AT&T, BellSouth, Sprint May Win End to Long-Distance Excise Tax

More than a century after the Spanish- American War, AT&T Inc., BellSouth Corp. and Sprint Nextel Corp. may be close to being rid of the tax created to pay for it.

In the past year, five appeals courts with jurisdiction over 13 states have said the 108-year-old U.S. excise tax on long- distance calls is illegal, and Republican lawmakers in both chambers of Congress have introduced legislation to abolish it. In February, Treasury Secretary John Snow told a congressional panel that ``the handwriting is on the wall'' for the levy.

``Secretary Snow has led me to believe they're just about ready to throw in the towel,'' said Representative Gary Miller, a California Republican who is sponsoring repeal legislation in the House. ``It's time we just eliminate it.''

The Treasury Department said Snow would make an announcement today about the telephone tax. Snow's spokesman, Sean Kevelighan, said this week that ``IRS, Treasury and Justice are considering all the options, and we will hopefully have some sort of conclusion or decision in the future.''

The driving force behind the push for abolition of the tax comes from successful legal challenges by corporate phone-service customers such as Itasca, Illinois-based OfficeMax Inc. and Palo Alto, California-based Hewlett-Packard Co. The 3 percent excise tax, which carriers are required to collect from their clients and remit to the government, would generate $67 billion in government revenue over the next 10 years, according to estimates by the congressional Joint Committee on Taxation.

The telephone companies say the court rulings have put them in an untenable position: stuck between customers in those states who may sue them for collecting the levy and a government that may penalize them for failing to pass it on.

`Obligated'

``We are obligated to continue to collect the tax because the IRS hasn't issued any guidance telling us we don't have to,'' said Caroline Graves Hurley, director of tax, finance, and business policy for the Washington-based U.S. Telecommunications Association, an industry group that represents 1,200 companies, including San Antonio-based AT&T, Atlanta-based BellSouth and Reston, Virginia-based Sprint Nextel.

At issue is whether a 1965 version of the law, first enacted in 1898 to fund the war with Spain, permits the government to tax long-distance calls based on elapsed time, distance, or both. The IRS in 2005 insisted both types of calls are taxable; the courts have ruled the tax doesn't apply to calls billed in time increments or those covered by a flat-rate plan, as most calls currently are.

Refunds

More than a dozen companies, including St. John's, Newfoundland-based Fortis Inc. and Amtrak, the national passenger railroad based in Washington, have won more than $2 million in refunds from the government in the past two years. On May 16, Downers Grove, Illinois-based ServiceMaster Co., owner of the Terminix, TruGreen ChemLawn and Merry Maids brands, won a refund of $880,000 collected by AT&T and Sprint.

Those victories have led to dozens more suits, including a class-action claim filed by Fort Worth, Texas-based RadioShack Corp. that seeks as much as $9 billion in refunds on behalf of telephone users around the country.

Individual consumers may soon join the fray, too. BellSouth is already fighting a class-action lawsuit brought in April by a long-distance customer in Alabama.

``We believe anyone who wants to challenge the tax needs to challenge it with the taxing authority,'' said Bill McCloskey, a BellSouth spokesman. About 14 million of BellSouth's 19.8 million customers reside in states where the appellate courts have ruled the tax illegal, he said. Other telephone companies referred calls to the U.S. Telecommunications Association.

``With several appellate court losses already on the books, the IRS is clearly aware of the legal challenges they face,'' Hurley said. ``We hope they will act quickly to resolve these conflicts.''

Tax Cuts

The courts' involvement may deliver a victory to tax-cutting Republicans in Washington who are running out of taxes to cut and are facing a projected $300 billion budget deficit for this year.

Congress in 2000 voted overwhelmingly to abolish the levy, though then-President Bill Clinton vetoed the broader spending legislation that contained the repeal. The Bush administration hasn't revived the measure.

Since then, Republican lawmakers -- including Miller, Minnesota Representative James Ramstad, Pennsylvania Senator Rick Santorum and Virginia Senator George Allen -- have led efforts to pass a new repeal.

`The Time Has Come'

``The time has come for the IRS to stop applying this unfair, and apparently illegal, tax,'' said Santorum, whose state is covered by the Third Circuit's ruling that the levy is illegal.

J. Leigh Griffith, a partner with the law firm Waller Lansden Dortch & Davis LLP in Nashville who is preparing to file as many as 100 refund lawsuits against the government on behalf of mid-sized companies, said lawyers are watching the results of two cases pending in the U.S. Court of Federal Claims.

A victory there by Time Warner Corp.'s Dulles, Virginia- based America Online unit or Morris Township, New Jersey-based Honeywell International Inc. would have national ramifications, he said. ``There is a reasonable chance the government will ultimately throw in the towel,'' Griffith said.

McCloskey, the BellSouth spokesman, said his company has been fighting the telephone tax for years and is tired of acting as a tax collector.

``We'd like to see it resolved in favor of the customer,'' he said. ``We've been in middle since the Spanish-American War.''

Sprint Announces Plans to Be First to Offer Mobile Broadband-Capable Palm Treo Running Palm OS

Sprint Power Vision(SM) Smart Device Treo(TM) 700P By Palm Features
Industry-Unique Multimedia Capabilities Powered by the Nation's
Largest Mobile Broadband Network That Allows Users to Do More in More
Places
Sprint (NYSE:S) today announced plans to be the first carrier tooffer the Sprint Power Vision(SM) Smart Device Treo(TM) 700P by Palm -the latest PDA/Phone combo to deliver broadband-like download speedsof Sprint Mobile Broadband Services operating on the Sprint PowerVision Network(1). Sprint has the largest mobile broadband network ofany carrier today and is expected to extend its leadership role toreach an estimated 190 million people nationwide and in Puerto Rico byyear end and concurrently implement second-generation upgrades tobring additional mobility benefits to users in 1Q 2007. The Treo 700Pwill be available at the end of May at Sprint Stores, Sprint businesschannels and online at www.sprint.com at $399.99 after availablediscounts and promotions.

Ideal for customers who want to extend their workplace and stayconnected for personal needs, the Treo 700P builds upon the success ofearlier models offering enhancements in several areas includingbroadband-like download speeds, an enhanced Blazer Web browser and anupdated Palm OS (version 5.4.9). Sprint is enabling the Treo 700P withflexible connectivity options like phone-as-modem that takes advantageof the devices capability to be used with a laptop to providehigh-speed data access. Sprint is also expected to be the onlywireless carrier to offer live TV capabilities - via Sprint TV - onthe Treo 700P at launch.

"Sprint realizes that every business customer is also a consumerand uses mobility for productivity, social connections, entertainmentand news," said Danny Bowman, vice president of product marketing forSprint. "The Treo 700P is ideal for customers who are looking for adevice that provides a combination of power and elegance to satisfythe need for owning a stylish, cutting-edge device while still helpingthem to be more efficient and productive."

The Treo 700P allows Sprint customers to do more in more placesand provide a powerful productivity and entertainment experience.Features include:

-- Support for Sprint Mobile Broadband Service on the nation's largest mobile broadband network.

-- Support for Sprint TV(SM) - Emmy-award winning service providing more than 50 channels of video and audio for TV on the go, including live TV with full motion video and vivid sound.

-- Support for On Demand - retrieve personalized information for local news, sports, weather, movies and more.

-- Support for Sprint PCS Picture Mail(SM), Messaging, Games, Ringers, Screensavers

-- Email and Web capable

-- Phone as modem capability

-- Palm OS organizer

-- Bluetooth(R) Wireless technology

-- 1.3 megapixel digital camera with video capabilities

-- Built-in MP3 player

-- Speakerphone

-- 128 MB Memory - (60 MB available for end user storage)

-- Enhanced attachment capabilities - Documents to Go (version 8.0) including a new PDF viewer

-- Voice memo application

"The new Sprint Treo 700P delivers on Palm's commitment to providebusiness and mobile professionals with the tools they need to stayproductive while on the road," said John Hartnett, senior vicepresident worldwide sales and customer relations for Palm. "The Treo700P provides a world-class email and Web experience and, combinedwith Sprint's high-speed EV-DO network, gives businesses more reasonsto extend their corporate information with a Treo mobile solution."

For content, the Treo 700P has access to Sprint downloadablegames, ringers, screensavers and other Palm OS productivity andentertainment applications applied directly on a customer's Sprintbill. Additional content is available via the Sprint PCS SoftwareStore provided by Handango(TM), an intelligent on-device catalog ofapplications and digital media, allowing users to find, download andbuy software, games, ringtones, graphics and other applications simplyand securely. The store can also be visited online athttp://sprint.handango.com.

For complete details on the Treo 700P, visithttp://www.sprint.com/treo.

Sprint customers can currently use several devices on the SprintPower Vision Network to access various audio, video and dataapplications at average download speeds of 400-700 kbps and peakspeeds up to 2Mbps(2). Sprint today has the most wireless broadbandcoverage of any carrier. The Sprint Power Vision Network now coversmore than 150 million people and services customers in 220 majormetropolitan areas as well as 470 airports across the nation, the mostof any carrier. The Sprint Power Vision Network is expected to reachan estimated 190 million people nationwide by the end of the year.

About Sprint Nextel

Sprint Nextel offers a comprehensive range of communicationsservices bringing mobility to consumer, business and governmentcustomers. Sprint Nextel is widely recognized for developing,engineering and deploying innovative technologies, including tworobust wireless networks offering industry leading mobile dataservices; instant national and international walkie-talkiecapabilities; and an award-winning and global Tier 1 Internetbackbone. For more information, visit www.sprint.com.

Broadcast Video

Press can register, browse, preview, download and order b-roll forfree at Palm's Multimedia Library at www.palm.com/multimedialibrary, aweb-based news and video archive.

This news release includes "forward-looking statements" within themeaning of the securities laws. The statements in this news releaseregarding the business outlook, expected performance, as well as otherstatements that are not historical facts, are forward-lookingstatements. The words "estimate," "project," "forecast," "intend,""expect," "believe," "target," "providing guidance" and similarexpressions are intended to identify forward-looking statements.Forward-looking statements are estimates and projections reflectingmanagement's judgment based on currently available information andinvolve a number of risks and uncertainties that could cause actualresults to differ materially from those suggested by theforward-looking statements. With respect to these forward-lookingstatements, management has made assumptions regarding, among otherthings, customer and network usage, customer growth and retention,pricing, operating costs, the timing of various events and theeconomic environment.

(1) Within EV-DO data wireless service coverage area only. Actualdata speeds vary based on network capacity and application design.Backward-compatible with 1xRTT and IS95 networks. Email and webrequire data services from a mobile service provider at an additionalcost. VPN may also be required.

(2) Speed claims based on Sprint network tests. Actual speeds andcoverage on the Treo 700P vary. Palm's independent field tests showthat the Treo 700P can deliver speeds of between 400-600 kilobits persecond.

Sprint and Altell sign roaming agreement

Sprint Nextel and Altell agreed to a 10-year roaming agreement that will allow customers from both companies to roam on each other's network. The agreement is effective starting July 1 and extends through 2016. Both CDMA voice services and EV-DO data are covered .

Altell already has roaming agreements with Verizon Wireless and Cingular. Its deal with Cingular was just extended to last through 2012. Since most Altell customers are using CDMA devices, the GSM Cingular network has little impact.