In an effort to raise the Universal Service Funds (USF) declining revenue base, the FCC has ruled that VOiP phone service must be taxed to support the program, which subsidizes basic phone service for the poor.

The FCC announced the decision at todays Open Meeting. Commissioner Deborah Taylor Tate, who has focused on the viability of the fund, praised the move.

"While I continue to advocate a light regulatory touch for nascent services like VoIP, it is essential that important goals like universal service are implemented in an equitable and non-discriminatory manner," Tate said.

Until now, VOiP calls have not been tithed to assist the fund. But Tate noted that with 4 million subscribers and growing, letting VOiP continue to operate untaxed would create "market distortions"—unfair advantages for VOiP companies over more conventional firms that do make USF contributions.

The USF fund taxes long distances phone calls to subsidize low income phone service, rural phone service, and broadband for schools and libraries. The program has been plagued with problems, most notably delinquent companies that neglect to contribute to the program. But it has also become increasingly difficult to assess interstate service, given the proliferation of Internet and wireless national plans.

To compensate for this uncertainty, USF establishes "safe harbors" for broadband and wireless phone service—baseline percentages of use that the FCC assumes go to interstate calling. In addition to taxing VOiP, the FCC today raised the safe harbor for wireless service from 28.5 to 37.1 percent. VOiPs safe harbor will start at 64.9 percent.

Some VOiP services seem to have taken the move philosophically. TMCNet, a news service that focuses on VOiP developments, quotes a spokesperson for Vonage saying that with the recent repeal of the Federal Excise Long Distance Tax, the USF tax is "kind of a wash. If there is an increase, it will be slight for our customers."

Phone services do not have to pass the USF tithe onto their customers, but most do.

At todays hearing, Democrat Michael Copps urged the FCC to reconsider its plan, announced last August, to exempt DSL services from the USF contribution base. Copps questioned whether VOiP and wireless taxes will "offset the funds lost by DSL’s nonparticipation."

"Surely it would be an intolerable result to end up with the fund having less revenue, not more, for the foreseeable future," Copps said.