The Universal Service Fund (USF) is trapped. Everyone knows something needs to be done to save a critical connectivity funding source, but no one wants to put in the money to save it. That includes cloud service providers, who are seeking to head off suggestions that they could be the ones to keep USF afloat. Because heaven forbid.
A new report commissioned by the Computer and Communications Industry Association (CCIA) and funded by AWS argues that adding cloud players to the USF contribution base would have absolutely dire consequences. We’re not just talking about higher cloud costs, but also reduced cloud adoption and even dings to U.S. state and national gross domestic product (GDP). But it’s based on a flawed, but true, premise.
I’ll explain in a minute. But let’s back up first.
Why are cloud providers even worried about this possibility? The USF is currently mired in a legal battle over whether the system, as administered today, is constitutional. But assuming it survives that battle, the question of how to fund it going forward remains.
Right now, only telecom companies are required to pay the fees that fund the USF. But a few years back, when the Federal Communications Commission (FCC), which oversees the USF, was compiling a report on the future of the program, commenters suggested that cloud and other online players should be required to pay in as well, since they benefit from the widespread broadband access telecoms provide.
And Congress is still actively seeking a solution for the USF problem. Hence the panic. And hence CCIA’s efforts to steer lawmakers away from the cloud option.
Drama queen
The CCIA report starts with the (flawed, if true) assumption that any USF fees levied on cloud providers would be passed along to consumers. From there, things rapidly cascade into disaster territory.
Given that cloud demand is, in part, driven by price, the study posits that cloud adoption would slow as a result of increased costs. By CCIA’s reasoning, less cloud adoption means lower GDP for both states and the country as a whole.
“Assuming the hypothetical imposition of a 5% USF fee on cloud service revenues that is entirely passed through to cloud customers, the impact on national GDP is expected to range from a decrease of $-58.88 billion to $-148.8 billion,” the report argues.
That’s obviously bad. But there are two key issues. First, the study ignores the effect of increased broadband connectivity on GDP - which is highly relevant because expanding access to broadband services is the USF's whole reason for existence. And wouldn't you know, the Fiber Broadband Association, the United Nations and others have their own studies showing the positive impacts connectivity and of programs that increase broadband access have on GDP.
And second, while it’s likely true that the costs would at least in part be passed along to consumers, it’s not required. Under the USF’s current structure, contributors are given the freedom of choice on how to cover their fees — either absorbing the costs or passing them along.
Cloud providers could absorb the fees — and comfortably. The hyperscalers who dominate the market regularly post multi-billion dollar quarterly profits.
But altruism doesn’t play well with investors and “we don’t want to pay” isn’t something you say to Congress (at least, not in so many words), so here we are.
It would behoove cloud providers to remember that the proliferation of the internet and widespread access to fixed and mobile broadband is the very thing that created demand for their services in the first place. And connectivity will become even more important in the AI era.
And sometimes it’s required to do things for the greater good. Plenty of people who don’t have kids pay local taxes that fund the school system. We just eat it because that’s the right thing to do. It’s in cloud players’ best interest to ensure the USF’s future. Let’s just hope they come to see it that way too.
But judging from their reluctance to help pay for new power plants designed explicitly to fuel their demands — I’m not holding my breath.
Op-eds from industry experts, analysts or our editorial staff are opinion pieces that do not represent the opinions of Fierce Network.