In FCC Proceeding, Multiple Groups Recommend New General Tax for Universal Service Fund

WASHINGTON, March 17, 2022 – Some organizations are calling for the Federal Communications Commission to turn the onus of financially supporting key programs for expanding basic telecommunications services from service providers to the general public via taxation, according to rolling submissions to the agency.

The rationale is that the communications landscape since the 1997 adoption of the Universal Service Fund, which goes to support multiple high-cost programs for universal broadband, has changed significantly to where all Americans are reliant on more modern communications. And with that, there are calls to reform the program beyond its reliance on dwindling voice service revenues.

“Direct appropriations [general taxation] would be the most straightforward means of spreading the funding requirements for such programs – which benefit all American businesses and consumers – over the broadest and most equitable funding base,” said AT&T in its submission, which has supported such a position previously.

Thursday was the last day to submit comments to the FCC’s study of the future of the USF. The program supports the schools and libraries E-rate subsidy program, the low-income Lifeline program, the Rural Health Care program and the Connect America Fund for rural areas.

But the USF has been operating under an escalating burden that has gone unchanged for decades: Its reliance on voice service revenues – downloaded onto customers – has put stress on the roughly $8-9 billion per year program, which saw a tax that reached a record 33.4 percent of declining voice revenues last year.

“The Commission has placed increased weight on a small subset of communications services and providers with a shrinking subscriber base to achieve the nation’s universal broadband goals,” AT&T added, “in particular, enterprise services offered by legacy telecommunications companies, companies which historically and today are the largest contributors to the Fund.”

The FCC is looking at a dichotomy of recommendations, according to an analysis of the submissions to the FCC: either derive funding for the USF from general taxation or broaden the base of revenue support to broadband revenues generally and/or include other companies that benefit from broadband, including big technology companies.

More support for congressional budget item

Among those organizations supporting a move to shift the burden on general taxation for the USF are the Internet Innovation Alliance, the Cellular Telecommunications Industry Association, the U.S. Chamber of Commerce, and TechFreedom, a non-profit technology think tank.

“Adopting a general appropriations process for broadband programs will help “future proof” these programs to account for new technologies to provide communications services for consumers and businesses,” said the Chamber of Commerce. “The appropriations process allows Congress to better tailor broadband programs on a regular basis to account for changes in the marketplace and new communications technologies. It will also avoid the challenges currently facing the USF.”

But while TechFreedom argued against expanding contribution to big technology companies because the FCC “cannot unilaterally” do that, others in the group supporting a congressional line item said big tech companies should be a target if support cannot come from taxation.

“Short of general revenues,” the CTIA said, “significant elements of the economy, such as digital advertisers, online marketplaces, and streaming services, rely heavily on broadband networks and leverage the availability of broadband service to generate enormous amounts of revenue.”

Added the IIA: “If adding an $8 billion line item to the annual Congressional budget is deemed unworkable, an alternative approach that should be considered is expanding the USF contribution base to include revenues from large internet companies.”

Big Tech must pay

AT&T said if its general tax proposal cannot be adopted, it should look to expand the base to include big technology platforms, whose business models it said “depend on, and now dominate, the internet ecosystem.”

Verizon recommended the commission broaden the base to online platforms with a “specified number of active users or meet certain sales or market capitalization thresholds,” a recommendation made by FCC Commissioner Brendan Carr in a Newsweek op-ed last year that FCC Chairwoman Jessica Rosenworcel called “intriguing” and that received some Republican support. FCC Commissioner Nathan Simington also raised the idea in an interview in September.

The NCTA Rural Broadband Association is similarly recommending that the FCC move toward requiring contributions from large firms “whose video streaming and other “Internet-based businesses depend substantially on the availability and affordability of robust broadband services throughout the country.”

The Coalition of Rural Wireless Carriers, the non-profit Free State Foundation, and a coalition of academics and policy scholars have also called for the opening of the fund to big technology platforms. The academics and policy scholars argued that it’s not fair that consumers or certain telecom companies are burdened by the weight of the USF and instead should be put onto the “half a dozen tech companies…responsible for as much as 80 percent of network traffic at peak time.”

Bring in broadband revenues

As calls for a possible Big Tech tax were emerging, Carol Mattey, a former deputy chief of the Federal Communications Commission, released a report in September calling for the FCC to broaden the base to include broadband revenues. The report was followed up by calls for Congress to stabilize the fund and for the FCC to take immediate unilateral action because, proponents said, the agency had the jurisdiction to do so.

Advocacy group Public Knowledge, trade associations INCOMPAS and USTelecom, the Rural Wireless Association, the Coalition of Rural Wireless Carriers, and non-profit broadband advocate Benton Institute also proposed that the FCC bring in broadband revenues, which some said can be implemented quickly.

Benton, however, went further to caution against general taxation, calling it “ill advised and, indeed, extremely dangerous.

“Even with multiyear appropriations (something which is very difficult to accomplish legislatively for both political and technical reasons), leaving USF to the vagaries of the appropriations process would unquestionably conflict with the established – and essential – objective of maintaining a specific and predictable funding mechanism, and would likely endanger the need to provide sufficient funding as well.”

It was a position supported by Chris Nelson, vice chairman of the South Dakota Public Utilities Commission, who said in a debate about USF reform last year that a general appropriations item would mean the fund’s makeup could swing from year-to-year with lawmaker turnover.