Senators Want Big Tech to Bail Out Troubled Broadband Subsidy Programs

Nov 20, 2023

By Ted Hearn, Editor of Policyband

Washington, D.C., Nov. 20, 2023 – Grab your wallets, Big Tech. Washington is coming for your digital trillions.

With key broadband subsidy programs in desperate need of money and structural reform, some in Congress are looking to Silicon Valley to help bail out the system. The contributions could cost Big Tech’s biggest names billions of dollars annually.

But with Big Tech swimming in cash and commanding huge Wall Street valuations, it shouldn’t come as a surprise to Google, Facebook, Amazon and Apple that they would someday be asked to support an Internet ecosystem that fuels their profits. Over the past 12 months, the four firms’ combined revenue was $1.36 trillion.

Action by Congress could come soon because new money is needed quickly.

The Affordable Connectivity Program (ACP) is slated to run out of funds by next April. Although Congress provided the ACP with $14.2 billion two years ago, the Federal Communications Commission (FCC) believes the money could run out by next April. That could harm up to 20 million households that are currently receiving $30 monthly discounts on their broadband Internet subscriptions under the ACP.

A week ago, Sen. John Fetterman (D-Pa.) said he would introduce a bill that would require “massive tech companies” to contribute funds to extend the ACP. Although he said he would act quickly, Fetterman has not unveiled his bill that he hopes will protect his 700,000 Pennsylvania constituents enrolled in the ACP.

A few days later, three U.S. Senators from rural states filed legislation designed to inject new money into the FCC’s Universal Service Fund, which funnels about $9 billion in broadband subsidies to support rural markets, low-income households, schools and libraries, and healthcare providers. The largest USF program is the Connect America Fund, which provides $4.5 billion annually to rural telecom carriers that cannot afford the elevated cost of deploying network infrastructure and providing connectivity.

The USF has traditionally been funded via taxation on the sale of telecommunications services (landline and mobile) and interconnected Voice over Internet Protocol (VoIP) service. The amount collected by the tax (called the contribution factor) represents a percentage of interstate and international end-user revenues.

The financial problems facing USF are two-fold. First, the contribution factor today is 34.5% and keeps rising quarterly, with some saying it could soar to 50% by 2027 and disproportionately hurt those on fixed incomes. Second, the revenue taxed by the USF has “declined 63% in the last two decades, from $79.9 billion in 2001 to $29.6 billion in 2021,” according to one study.

With the USF tax climbing and the revenue base shrinking, Sens. Mark Kelly (D-Az), Markwayne Mullin (R-Ok.) and Mike Crapo (R-Id.) combined to propose the Lowering Broadband Costs for Consumers Act, which would reverse the USF’s negative trends and fundamentally alter how the program is funded.

Among other things, the Senate trio would direct the FCC to expand the USF base so that “edge providers” contribute on an “equitable and nondiscriminatory basis.” Edge providers are defined as online content or services, including: a digital advertising service, a search engine, a social media platform, a streaming service, an app store, or a cloud computing service.

Covered edge providers include “only those with more than 3% of the estimated quantity of broadband data transmitted in the U.S. and more than $5 billion in annual revenue.” It isn’t hard to see that Apple, Amazon, Google, Facebook, Microsoft and Netflix are the primary digital targets of the Senators’ bill.

“Fair contributions to the USF from edge providers are long overdue,” Sen. Mullin said in a Nov. 16 press release. “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.”

Because services like Google and Facebook today are free, their consumers would not receive bills each month with USF line items. But the same would unlikely be the case for another source of revenue that the Kelly-Mullin-Crapo bill wants to tap: Broadband Internet Service Providers.

The bill would direct the FCC to require “broadband providers” to contribute to the USF on the same “equitable and nondiscriminatory” basis as edge providers. The bill, however, does not appear to carve out exemptions for small ISPs as it does for small edge providers, meaning every broadband subscriber would in all likelihood receive a monthly bill with a new USF tax to pay.

According to S&P Global, U.S. broadband providers generated $111.73 billion in total revenue in 2022 – which is about $15 billion less than Facebook’s revenue for the past 12 months. Just like Big Tech, broadband ISPs have never contributed broadband revenue to the USF, though some providers have contributed based on a portion of their telecommunications or VoIP services revenue currently assessed to fund the USF.

If the bill Senate became law unamended, the FCC would have 18 months to create the new USF program.