Commentary: Some See Cable As Their Broadband Piggy Bank

Jan 18, 2024

By Ted Hearn, Editor of Policyband

Washington, D.C., Jan.18, 2024 – Cable companies that offer broadband Internet could lose billions in revenue stemming from potential regulatory changes at the Federal Communications Commission.

A group of cities is lobbying the FCC for the right to tax cable broadband revenue. The financial hit on cable could amount to $3.75 billion in the first year.

Now, as the FCC prepares new Net Neutrality regulations, several other organizations also have their eye on cable's $75 billion broadband piggy bank.

At issue is whether cable operators need to prop up the foundering Universal Service Fund (USF), which pumps billions into the coffers of rural telecommunications providers that need financial help in deploying broadband networks.

The USF – which largely derives its $8.5 billion in annual funding from a 34.6% tax on telephone bills – is in trouble financially because broadband revenue and assessments on Big Tech players like Apple, Google and Facebook have historically been excluded.

“As communications-related spending by consumers and businesses has shifted from telephony to broadband services, the pool of revenue assessed for USF – known as the ‘contribution base’ – therefore has declined,” according to the Covington & Burling law firm.

Under section 254(d) of the relevant communications statute, every telecommunications carrier must contribute to the USF on “an equitable and nondiscriminatory basis.” This implicates cable because the FCC wants to switch cable’s classification from an information service exempt from USF to a non-exempt telecommunications service provider.

For now, the FCC’s proposed Net Neutrality regulations would not apply section 254(d)’s commands “insofar as they would immediately require new universal service contributions …”

But the FCC’s regulatory lenity approach is coming under pressure from the California Public Utilities Commission (CPUC), which considers cable support for the USF to be essential.

“Forbearance from Universal Service contribution requirements is unwarranted and contrary to the public interest,” the CPUC said in a Jan. 17 FCC filing, adding that the FCC should apply Section 254(d) and associated rules "insofar as they require new universal service contributions.”

Cable’s challenge on this issue not only comes from regulators like the CPUC, but also from within the industry

NTCA –The Rural Broadband Association wants to see cable contribute broadband revenue to the USF.

“Universal connectivity is necessary to fulfill public policy goals supported by Internet access. Accordingly, the [FCC] should not forbear from Section 254(d) as part of any reclassification of [broadband],” NTCA said in a Jan. 17 filing with the FCC.

NTCA represent about 850 communications companies that receive support from the FCC's High Cost program to support rural broadband service. With an annual budget of $4.5 billion, the High Cost program is the largest of the four USF programs.

By contributing to the USF, the cable industry would be required to surrender some its $75 billion in annual broadband revenue. That would be in addition to the billions that cities are seeking by gaining FCC authorization to impose a 5% franchise fee on cable broadband revenue.

Cable’s largest trade association – NCTA - The Internet & Television Association – is pushing back on efforts to extend the FCC’s reach into the industry’s finances.

“The [FCC] ... should reject calls to add broadband revenues to the USF contribution base by reclassifying broadband as a common-carrier telecommunications service and declining to forbear from Section 254,” NCTA said yesterday in FCC comments. “Imposing a large tax on broadband would hamper the paramount national objective of expanding broadband adoption, especially among low-income consumers.”

Because of cable’s dominant position in the broadband market, the industry would likely contribute more than anyone else to the USF if the FCC withdrew forbearance.

NCTA is supporting the idea that attempts to reform the USF should not exclude revenue from Big Tech.

“The [FCC] should work with Congress to develop a broad-based assessment mechanism that includes large tech platforms and others that derive enormous value from broadband networks,” NCTA said.

In the end, newly imposed USF contributions and franchise fees would likely get passed along to end users, making it more expensive to maintain a broadband subscription at a time when the Biden Administration is trying to get everyone connected to affordable Internet access.

“Immediately subjecting interstate broadband Internet access service revenues to universal service contributions, without pursuing broader contributions reform, would significantly raise the cost of broadband to consumers,” USTelecom – The Broadband Association told the FCC in Jan. 17 comments.