FCC starts coveting Big Tech's big piggy bankFCC starts coveting Big Tech's big piggy bank
For the first time, the FCC has indicated a willingness to consider a fee on Big Tech to pay for telecom services. But the agency is looking for Congressional approval for such a move first.
August 16, 2022
The FCC signaled an interest – albeit in a roundabout way – in potentially levying fees against Big Tech companies like Amazon, Netflix and Microsoft. Doing so, according to proponents, would allow the agency to indefinitely finance the construction and maintenance of telecom networks in rural areas, as well as programs designed to help poor Americans afford telecom services that are becoming critical to modern life.
To be clear though, the FCC is really just taking a first tentative step in support of the notion. Meaning, officially implementing such a fee is likely many years in the future, if at all – and it would happen only if the FCC overcomes a number of regulatory hurdles first.
"We think that change in the political dynamic can be addressed – and industry will be generally supportive, but there will have to be a political pivot to do so," summarized the financial analysts at New Street Research in their review of the FCC's new report on the topic.
Nonetheless, some cheered what seems to be a willingness among the FCC rank and file to go after Big Tech's financial war chest.
"I am very pleased that both the record and the commission's report provide such broad-based support for requiring large technology companies to start contributing into the USF [Universal Service Fund]," FCC Commissioner Brendan Carr said in a statement. Carr has been a vocal proponent of Big Tech paying into the USF. "Indeed, I think it is important to note that this report represents the first time that the full Commission has recognized the support that has been building for this idea."
"The Universal Service Fund was created for a different era and Congress is right to explore a more equitable and fair distribution of this obligation in a modern, connected world. Today, the vast majority of Internet traffic comes from a handful of dominant edge companies that do not contribute to the fund," USTelecom CEO Jonathan Spalter said in a statement. The lobbying group represents many companies in the US telecom industry.
"We applaud the commission's clear recommendation that Congress ensure the FCC has the authority to expand the contributions base to include dominant edge providers. At the same time, we encourage the commission to move forward within its existing permissive authority to secure the future for universal service," Spalter added.
Overhauling decades of telecom precedent
The FCC instituted the Universal Service Fund (USF) in 1997 as a part of the Telecommunications Act of 1996. That fund pays for a number of ongoing programs like Lifeline (helping low-income Americans pay for telecom services) and the Connect America Fund (helping telecom providers build services in rural areas).
In order to finance the USF, the FCC ruled that any entity that provides interstate telecommunications services to the public for a fee must contribute money into the fund. According to the agency, roughly 82% of those USF contributors actually pass through the costs to their end-users.
So far the fund has remained relatively stable at around $8 billion per year. But that likely won't continue as voice calling declines and Internet usage surges. "In order to collect the same amounts to fund the USF, a higher contribution factor must be applied to the smaller revenue base," the FCC wrote in its new report.
Figure 1: (Source: B Christopher/Alamy Stock Photo)
What that means is that the USF needs a financial tuneup, and now seems to be a good time to consider ways to do that given the billions of dollars in government funding poised to flood into the telecom industry. Indeed, as part of the Infrastructure Investment and Jobs Act (IIJA), Congress required the FCC to create a report that would "make recommendations for Congress on further actions the commission and Congress could take to improve the ability of the commission to achieve the universal service goals for broadband."
That report, published Monday, covers a wide range of topics, including whether to merge the Lifeline program with the Affordable Connectivity Program (ACP), whether mobile networks should be funded separately from fixed networks, and how exactly to finance the USF beyond the money set aside in the IIJA.
A question for Congress
It's that last item – how to pay for the USF today and in the future – that generated most of the debate in the lead up to the release of the FCC's report. For example, Verizon argued that the FCC has the legal authority to impose USF fees on Big Tech companies immediately, but AT&T countered that the FCC would need approval from Congress to do so.
In general, it appears that the FCC is reluctant to push its regulatory envelope.
"We will likely need Congress to grant the FCC additional authority," argued FCC Commissioner Carr. "This type of additional authority would allow the commission to start assessing the revenues of large technology companies, and I want to add my own two cents in urging Congress to pass a law that does just that."
In its 65-page report, the FCC didn't offer full-throated support for a fee on Big Tech. Instead, it mostly pointed out the drawbacks of other proposals. For example, it argued that assessing a fee across all Internet service providers – an alternative to a fee on Big Tech – would result in that fee being passed on to consumers, "thus impacting the affordability of the service," according to the FCC. That, the agency said, would represent a step back from its broad goal of delivering Internet service to everyone.
In its report, the FCC noted that there is "significant ambiguity" on whether it has the authority to assess a fee on Big Tech. "As such, we recommend Congress provide the commission with the legislative tools needed to make changes to the contributions methodology and base in order to reduce the financial burden on consumers, to provide additional certainty for entities that will be required to make contributions, and to sustain the Fund and its programs over the long term," the FCC concluded.
"The report does not make a strong case for any specific policy but rather looks to resolve such questions in the future," summarized the New Street analysts.
A global issue
The FCC isn't the only regulatory body mulling the idea of making Big Tech help pay for telecom services. After all, according to one finding, the six biggest Internet companies in the world accounted for more traffic in 2021 than all other Internet companies combined.
"There is growing global recognition — across Europe, Asia and South America – that Big Tech companies should be required to contribute a fair share to support the networks and digital divide efforts that allow them to realize unprecedented revenues," Carr said.
Indeed, a wide range of Europeans are looking to "alter the regulatory framework underpinning the free and open Internet."
But some in the telecom industry have argued against the trend.
"I'm unconvinced about whether forcing Big Tech to invest in networks is even justified. Without content, operators' services become far less relevant – that's why many have chosen to pal up with the likes of Netflix and Amazon to sell customers higher-priced bundles. In many ways, operators' very existence depends on successful partnerships with the companies they're now trying to penalize," Kester Mann, an analyst with CCS Insight, wrote recently on the firm's website.
"There's a much stronger argument that telecom operators should be paying Big Tech for access to data centers, fiber and content/software investments," wrote Disruptive Wireless analyst Dean Bubley on Twitter.
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