Federal Communications Commission (FCC) Commissioner Brendan Carr recently called for, among other proposals, tech companies to pay into the Universal Service Fund (USF).
You most likely unknowingly interact with USF because you, the consumer, fund it when you pay your monthly phone bill as a surcharge for your service. Since 2002, the tax to you has steadily risen from 6.8% to an astonishing 31.8%, increasing your phone service cost.
Sadly, the cost to you is expanding and will continue to do so if the FCC does not make specific reforms.
The FCC needs to find a more effective way to fund USF without having to overtax consumers. However, there is an answer: the FCC could look to big tech to ensure the fund is flush and more infrastructure is deployed, especially in rural areas.
Under its rules, the FCC permits carriers to pass on their USF contribution through their revenues. USF is the FCC’s primary tool in closing the so-called “digital divide.”
However, it mainly operates as a mechanism by which interstate telecom carriers can subsidize telephone and broadband services to low-income households or receive subsidies to build out their networks to underserved or underserved areas, such as rural areas.
Today, over 90% of consumers use some form of USF services to access mostly fixed-mobile broadband. Currently, only telecom providers’ commercial revenues pay into USF, but it may be time to consider multi-trillion-dollar tech companies’ revenues as an option.
Because not only does big tech substantially profit from those services, but such a plan would also provide a realistic way to reach those with no or insufficient broadband without gouging everyday consumers every month.
Additionally, the FCC’s current system distorts the market for carriers to provide their services and, ironically, build out their networks. For one, the FCC’s carrier contribution level is floating and fluctuates significantly from quarter to quarter.
It also increases every year. Based on a 31.8% contribution rate, for every $10 million a business spends on telecom services, an enterprise will also be laying out an additional $3.1 million in USF assessments that it then has to pass onto its customers.
Coupling this with other taxes and expenses, such as property taxes for laying infrastructure or sales tax, USF becomes an extraordinary expense, especially for small, rural carriers—this means more rural Americans will be on the wrong side of the digital divide.
It follows that the FCC should look into the extent to which tech companies can contribute. Specifically, the statute requires the FCC to establish a “specific, predictable, and sufficient mechanism” for telecom carriers providing telecom services to make USF contributions. Given that tech companies provide services that are akin or the FCC can classify as a telecom services (e.g., Google Voice, Microsoft’s Skype, or Apple’s FaceTime), the FCC could reasonably include those companies’ revenues from those particular services to go into the USF pool.
Tech companies may feel this is unfair, but let’s unpack this concept a bit. Big tech firms generated nearly $1 trillion in revenues in 2020 by leveraging broadband infrastructure services (while also exploiting a range of tax loopholes). It would take a fraction of a percent of that revenue to cover USF costs 30% tax and, more importantly, put more money into consumers' pockets every month.
What’s more, big tech companies that take up a significant amount of the U.S. national bandwidth could be ideal candidates.
In 2018, a study found that Netflix alone uses 19.1% of total downstream traffic across the U.S. and, at times, could reach up to 40% of total downstream traffic in some fixed networks.
Additionally, the same study found that Amazon Prime Video generates 7.7%, and Google’s YouTtube uses 7.5% during peak hours. Some reports discovered that five companies (i.e., Netflix, YouTube (Alphabet/Google), Amazon Prime, Disney+/Hulu, and Microsoft Xbox) take up more than 75% of total network traffic. Yet, they pay nothing by way of USF.
Although many big tech companies are publicly in favor of the FCC closing the digital divide, it is time for them to put their money where their mouth is and help the FCC bridge the gap to ensure that we can all participate in the digital economy.
Carriers and consumers cannot do it alone, and it’s time for the FCC to consider this an option.
Joel Thayer is Outside Counsel for Lincoln Network and an attorney based in Washington, D.C., who consults on tech and telecommunications policy issues.
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