US moves to make big tech contribute to broadband network costs

The bill is being proposed by two republican US senators – Markwayne Mullin and Mike Crapo – and one Democrat – Mark Kelly. The press release published by Mulling says the aim of the bill is “to direct the Federal Communications Commission (FCC) to require proper contributions to the Universal Service Fund (USF) from edge providers and broadband providers. Requiring edge providers to cover associated costs for rural fibre networks will reduce the financial burden on consumers and rural providers while strengthening broadband connectivity throughout rural America.”

The bill itself defines edge providers as follows:

The term ‘‘edge provider’’ means a provider of online content or services, including:

“Fair contributions to the USF from edge providers are long overdue,” said Mullin. “Video streaming services account for 75 percent of all traffic on rural broadband networks. However, unrecovered costs from streaming companies are often shifted and borne by small rural broadband providers. Available, affordable internet will close the digital divide and increase telehealth, educational, and employment opportunities for those who previously went without.”

All three Senators made sure to nod to their own constituencies in this latest phase in the politicisation of the US broadband sector. There were also approving quotes from worthy-sounding rural broadband stakeholders, including The Rural Broadband Association. Even trade body USTelecom, which only yesterday bristled at the prospect of state interference in the broadband market, seems happy with this move.

“The Universal Service Fund plays a crucial role in connecting millions in America, particularly in our rural areas,” said Brandon Heiner, SVP of Government Affairs at USTelecom. “Senator Mullin’s, Kelly’s, and Crapo’s legislation will help ensure its long-term impact and sustainability by modernizing its contributions system to include the dominant Big Tech companies which benefit significantly from the broadband connectivity made possible by the Fund.”

There doesn’t seem to have been a formal comment from the FCC on this matter, but it’s worth noting that Republican-aligned Commissioner Simington made the following statement when the FCC published a comprehensive report on the USF last year.

“I also agree with Commissioner Carr’s sentiments, particularly his emphasis on relating funding for connectivity spending to the network effects enjoyed by companies that depend on universal connectivity—network effects far larger and more scalable than last-mile charges made by home internet service providers.”

So, unlike the digital discrimination rules, there seems to be true cross-party consensus on this bill. That’s somewhat surprising since it represents a significant additional intrusion by the state into a commercial market, with the effective aim of wealth redistribution. Maybe the two political factions aren’t as ideologically disparate as they would have us believe.

We were first alerted to this bill by a research note published by Strand Consult. “The notion of broadening the base of contributors to the USF demonstrates essential tenets of economics, fairness, and sustainability,” it says. “When the burden is shared, the internet will be more affordable for the least powerful parties, low-income consumers.

“To date, broadband owners and operators pay to build, maintain, and upgrade networks, and subscribers pay monthly fees. However, subscription revenue and federal subsidies do not cover all of the routine network costs, or upgrades or new builds.

“The market-based principle behind the bill is that the largest users of broadband networks and those that are the primary financial beneficiaries of the internet should help pay for broadband networks. Small broadband owners and operators have no market power to demand a good-faith negotiation for cost recovery with large tech enterprises. This reform is long overdue because large entities do not participate meaningfully in USF today, and indeed, engage in efforts to deter needed reform.”

While we defer to Strand Consult’s expertise on the matter of the difficulties faced by the USF, we don’t follow the logic that it falls on perceived beneficiaries of the internet to solve this problem. The US government repeatedly demonstrates that it can access apparently limitless funds for other strategic projects and, in this case, the ‘market-based principle’ seems simply to be a new tax.

It also remains disputed how much direct cost on network companies can be attributed to content providers. Surely the capex associated with rolling out fixed networks is flat and unaffected by subsequent traffic volume. Nonetheless, one group that will presumably be delighted with this bill is European operators, who can now demonstrate to the European Commission that the US is a strong supporter of the concept of ‘fair contribution’.