Research Notes

US Congress releases bipartisan bill to make Big Tech shoulder some consumer broadband costs, first major USF reform in a generation. Fair Share Update. Strand Consult.

On November 16, 2023, three U.S. Senators released the bipartisan, Lowering Broadband Costs for Consumers Act of 2023 (S. 3321). The bill is sponsored by Senators Mullin (R-OK), Kelly (D-AZ), and Crapo (R-ID). The groundbreaking bipartisan legislation proposes the first meaningful reform of the $9 billion Universal Service Fund (USF) in a generation. It proposes to reduce the financial burden on consumers who pay USF fees to cover broadband buildout in rural and Tribal areas, connections for schools, hospitals, and libraries, and a low-income affordability program. The bill empowers the Federal Communications Commission (FCC) to assess about large  “edge providers” or digital enterprises which account for more than 3 percent of total US annual internet traffic and earn more than $5 billion in annual US revenue for USF contribution. Such entities include Alphabet, Meta, Amazon, Apple, Microsoft, Netflix and so on.

A path to solvency and fairness for the USF

The bill proposes a path of solvency and fairness for the USF. Without reform, the USF is expected to go bankrupt because fees based on voice services has been declining for years.   Consumer groups, economists, and policymakers have long-complained that USF fees borne by subscribers makes the internet more expensive for low-income families and individuals. That is the opposite of sound public policy. Meanwhile the dominant users of broadband networks, Americas’ trillion-dollar tech companies, contribute essentially zero financially to support the construction of networks, the operation and maintenance of those networks, or the USF.

Broadening the base of contributors for social responsibility and universal connectivity

The notion of broadening the base of contributors to the USF demonstrates essential tenets of  economics, fairness, and sustainability. 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.

Key components of the legislation

The stand-alone bill of 7 pages offers clear and unambiguous statutory language to do the following:

  • Directs the FCC to complete a rulemaking, after taking public comment, in 18 months that authorizes the Commission to assess edge providers for USF contributions.
  • Instructs the FCC to expand the contribution base so that broadband providers and edge providers contribute on an equitable and nondiscriminatory basis to preserve and advance all universal service programs.
  • Instructs the FCC to assess edge providers when they have more than 3% of the estimated quantity of broadband data transmitted in the United States and more than $5 billion in annual revenue, but does not tell the FCC how to do the assessment.
  • Exempts any entity which does not meet the traffic and revenue thresholds.
  • Does not grant the FCC any other authority over edge providers and does not grant any new authority over broadband providers.
  • Also directs the FCC to complete a rulemaking, after taking public comment, in 18 months that includes  a mechanism to provide “specific, predictable, and sufficient support for expenses incurred by broadband providers that are not otherwise recovered from revenue and other universal service support mechanisms.”

Broadband policy to keep America connected

The introduction of the bill follows in the wake of the success of the Affordable Connectivity Program (ACP), which is accessed by more than 21 million Americans today. U.S. policymakers of both parties embrace connectivity and affordability efforts to keep low-income families connected.  The ACP has enjoyed widespread popular and political support as it provides a monthly $30 voucher to end users to purchase their choice of broadband service. While the program makes broadband more affordable for end users, it drives enormous revenue for the largest edge providers, at least $1500 per user per year for the largest edge providers like Alphabet, Meta, Amazon, Apple, Netflix, Microsoft, and ByteDance (TikTok). However, the ACP is paid for by the taxpayers – and currently funded with deficit spending – and the money is slated to run out in early 2024. While the Lowering Broadband Costs for Consumers Act does not address ACP explicitly, its construct can be used to merge ACP into USF to fund the popular affordability program without burdening consumers, taxpayers, or future generations.

The Lowering Broadband Costs for Consumers Act of 2023 is supported by a broad range of stakeholders including three  national trade associations  USTelecom – The Broadband Association, NTCA – The Rural Broadband Association, and WTA – Advocates for Rural Broadband  18 state telecommunications and broadband associations and over 300 rural broadband owners/operators. Together, this includes some 1200 broadband providers serving millions of customers in every state in the USA. Moreover, the notion to include large edge provider in USF contributions was supported on the record by dozens of social justice organizations, think tanks, academics, and other stakeholders in the FCC’s Report on the Future of Universal Service.

Learn more by tapping Strand Consult’s knowledge

Strand Consult is honored to have performed pro bono economic and policy analysis to the US Senate to support the development of the bill, to provide international comparisons, and to suggest instruments to avoid a Big Tech pass through effect to end users. Strand Consult observes that while policy actors have floundered on fair share in the European Union, broadband cost recovery policy continues globally with important milestone success in South Korea, USA, and other regions. Importantly, different countries will take different approaches. Strand Consult observes a variety of cost recovery instruments whether market-based, regulated, or hybrid. The concept of broadening the base of contributors is recognized by the ITU/UN Broadband Commission in its 2021 report “21st Financing Models to Bridge the Connectivity Gap” as essential to recover broadband network costs and close the global digital divide in which half of the world’s population remains offline.

Strand Consult is a leading expert on fair share and offers a library of reports and research notes in Strand Consult’s Global Research Project for Broadband Cost Recovery. Contact Strand Consult to purchase a workshop to learn about the different policy measures globally, the business and financial models, how policies work to close the digital divide and ensure universal connectivity, and how to ensure that networks are built and upgraded.