#MWCA2018, 5G, and taxes – Let’s talk about the future

The theme of this year’s Mobile World Congress Americas, held last week in Los Angeles, was “Imagine a Better Future.” The standout topic was clearly 5G, the arrival of which has brought the communications industry to an inflection point. In various panels, 5G was described to be:

• The Fourth Revolution (following steam, mechanization, and computing)
• As disruptive as IP
• A fundamental transformation
• As important as the printing press

5G is no longer theoretical – Verizon is launching the first implementation on October 1. For telecom providers, it’s becoming clear that core services are table stakes as a younger audience’s preferences migrate away from traditional communication. The future focus is on what 5G can facilitate with its groundbreaking new technologies.

So, what is 5G and how is it used?

In short, it provides the ability to transmit great volumes of data with very low latency and high availability with near real-time response. It provides ubiquitous, pervasive connectivity for services that were previously not possible to a broad range of vertical industries.

5G relies heavily on sensors — deemed the new “plastics” by one presenter – to collect seemingly infinite amounts of data. This data is collected predominantly via VR (virtual reality), AR (augmented reality), AI (artificial intelligence), and autonomous vehicles/drones.

These emerging technologies are enabling both consumer and business applications that are truly game-changing in personal experience, productivity, safety, and many other ways.

Some examples include:

• Immersive sports invite spectators to be on the ground within the game, from their own home.
• Remote/robotic surgery becomes more commonplace, potentially safer than surgery by a human.
• Student learning is individually tailored to a pace and style for each student to reach his or her maximum potential.
• Gaming is anticipatory, multisensory, immersive; the line between person and machine is blurred as an “augmented” human.
• Industries including energy, utilities, mining, logistics, manufacturing, allow for more monitoring and predicting to streamline supply chain, flow of product, safety, and more.
• Transportation as a service enables delivery of goods, and even people, via drone or autonomous vehicles, becoming ubiquitous by 2040.

The role of content and media

Content may likely receive the biggest immediate boost from 5G technologies. The overall telecom/cable bundle is becoming increasingly dependent on inclusive content options for competitive differentiation. Major content developers/distributors are also seeking new audience channels. Viewers demand personally relevant, easily accessible, and readily sociable content. They want to be immersed in the complete media experience, when and where they want it.  

Providers can utilize various 5G technologies to help deliver on not only the technical aspects of speed and delivery, but also enhance relevancy in real-time using behavioral and psychographic data collected via the 5G promise. We can expect to see near-term continued collaborations/M&A activity with wireless carriers, cable companies, content providers, and platforms.  

What does all of this mean for taxes?

As always when it comes to taxes, nothing changes quickly. Below are some good rules of thumb:

• Telecom providers should continue to tax communications services, including voice, cable, and data. This also includes content/media like video and some audio.
• Content providers should tax video as communications in most cases, and audio or gaming in some cases.
• IoT infrastructure, sensors, transmission, and autonomous vehicles/drones are tricky. Many are communications taxable, particularly in the non-consumer space.

There are also other critical considerations:

• Depending on how your services are bundled, they may be communications taxable in whole or in part in one jurisdiction and not in another.
• As your company grows, will you expand into any product areas or taxing jurisdictions that impose a communications tax? If so, plan now for this much more complex taxing structure.
• Consider regulatory changes. With the explosive growth of IoT and other technologies enabled by 5G, coupled with usage/revenue drops in areas that are typically communications taxable, tax modifications are probable. Remember, it just takes one jurisdiction to start an avalanche.

Develop a plan now for how to keep up with a potentially rapidly changing regulatory environment. Dedicate staff to handle the workload, or rely on a trusted vendor. Make sure your billing platform can handle communications taxes — they typically require specific fields and functionality, so you may need to prepare for some significant updates. Finally, know what the filing requirements are by jurisdiction.

Want to learn more? The tax impacts of transformation
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