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The VoIP Market’s Gotten a Lot Tougher for the Little Guy (Pt 2)

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In many ways, VoIP regulations and taxes favor larger corporations, in both financial and structural ways.

The Price Competition Factor- Who Pays the Bill?

As VoIP services find themselves increasingly taxed at the State and Federal level, there’s a big question of who, exactly, will pay for these taxes, and how these tax increases will affect competition between large providers and small providers.

Generally speaking, large providers almost always have a price advantage over small providers. That isn’t to say large providers offer a greater value than small providers, but it is to say their economies of scale almost always ensure they can sell their services for less than their smaller competition.

This gives larger providers a distinct market advantage over smaller providers as taxes on VoIP increase. Larger providers are going to be better able to pass these taxes directly on to their customers instead of paying them out of pocket. Often they’ll be able to do so while still offering cheaper services than smaller providers.

Smaller providers face a bigger question as taxes rise- should they make their customers pay these taxes, raising their rates? Or should they pay these taxes themselves, sacrificing some of their already slim margins in order to continue to serve their customers at the same price point those customers are accustomed to?

Once again- let’s reiterate that we aren’t talking about value here, that we’re only talking about price. When it comes to price, larger providers almost always have leverage over smaller providers, which means these increased tax burdens have hurt smaller providers far more than their larger competition.

Paying for Regulatory Compliance

These arguments almost always fall onto some sort of financial issue. When it comes to taxes, the financial issue is upfront and obvious, but even arguments over regulatory burdens come down to dollar-and-cents concerns. The regulations themselves may not have price tags attached to them, but complying with those regulations always costs service providers money.

Contributing to universal service access, dealing with large number of tax authorities, each with their own set of regulations, offering a full suit of local emergency services, meeting certain quality and reliability standards, and every other regulation placed on VoIP costs money to comply with. Once again, larger providers are better able to pay for these forms of compliance due to their economies of scale and due to their increased ability to receive loans from banks to implement these service upgrades, or to simply pass these costs on to their customers.

Is it impossible for small providers to meet these burdens? Perhaps in some cases but not always. Someone needs to pay to meet these regulations, and that cost will either eat at small VoIP service providers’ bottom line, or it will have to be passed on to their customers. The point is – taxation and regulatory red tape affects small service provider to a greater degree than it does larger ones. This is a harder question for smaller service providers to answer than larger providers.

Paying to AVOID Regulatory Compliance

Finally, larger providers have the bulk necessary to effectively dodge those regulations they don’t want to comply with.

We aren’t implying any sort of far-reaching conspiracy or corruption here, of course. We’re just arguing, for a confluence of reasons, it’s easier for a company like Verizon to set up a service like Voice Link to avoid offering full telephony services to underserved regions than it would be for a smaller service provider to try and do the same.

Built for the Big Boys

And that gets at the heart of the problem here- these taxes and regulations are both lighter burdens for larger service providers AND those same larger providers are better equipped to either meet them, or to structure their organizations and services to avoid complying with them.

When it comes down to it this isn’t surprising- these taxes and regulations come from the days of traditional voice service, and traditional PSTN service was designed to be offered by large telephony oligarchs. These regulations and taxes come from the days when the government granted a monopoly on telephony services to a few massive providers, and as such these regulations and taxes are only really bearable by providers of that size. Attaching them to VoIP may makes sense on a certain level, but once you realize we’re passing regulations and tax burdens designed for massive corporations onto small service providers, it becomes obvious that something needs to change in the way we think about placing burdens on telephony providers if we’re going to offer a level playing field where small and large service providers can both flourish.

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