Fact Check: How Cloud Evades the USF to Profit Without Paying In

Strand Consult leads the Global Project on Broadband Cost Recovery and Business Models. Strand Consult collects, organizes and synthesizes knowledge on the policy globally so that policymakers, the press, and the public can access relevant materials.

The Universal Service Fund (USF) is a connectivity support program administered by the US Federal Communications Commission (FCC) as stipulated by the 1996 Telecommunications Act. Modernizing the program’s contributions from voice services features on the US policy agenda. Strand Consult has published a series of reports on this topic, conducted surveys of providers and users across the country, and collected traffic and financial reports from operators to determine actual levels of traffic and cost to develop a fact-based framework to determine the costs and benefits of the program.

Strand Consult’s welcomes other analysts’ insight and analysis on USF. It is only by turning over every stone that policymakers can make fact-based decisions. The Computer & Communications Industry Association (CCIA) contribution marks a valuable opportunity to review the objectives and assumptions of USF. Strand Consult tests and fact checks the claims in CCIA’s report “Economic Impact of an Imposition of a Universal Service Fund Obligation on Cloud Services in the United States” by Raul Katz. Here are the key findings in Strand Consult’s Fact Check.

• Wrong contribution rate. Katz models a 5% contribution rate on the $500B revenue base of cloud services. That would deliver $25B, almost three times the current Universal Service Fund (USF). No policy maker has made such a proposal. The rate appears to be amplified on purpose to paint a picture of a doomsday scenario. Katz also presumes that only the cloud industry would contribute to USF, which is highly unlikely. A  properly reformed USF as Strand Consult proposes would feature a low and declining contribution rate (ideally 1% or less) from different sectors which benefit from the fund.
• Wrong economic model. Having no economic model of the cloud industry, Katz models the behavior of the global cloud industry using old papers on the telecom industry as a guide. This fails methodologically for many reasons which Strand Consult’s report details.
• Wrong policy instrument. Katz assumes that a USF assessment behaves like a levy from the Treasury. Rather the USF is in the category of the Self-Funded Agencies / Self-Financing Institutions which are government or quasi-government bodies that fund their operations through assessments collected from the industry they regulate or serve—not through general taxpayer revenue. Other examples include FDIC (funded by premiums from insured banks); 911 services (via fees on phone bills), Air Traffic Control (partially funded via ticket taxes, fuel excise taxes, and airline fees) and FINRA (funded by member firms) USF ensures connectivity for rural and low-income users, hence strengthening network effects for digital industries.
• Wrong model of pass-through. Katz states in various places in the report that the concentrated industry of cloud services providers are unlikely to pass through all costs. Yet he calculates a 100% pass through rate, even though he states that the more realistic rate is only 50%. This appears to be done purposely to drive a negative impact of $35 billion. Strand Consult recalculates the equation using the proper variables and finds an impact of less than $3 billion.
• Wrong conclusion. Katz claims a USF assessment on cloud will increase inflation and harm the economy, however he fails to consider that the cloud industry enjoys spillover benefits from the USF today which today amount to $95 billion annually, from the thousands of schools, libraries, hospitals and other enterprises which subscribe to cloud services as a function of being assured broadband access through USF.

The June 2025 CCIA report by Raul Katz was funded by Amazon Web Services (AWS). It asserts that a 5% Universal Service Fund (USF) fee on cloud service industry revenue would lead to higher cloud prices, suppress cloud adoption, reduce national GDP by $59–148 billion, and cut cloud providers’ capital investment by over $7 billion, while also triggering up to a 0.13% increase in U.S. inflation. It claims further that the fee would harm other sectors of the economy and cost Congressional leaders seats in certain states.

Strand Consult’s Fact Check examines the assumptions and methodology of the study, re-runs its numbers for extreme and realistic scenarios, and evaluates the conclusion. Strand Consult finds that certain key assumptions drive CCIA’s conclusions. In other words, CCIA exaggerates negative outcomes by choosing certain variables. The study’s author is a respected MIT-trained economist who led Booz Allen’s telecom practice for two decades before his academic career. His earlier papers demonstrate understanding of the contours of the tech and telecom industry. However, with this study for CCIA he makes purposeful methodological decisions which drive an outcome designed to justify the preferred policy position of CCIA when a neutral analysis would likely be less negative.

The US cloud industry earns some $500 billion annually in the US alone and is on track to reach one trillion dollars by the end of the decade, growing in large part through business transformation and artificial intelligence. This revenue dwarfs that of the telecom industry which bears all the cost of the USF today.  Ensuring continued connectivity is important for the cloud industry’s existing business models to thrive and grow. Without USF, it is likely that cloud revenue and growth would be impaired. Having never contributed before, cloud providers led by AWS and represented by CCIA are pushing back hard. They claim that including them in USF contributions would trigger a doomsday scenario of inflation, GDP decline, and economic fallout. But this is less about economic forecasting and more about protecting a privileged exemption.