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Laws to Freeze Taxes on Mobile Devices?

Wireless taxation

Proposed legislation aimed at freezing state and local government taxes on wireless devices and services for the next five years was introduced in the Senate last Friday.

The Mobile Wireless Tax Fairness Act of 2008 (S.3249), co-sponsored by Senators Ron Wyden (D-Ore.) and Olympia Snowe (R-Maine), targets what the lawmakers, as well as one wireless industry group, views as "discriminatory" taxes that penalize mobile users and the wireless industry.

Lawmakers say federal, state and local taxes comprise 15.9 percent of an average wireless bill. That's in addition to a national average sales tax of 7.07 percent charged on direct purchase of a mobile device and service.

The tax on wireless services increased four times faster than the rate on other taxable goods and services between January 2003 and January 2007 -- a fact an industry group calls "excessive."

'The taxes are unreasonable given these products benefit people and businesses," Joe Farren, CTIA's spokesman, told InternetNews.com. The CTIA is an international lobby group for the wireless telecommunications industry representing carriers, manufacturers and wireless Internet providers.

The tax backlash comes as carriers, handset makers and service providers wrestle for greater market share, adopting lower rate plans to entice subscribers.

Meanwhile, mobile devices such as Apple's (NASDAQ: AAPL) 3G iPhone and the BlackBerry Gold from Research In Motion (NASDAQ: RIMM) promise faster and better Internet and data services.

According to recent Aberdeen research, companies spent 7.6 percent more in enterprise mobility this year than last year, and 69 percent of enterprises plan to leverage high-speed mobile data services to enable greater connectivity in the next year.

By the end of this year, seven out of 10 organizations will deploy either BlackBerry or Windows Mobile devices, according to Aberdeen, and business professionals cite mobility as one of the top three technologies having the greatest impact on business over the next three to five years.

Given the increasing demand for enterprise mobility, any cost reduction, such as fewer taxes, would be welcome in light of spiking infrastructure budgets, CTIA said.


Another sin tax?

"This is another 'sin tax' -- but against the wireless industry -- and it discourages wireless technology and mobile device use," Farren said. "No other industry is discriminated taxwise like wireless."

According to the CTIA, more than 260 million wireless subscribers nationwide -- representing about 86 percent of the population.

The average monthly consumer mobile phone bill is $49.79. Although the CTIA does not track enterprise mobile costs, the group believes the average cost is likely much higher than for consumers, given increasing data and Internet service demands.

A 2007 CTIA survey showed a dramatic increase in messaging demands with more than 48 billion messages reported for the month of December 2007 -- 1.6 billion messages per day -- which represents an increase of 157 percent over December 2006.

A March FCC report stated that, in comparison with other platforms for high-speed Internet service, mobile wireless comprised more than 68 percent of the overall growth in high-speed lines from June 2006 to June 2007.

In an effort to grab growing market share, wireless carriers ignited a rate plan war earlier this year, pushing out all-you-can talk, text and browse offerings starting at $99. Virgin Mobile most recently joined in with a $79.99 program announced last month.

Such market competition is fostering greater Web use, according to M:Metrics. The London-based research firm reported that mobile browsing is increasing 89 percent per year in the United States, with page views having increased 127 percent in March compared with March 2007.

According to research firm, 23 percent of U.S. mobile subscribers received photos and videos in March and about 13 percent access news and information online.

A Harris Interactive survey earlier this year found nine in 10 (89 percent) of adults have a wireless phone, and about one in six (15 percent) of adults use Voice over Internet Protocol, or VoIP services for voice calls.

Spiraling costs such as increasing taxes could threaten the increase in mobile Internet use, according to the CTIA.

That concern is what prompted a similar antiwireless tax bill in the House. Representatives Zoe Lofgren (D-CA) and Chris Cannon (R-UT) introduced the Cell Tax Fairness Act on April 15. The bill is currently in committee with 80 co-sponsors.

Both proposed laws obviously have strong support from carriers.

Verizon Wireless President and CEO Lowell McAdam, who also serves as CTIA chairman, has stated in a press release that the wireless taxes "present a clear and present danger to future growth" of the industry.