts of your own on this fascinating matter that threatens to turn the tables of telecom history upside down.

The word is out, and if you're hearing it here for the first time, I apologize: The federal universal service surcharge for the first quarter of 2010 will be 14.1% of applicable interstate (including access) and international charges. Man oh man!

And I've noticed an interesting phenomenon. The FCC announced the new percentage rate in this announcement last Friday, but as of today, this announcement appears nowhere on the list of FCC "Headlines" on the FCC's home page. Yet somehow, FCC announcements from the same day about panelists for "a workshop on Speech, Democracy and the Open Internet" and a speech by one of the FCC commissioners about Guglielmo Marconi (you know, the guy who won a Nobel Prize 100 years ago for basically inventing the radio) are right there on the home page! And it took until today for the FCC to add the announcement to its required spot at its special URL for contribution factor notices.

Maybe the whole thing is too embarrassing? A levy of 5% feels like a tax. Something running 10% is the kind of surcharge we in telecom are used to. But edging toward 15%? Deep down, all parties know this is out of whack.

I encourage anyone looking for a constructive deep dive and how to provide input on the what-to-do from a public policy standpoint to check out LB3's regulatory advice and advocacy practice. They've been flagging this issue forever. In the meantime, be aware that this breaking point is being reached by an all-too-foreseeable crossing of lines between mild but steady declines in the carrier-reported revenues for basic telecommunications services and marked increases in carrier demands for the universal service funds.

In particular, the wireless carriers (who are no slouches when it comes to taxes and fees) have really ramped up their demands on the "High-Cost" program -- you know, the part of universal service that's mostly thought of as helping independent telcos to reach far-flung subscribers in less densely populated areas of the country.

It's not like the FCC hasn't been doing anything about this. They've now capped how much the wireless carriers can get, in a decision recently upheld by the federal appeals court in Washington, D.C. But these stopgap measures only illustrate how much fundamental USF reform is needed, something the FCC and all parties to the regulatory world have to know.

With every surcharge shock, we at TC2 redouble our reminder that the higher these fees and passalongs go, the more impact you get by gauging them them in a competitive framework. Part of what we know is going on is that the large U.S. carriers, few though they may be, at any given moment do feel some reluctance to actually levy the passalong on freshly won major data networking business. That's particularly true now with MPLS ports and CoS packages, even if the FCC has gotten hip to MPLS's revenue impact on the carriers.

So any time you have either:

-- a service for which the carrier won't assess USF vs. a service for which it will, or

-- the same service competitively bid to multiple carriers who make different commitments to passing along or not passing along the surcharge (provided you've specifically asked)

then you have a dollar difference that's every bit as significant as the rate element pricing itself. And the higher the USF (or other) surcharge on the carriers' revenue goes, the bigger the impact of this passalong vs. no-passalong commitment on you.

There's more to come, including what may be more impetus for universal service reform as the surcharge factor looks more and more ridiculous. The FCC may not make it easy to find about this on their online front door, but we're happy to shout about this issue in all its ramifications for as long as it takes.

The following is a guest post by LB3 partner Kevin DiLallo, whose practice includes a specialty in the negotiation of enterprise wireless service contracts.

As if the high level of taxes and surcharge-generating "mandates" on wireless plans weren't enough, enterprises also have to be concerned with a fundamental, tax-related issue relating to what their employees do with their mobile devices.

If you provide corporate-liable devices and plans to employees, and those employees use them for personal conversations and transactions, then at least in theory you are providing a taxable employee benefit. Under the law, your employees are required to log every call or Internet session on a company-subsidized device and note its business purpose (if it has one). It's then the employer's responsibility to report the value of this benefit on your employees' W-2s, and it's their responsibility to report the amount of the benefit as income.

What's more, if you don't have a policy requiring your employees to keep records of their personal and business calls and the business purpose for each of the latter, then you and the employees must report the full value of company-subsidized phones and service as additional income to the employees.

Are most companies complying with this requirement? As far as we know, not many, largely because of the enormous burden on them and their employees.

So is the IRS doing anything about it? The current IRS commissioner has actually gone on record as saying that the requirement to track personal usage of corporate devices is anachronistic and should be repealed. But that's something only Congress can do, and in the meantime, the Treasury Department could pressure the IRS to go the other direction and step up enforcement as a source of badly needed federal tax revenue.

Thus the dilemma for corporate telecom managers: How does one balance the realistic risk of failing to measure this purported employee benefit against the hassle of forcing all your users to keep track of their personal usage? Surely, there must be a logical, common-sense way to ensure compliance, many users feel.

One idea we're sometimes asked about is whether you can build a bulwark against IRS enforcement action by issuing a corporate policy banning personal use of corporate-liable devices. The answer is no -- according to policy, the IRS is looking for actual logs that demonstrate how much or how little employees make personal use of their mobile devices.

But there are other developments in the works that could ease the pain of compliance:

-- Some applications can be loaded on phones that require an employee to use a routine such as pressing "P" (personal call) or "B" (business call) before making any calls. Ideally, once an employee dials a number the first time and enters the appropriate code, the phone remembers what type of call it is. One vendor that offers such an application is Arizona-based Syncpointe, LLC.

-- Compliance would be greatly eased with a "safe harbor" -- a type of simple statement of minimal personal use that companies could adopt in place of full record-keeping. The IRS has initiated a rulemaking proceeding to solicit public comment on a safe harbor or other compliance alternatives. It's also possible that IRS will adopt some sort of mitigating interpretation that will alleviate the burden on companies until Congress acts one way or the other.

-- Despite the fiscal pressures, bills were introduced in January in both the U.S. Senate (S. 144) and House of Representatives (H.R. 690) to eliminate the taxability of subsidized wireless service. Regrettably, the bills have gone nowhere since they were introduced.

Given all the cross-currents, it's certainly an uncomfortable dilemma for managers to decide whether to take immediate compliance steps. For most enterprises we recommend consulting internal counsel on what to do now. But the greatly heightened awareness of mobile telephony is bringing the issue to the forefront, and it's important to understand that simply issuing a blanket policy banning personal use with no internal enforcement or record-keeping is unlikely to accomplish the goal. As demands on the U.S. Treasury mount, we would not be surprised to see increased enforcement activity in this area.

One final word: Some companies have taken the position that, to avoid the risk of an audit, they will eliminate all corporate-liable mobile devices and allow employees to use personal devices for business purposes, perhaps using stipends or expense reimbursement to compensate the employees for the cost of the devices and services. For both financial and data security reasons, we advise against this approach. Stay tuned for more on this issue.

Do you think the Internet should be open? I presume you do. Do you think the Internet should stay deregulated? I presume you do.

Now tell me what your position is on "net neutrality," if you know what that is.

Answer: You're both for and against it.

How's that again? Well, corporate network professionals who are plugged in to the Washington telecom scene -- such as the members of the Ad Hoc Telecommunications Users Committee, which is represented by LB3 -- probably understand the trick I employed in framing the question.

Like so many telecom regulatory issues, the net neutrality issue features advocates on both sides who sell the merits of their position based on a similar-sounding benefit to users.

Net neutrality is the notion that major ISPs -- which these days essentially means the big telecom and cable companies -- should not discriminate among types of content. It also means that providers should not give favored access to their own content-based services if another provider wants to reach their subscribers with a similar service.

The FCC has for a while had some vanilla-sounding principles ensuring freedom of movement of content around the Internet and freedom of access. But today the commission initiated a rulemaking which would enshrine the specific idea of net neutrality under regulations.

The FCC's move is getting a fair bit of attention. That's partly because it's a pet issue of new FCC Chairman Julius Genachowski, who was a Harvard Law School buddy of President Obama's. It's also partly because it pits two major vendor groups against each other.

Those who say they want the Internet to be "open" are essentially a proxy for content providers such as Google, Amazon, eBay and others who fear (or say they fear) the control that AT&T, Verizon and big cable companies have over the pipes to subscribers. They support net neutrality -- in fact, they've practically sponsored the issue.

Those who say they want the Internet to "stay deregulated" are exactly the big carriers such as AT&T and Verizon who say net neutrality either is unnecessary or would be downright harmful. They've complained that traffic management practices of the sort that net neutrality would appear to knock out are perfectly normal. And they say that without the freedom to employ these practices, broadband fiber and mobile networks won't be built out any further.

So you see, the framing trick really isn't mine -- it's inherent in the issue. In fact, while the impact of net neutrality on enterprise users is not direct, at least not yet, the two sides of the debate do in fact mirror two natural instincts of our corporate user marketplace.

Business users instinctively understand that AT&T and Verizon are growing in market power. While the scattered examples of these companies supposedly knocking out content aren't very convincing so far, users know that a limited number of suppliers (especially in the last mile) threatens trouble down the road both on price and control.

But users also understand the concepts of class of service, congestion management, and traffic shaping on the engineering side, and the basic idea of volume discounts on the pricing side. At least conceptually, net neutrality can come across as a naive and artificial guarantor of access to content, no matter its bandwidth, sensitivity to latency, or point of origin, although some net neutrality advocates say their position is more sophisticated than that.

All this has become a growing concern as end-users rapidly step up their demand for mobile broadband applications. Spectrum isn't just there for the taking, and the idea of a regulatorily mandated free-for-all won't achieve much if all it does is cause congestion for everyone. Expect the wireless issues to be front and center in the net neutrality debate, much more so than if it had been proposed in this way even as recently as two years ago.

I know that the Ad Hoc Committee will be participating in this rulemaking and assessing it from enterprises' dual and overlapping roles as purchasers of network services and providers of increasingly critical e-commerce streams even in prosaic, non-glamorous industries. Stay tuned for more on this issue as it works through the FCC process. And remember to get the whole story, not just some big vendor's framing of the issue.