The FCC's Brendan Carr.
Alex Wong/Getty ImagesFCC Commissioner Brendan Carr says it's time that Big Tech companies, like Amazon, Facebook and Google, which have reaped huge fortunes from the internet, pay their fair share to help the federal government fund its efforts to close the digital divide.
In an op-ed published in Newsweek last week, Carr outlined a new approach for funding the FCC's Universal Service Fund, which provides money the federal government uses to help subsidize the build-out of broadband in rural areas, phone and broadband service for low-income Americans, and internet access for schools and libraries.
In a follow-up interview with CNET on Friday, Carr said companies like Facebook, Amazon, Apple and Netflix have been enjoying a free ride on the internet infrastructure, while millions of Americans have been paying what amounts to an additional tax on their telephone bills for broadband service.
"It's time for Big Tech to pay its fair share," Carr said.
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Carr's proposal, which has its share of critics, upends the current funding model for the USF, which relies on contributions that telephone companies pay based upon revenue they generate from long-distance and international phone service. FCC rules allow these companies to pass on these costs to consumers on their monthly bills in the form of a tax.
But it's an outdated formula. When the funding formula for the USF was introduced in 2002, the "tax" or contribution factor that phone companies made was 6.8%. But as more consumers move away from traditional telephony for long-distance calling in favor of broadband-based services, the contribution has steadily ballooned to more than 30% of long-distance and international revenue in the first quarter of 2021.
The problem is exacerbated as the need for the USF subsidy increases, especially in light of the COVID-19 pandemic. President Joe Biden has proposed $100 billion in federal funding to get broadband to every American. And Congress has allocated funds to help build broadband networks and to provide emergency subsidies so people can afford broadband.
While none of these funds comes from the USF explicitly, longer-term plans to subsidize both the building of new networks in unserved areas and permanent subsidies for broadband will likely come through the fund, which today is the mechanism by which the FCC awards subsidies to network operators to build in high-cost areas, like rural communities. It's also the pot of money that's used to fund programs like Lifeline, which provides a $9.25-a-month subsidy for mobile and broadband services for low-income individuals. The USF is also the vehicle that gets money to the E-rate program, which provides federal dollars to schools and libraries to get online.
Lawmakers and policy makers on both sides of the political aisle agree the current funding mechanism is broken and needs to be fixed. But that's where the agreement ends. Some have argued the law should be changed to include a tax on revenue from broadband service.
But others, like Carr, believe that the Big Tech companies, which are not regulated by the FCC and don't contribute to USF, should have to pay a percentage of their revenue to help keep the USF programs going.
"Right now, Big Tech effectively pays nothing for universal service, and that leaves consumers footing the bill for billions and billions of dollars," Carr said. "So I think it's time for Big Tech to pay its fair share."
Details still to come
Carr's plan is short on details. He said during the interview he hasn't worked out specifics of how the plan would be implemented, because it should be Congress that decides. Instead, he said Congress should figure out which companies would be required to pay into the fund and how much they would have to contribute.
"I don't drill down on particular specifics, because that's something that Congress should work out," he said. "This is something that would require legislative action."
When it comes to deciding which companies should contribute to the fund and how much they should be required to pay, Carr suggests that legislators look at companies that benefit the most financially from the use of internet infrastructure.
He stopped short of defining where lawmakers should draw the line. But he said a "threshold" should be set based upon how much revenue a company generates.
"For instance, Google's ad revenues -- I think those are fair game for looking at a charge to support the network," he said. "The same with Facebook or Apple's App Store, maybe even iPhone cloud services and certainly the [video] streamers."
Carr said that the largest video streaming services, such as Amazon Prime, Microsoft Xbox and Netflix, account for roughly 75% of all downstream traffic, particularly for rural broadband networks. This demand for streaming also results in an even higher percentage of cost for broadband companies to maintain their networks, he argued.
"So the biggest beneficiaries from these [broadband] networks also happen to be the biggest cost causers," he said.
Getting big tech to pay for the build-out of new networks isn't radical or new.
"This is an argument that large internet service providers have been pushing for years," former FCC Chairman Tom Wheeler said in an interview.
In 2006, AT&T's former CEO Edward Whitacre was among the first to suggest publicly that companies such as Google shouldn't be given a "free ride" on his network. The comments ignited more than a decade of debate over net neutrality regulations.
In 2015, when Wheeler, then serving as the FCC chairman, debated the Open Internet order, which codified net neutrality protections, the argument revolved around whether ISPs should be allowed to charge content providers for access to so-called "internet fast lanes." The argument centered on the question of whether content providers should have to pay for access to networks that delivered their services more quickly. The 2015 rules rejected this idea and barred such a practice.
A Republican-led FCC dismantled those rules in 2017.
Groups representing the telecommunications industry largely support Carr's proposal. The Internet Innovation Alliance, which represents AT&T along with telecom equipment makers like Alcatel Lucent, Ciena and Corning, says it makes sense.
"Requiring Big Tech to help close the digital divide is an obvious and attractive solution to the Universal Service Fund (USF) crisis," former Rep. Rick Boucher, an honorary chair of the organization, said in a statement. "It makes sense for the Amazons, Googles, Apples and Facebooks of the world -- that depend upon and benefit from Americans being online -- to back efforts to achieve universal broadband. It's in their interest, as their user bases would be bolstered."
Individual companies, such as Apple, Google and Facebook, told CNET that they declined to comment on Carr's proposal. But the Internet Alliance, which represents the world's largest internet companies, such as Amazon, Facebook, Google and Microsoft along with smaller players like Etsy, Grubhub, Reddit and Spotify, aren't keen on the proposal. The organization has long lobbied against "taxing the internet" to fund USF.
"We hope the FCC will take a commonsense approach and not punish innovative, high-quality streaming services that are fulfilling consumer demand," said Dane Snowden, the Internet Association's president.
Carr said he isn't looking to punish Big Tech.
"My response is that we're just asking Big Tech to live up to the same obligation that everyday Americans do," he said. "I think it's time that we look at Big Tech to pay an equitable share."
Common ground
Some consumer advocacy groups, such as Free Press, agree in part with Carr's approach.
Matt Wood, vice president of policy at Free Press, said that while he disagrees with Carr's "characterizations, about Big Tech's so-called 'free ride' on the network," he agrees that tech companies, as well as other big companies, ought to pay their fair share to make broadband truly universal and affordable for all.
"In the end, Commissioner Carr is right about this: We can and should raise federal dollars for internet access and adoption in ways that actually lower monthly bills for every consumer," Wood said. "And we could eliminate a regressive tax on families' phone bills in far better ways than broadening that base and applying that tax to people's internet bills, too."
Carr agrees. While he said he isn't opposed to traditional phone companies continuing to pay into the USF, he doesn't want to see the tax that consumers pay today on long-distance phone service being shifted to broadband service. He said the objective of his plan is to get the Big Tech companies paying the bulk of the universal fund contribution instead of consumers, who ultimately pay it because phone companies pass on the cost to their customers.
"Where we are right now is 100% of this is coming out of the pockets of everyday Americans," Carr said. He added that his proposal "is not about switching the tax over to the internet service portion [of your bill]." Instead he wants to "eliminate [the tax] from the bill entirely."
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