May 24, 2021 – Federal Communications Commission (FCC) Commissioner Brendan Carr has written an op-ed in Newsweek which calls for “Big Tech” to start contributing to the Universal Service Fund (USF) to help support broadband networks.[1]

This is big news on the USF contributions front. First, it’s important to understand that Commissioner Carr is targeting edge providers here, not ISPs. Edge providers supply content and applications to Internet users. In his op-ed, Commissioner Carr specifically identifies the leading online video streaming providers, as well as the biggest social media companies that have reaped billions in profit from riding their services over the top of broadband networks (for free).

Commissioner Carr begins by explaining that the USF is made up of revenue from traditional phone services, which have decreased dramatically over the last few years, even though most communications services are now delivered using the Internet. Indeed, over the past few years, the total amount of telecommunications revenue has consistently fallen, resulting in increased USF bills for subscribers of fixed and mobile phone service.

Every telecommunications carrier that provides interstate (and international) telecommunications services (and VoIP) must contribute to the USF. The amount of money that each carrier remits to the USF is based on their end-user revenues from telecommunications services calculated by the quarterly contribution factor. Carriers add a universal service fee to their subscribers’ monthly landline and cell phone bills to recover this cost, meaning consumers are the ones that ultimately bear the brunt of these user fees. USF money is then distributed to broadband providers to deploy and operate networks in high-cost areas and those areas in the U.S. that are unserved.

This system has been in place since the late 90’s. The current rules were adopted when wireline voice services (and long-distance) were a large source of revenue for telecommunications carriers. Over the past 20+ years, however, the communications marketplace has evolved dramatically. Industry changes have made administration of the USF harder – it is more difficult to identify revenues that should be included in the USF contribution base; the overall contribution base continues to steadily decline, and over the past two years, the universal service contribution factor has climbed to record highs.

Since at least 2010, stakeholders have advocated for broadening the base of USF revenues by calling for the FCC to include revenue from: (1) Internet service providers, and (2) edge service providers. Most have thought the first option would be the easiest. The FCC has permissive authority to require ISPs to contribute a percentage of the revenue derived from broadband subscribers to the USF. Although some do argue the FCC’s Section 254 permissive authority does not stretch that far. As for the second option, most agree that new federal legislation is required to enact that solution.

Commissioner Carr is proposing Congress and the FCC get to work on the second option, including revenue from streaming services and social media. He says it’s time Big Tech pays its fair share:

Big Tech has been enjoying a free ride on our internet infrastructure while skipping out on the billions of dollars in costs needed to maintain and build that network. Indeed, one study shows that the online streaming services provided by just five companies—Netflix, YouTube, Amazon Prime, Disney+ and Microsoft—account for a whopping 75 percent of all traffic on rural broadband networks. The same study shows that 77-94 percent of total network costs are related to adding capacity or otherwise supporting the delivery of those streaming services. Ordinary Americans, not Big Tech, have been footing the bill for those costs.

Yet Big Tech derives tremendous value from these high-speed networks. Indeed, Facebook, Apple, Amazon, Netflix and Google generated nearly $1 trillion in revenues in 2020 alone—an almost 20 percent increase over the prior year. It would take just 0.009 percent of those revenues to eliminate entirely the unsustainable 30 percent tax that currently hits consumers on their monthly bills.

Notably, Commissioner Carr addresses one recent potential USF fix that has been floated by AT&T, think tanks, and other big companies – having Congress fund it through the annual budget or some other direct appropriation. Commissioner Carr is wear of this purported solution. He says funding the USF through direct Congressional appropriations has “its downsides” because the annual budget process “is far from predictable” and there is “growing concern about adding to the national debt.” I agree. Funding the USF through Congressional appropriation is a terrible idea.

Commissioner Carr concludes his op-ed by recommending two actions:

(1) Congress should enact legislation that ensures Big Tech contributes an equitable amount; and

(2) the FCC should open a proceeding to look at ending the tax on consumers' monthly telephone bills and shifting a fair amount over to Big Tech.

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[1] Brendan Carr, FCC Commissioner, Ending Big Tech's Free Ride, Opinion, Newsweek.com (May 24, 2021), https://www.newsweek.com/ending-big-techs-free-ride-opinion-1593696.