On May 24, Federal Communications Commission (FCC) Commissioner Brendan Carr penned an op-ed claiming the best way to save the Universal Service Fund (USF) was to have “Big Tech” pay their fair share. While it is encouraging to see more focus being paid to the broken USF, this is the wrong approach to take. Commissioner Carr correctly identifies that the contribution factor made sense in 1996, but is now effectively a regressive tax on a shrinking base of consumers. Further threatening the sustainability of the USF, this contribution factor is on track to hit 40 percent this year and clearly changes must be made soon. However, taxing large technology companies as a pay-for is not the best approach to save the USF.
While NTU disagrees with his proposal, Commissioner Carr makes several important points regarding the USF. The program has been on life support for some time, and while new spending on infrastructure has captured the headlines, conversations about reforming the USF have been far less common. The USF funding model is antiquated and unsustainable, and absent reform, consumers will continue to see this egregiously high tax on their monthly bills. While infrastructure talks continue between Republicans and Democrats, there has already been agreement between the Biden administration and Republicans to spend $65 billion on broadband infrastructure. The bipartisan momentum for addressing the digital divide is here and focusing more of the conversation on the USF is beneficial.
However, these reforms should be made with the best interests of taxpayers in mind. American technology companies have become a shiny object for tax-hungry lawmakers worldwide. France, among other countries, has implemented a digital service tax on large American technology companies. Maryland passed a (likely unconstitutional) digital advertising tax bill and others may follow. In a novel sector of the economy, lawmakers and tax collectors are eager to get a piece of the pie. Similarly, as lawmakers on both sides of the aisle take aim at “Big Tech” for various and often contradictory reasons, there seems to be less political risk associated with proposing these companies foot the bill. Much like progressives’ “tax the rich” mantra, the simple notion of taxing wealthy businesses or people (not you) might be politically popular, but that doesn’t make it the right policy.
To support the claim that edge providers should pay into the USF, Commissioner Carr points to a study claiming that streaming services account for 75 percent of network traffic for four rural broadband providers operating fiber to home networks. It’s true that ordinary Americans are footing the bill for the USF, but it is unlikely that saddling streaming providers with the fee would change that. Streaming providers would likely simply tack on this fee to the cost of the subscriptions for their services, which would just transfer the fee to a different monthly bill. Streaming services, while growing, are still relatively new. Just as streaming services displaced traditional movie rental stores, it is possible that we see new innovation usurp the streaming model. In this case, we would see the exact same problems surface that are currently happening with more and more Americans cutting the cord.
To the benefit of consumers, these streaming services also contribute to the internet ecosystem. Amazon, as one of the five companies referred to in the op-ed, is not just a streaming service but also includes Amazon Web Services which hosts online platforms. Google is also an internet service provider. It’s difficult to say these companies are getting a “free ride” by virtue of being a streaming service as well. Commissioner Carr states that it would take just a fraction of a percent of Big Tech’s revenue to pay for the tax on consumers' bills. The issue isn’t whether these companies can afford it (plenty of companies could), but whether they should be forced to pay for it. Again, the revenue generated from large technology companies make them a convenient target when looking for a pay-for, but the current system certainly does live up to the hyperbolic claim that this is “corporate welfare” or that technology companies should pay for the upkeep on broadband networks owned by telecommunication companies.
The op-ed makes passing mention of the option of Congressional appropriations but points out the budget process in Washington is less than predictable and could add to the national debt. This is a reasonable criticism of the Congressional budgeting process and shouldn’t be dismissed. However, it is of course Congress’ job to create a budget, and taxpayers should hold lawmakers accountable to fulfill their mandate. NTU also shares Commissioner Carr’s concern about the growing national debt. Various proposals have been put forward by NTU to put the U.S. on more secure fiscal footing and rein in spending. While the devil is in the details, Congressionally appropriated funds should remain a viable option. While there is some risk to this proposal, it also has the potential to be the simplest and quickest way to reform the broken USF while increasing oversight.
Hopefully, reforming the USF continues to receive attention. This program has limped along long enough with an unsustainable funding model, and there has never been a time where access to the internet has been at the top of the agenda like it is now. Using Congressional appropriations to fix the program is not without downsides, but it does present a more straightforward approach. Other reforms, like the voucher program for the high-cost program, could also be useful reforms if implemented correctly. Taxing the internet while simultaneously trying to make this service more widely available is unlikely to accomplish the intended goal. Lawmakers should retain the light-touch approach to internet regulation and taxation.