Although polarization is strong, 117ThStill, Congress is showing more bipartisan cooperation than you might think, building common ground on issues including gun control, infrastructure and strengthening the domestic supply chain for critical semiconductor chips. The improvement of digital infrastructure should be another area that receives broad bilateral support.
Governments across Europe, North America and Asia have been debating how to sustainably support expensive new digital infrastructure to give their populations access to broadband and unlock the full potential of 5G connectivity. The importance of expanding access to digital infrastructure is hard to overestimate – without sustainable funding, millions of people could be disconnected and left behind.
Getting big tech companies to contribute to digital infrastructure transfers and development may provide the answer, and recently both the US and the EU have notified these organizations.
The latest debate is over the fate of the FCC’s The Universal Service Fund (USF), which insures broadband infrastructure for underserved populations facing financial uncertainty. Some of its programs include Connect America, which expands broadband networks to Americans living in rural geographies, Lifeline subsidizes phone and Internet bills for low-income families, and E-Rate, which provides deeply discounted Internet access to deserving schools and libraries. Unfortunately, vehicle financing methods are outdated and unsustainable, and they hurt consumers in a time of rising inflation, jeopardizing the viability of critical and popular programs.
Broadly speaking, USF is funded by taxes on telecommunications companies, a large portion of which is typically passed on to the consumer. While USF’s mandate has expanded to address the challenges of the Internet age, its funding sources have not. This ancient system has grown from a peak of $80 billion in the early 2000s to a revenue base of less than $30 billion today. This has directly affected consumers as the customer contribution rate has increased from 11 percent in 2007 to more than 23 percent today.
Paying a horse shoe tax to pay for highways
Taxing phone companies (and their customers) to fund broadband programs is absurd. Additionally, this reform tax would disproportionately affect landline subscribers, who are older Americans. FCC Commissioner Brendan Carr said it best when he described USF’s funding method as “paying for horseshoes to pay for highways.”
Thankfully for the government, Congress has begun considering new sources of funding for the USF program. In May, the Funding Affordable Internet with Secured Contributions (FAIR) Act successfully passed the Senate Commerce Committee with bipartisan support. The Fairness Act requires studying the feasibility of expanding sources of support, particularly the “fringe” technology companies that are responsible for the majority of the world’s web traffic.
Congress should consider Big Tech as a prime candidate for new sources of USF funding. Meta, Alphabet, Apple, Amazon, Microsoft and Netflix accounted for more than 56 percent of global data traffic last year. Additionally, and directly related to traditional users of USF’s programs, an in-depth study of rural wide-brand providers indicated that only five video streaming entertainment providers—Netflix, YouTube, Amazon Prime, Disney+/Hulu, and Microsoft Xbox—are overall “Big Streamers”—out of the total. They drive 75 percent of network traffic. With the advent of metadata and data-intensive applications, the traffic share of big tech companies will only increase – and their revenue.
Tech companies’ contribution to building broadband infrastructure is not limited to the US and is also prevalent in other countries. Europe, in particular, is eager for Big Tech to contribute through direct payments to telecom operators. European investment in 5G rollout is much lower per capita than the US (€94.8 per year compared to €147.9) and only 62 percent of Europeans can connect to 5G networks compared to 93 percent of Americans. In addition, the European telecom sector is under more pressure than its US counterpart and does not have the same private investment opportunities. With a recession looming in Europe, this contribution could be critical to the resilience of Europe’s telecoms networks and allow providers to move away from risky but low-cost equipment providers like Huawei and deploy the infrastructure upgrades needed to unlock broader economic growth. Such actions allow Europe to at least try to keep pace with their American counterparts.
Echoing the US argument, European Internal Market Commissioner Thierry Breton put it best when he said: “The rules in place for twenty years are running out of steam, and operators are not getting a real return on their investment” and called for a reform law. The imbalance will come out at the end of the year. Providing universal and affordable access to communications networks in the future should be a priority for every government. It is a bipartisan issue that affects equity, economic prosperity, and national security. Big tech companies that benefit the most from these networks must contribute to making a better future a reality.
Matthew Weinberg is a partner at Max Ventures, an early-stage venture capital firm based in New York City. Matthew was a former Obama White House appointee at the US Small Business Administration’s Office of Investment and Innovation. Follow him on Twitter @mattjweinberg.
