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Managing Telecom Expenses: Don't Forget the Fees
They say two things are unavoidable in life: death and taxes. If you have reviewed your phone bills lately, you might as well tack on fees to that list.
Telecommunications taxes, surcharges, and fees are myriad, complex, and significant. Most telecom managers have a vague understanding of these and view them as unavoidable, a cost of doing business. While this is true, it’s prudent to have a basic understanding of these charges and periodically review them. Billing mistakes are common, and they even happen with taxes, surcharges, and fees. I’m currently disputing a USF fee that was accidentally applied to one of my recent bills at the wrong rate (higher than the current 33.4%).
The most notable fee on a telecommunications invoice is the Universal Service Fund (USF) fee. Carriers are required to pay this fee and generally pass it on to the customer. The USF is an FCC program designed to normalize the cost of service across diverse geography and economic profiles. The USF also helps to provide discounted E-rates to institutions like schools and libraries. In addition, funding is provided to other programs such as rural health care, high-cost areas, and low-income programs. If you want to learn more about the USF, Martha Buyer covered it in a previous No Jitter article.
In the first quarter of 2021, telecom customers saw the largest increase on record of USF fees. It was likely an effort to recoup losses caused by the COVID-19 economic hit. And then, in the second quarter of 2021, the ceiling was punched through again, setting a new record of 33.4%.
Below is a recap of the rate over the last year and a half:
- Q2: 33.4%
- Q1: 31.8%
- Q4: 27.1%
- Q3: 26.5%
- Q2: 19.6%
- Q1: 21.2%
Telecom managers planning forecasts and budgets should anticipate higher USF fees, as these are evaluated and adjusted each quarter. I expect the rate to land between 34-36% by the end of 2021. Who knows what 2022 will look like, but I’d plan on increases to continue. Visit the FCC website or here to stay current each quarter.
What’s the difference between a tax and a fee? Simply stated, taxes are levied by the government, while government, public, or private entities levy fees to benefit a specific group. In all cases, consumers pay for the goods/services sold and the associated fees/taxes. Fees generally fluctuate more frequently than taxes.
Taxes are unavoidable — even with most VoIP services, and the list of possible line items is extensive. I found it interesting that while some states are replete with taxes and fees, others hold to a minimalist philosophy. A quick review of only five or six of my voice bills resulted in this long list of taxes and fees, including:
- Universal connectivity charge
- Administrative service or expense fee
- Cost assessment charge
- Property tax allotment
- Federal regulatory fee
- Federal access charge
- Access recovery charge or fee
- State regulatory fee
- Federal USF surcharge
- State tax
- Police & Fire protection fee
- County Tax
- County 911 charge
- Local 911 charge
- State universal service surcharge
- State telecom sales tax
- State cost recovery fee
- State infrastructure maintenance fee
- Carrier cost recovery fee
- County telecom sales tax
- RSPF surcharge
- FTR LD USF surcharge
- Internet cost recovery fee
- Franchise fee
- Municipal property tax
- Municipal services fee
- Municipal right-of-way fee
- TRS/TAP surcharge
- FSLC charge
- LNP surcharge
- State advanced service fund
- State high cost A service charge
- P.U.C. tax (fees)
- Relay service communications device fund (DEAF)
- Sales tax
My sampling of a large corporation with geographically diverse offices found that a wide range of taxes and fees exist between various parts of the country. I discovered some tax rates as low as 12% and others as high as 67%. After looking at a reliable sample set, I found the average to be about 50%.
If your company plans to purchase 25,000 VoIP seats at $25.00 each, the subtotal will be $625,000. Unless it is explicitly stated in print, plan on an additional $312,500 of taxes and fees for a grand total cost of $937,500 per month.
State, county, and municipal regulations can widely affect the operating cost of a business, and in some cases, it will determine where a company sets up shop. Companies heavy in telecommunications should consider these factors but should not be the final determination. While a rural setting might provide lower telecom costs, it may suffer on the reliability side. However, periodically reviewing telecom bills may reveal billing errors, even on taxes, fees, and surcharges.