Fewer telephone landlines sap U.S. broadband aid

As more Americans cut the cord on traditional landline phones, a government program that subsidizes internet service to poor communities is in danger of collapsing because it relies on taxes from dwindling long-distance calling fees.

That’s prompting calls to shore up the more than 20-year-old Universal Service Fund by tapping technology companies such as Amazon and Netflix that profit from the growing use of broadband.

“We’re taxing the telephone networks to pay for the broadband network,” said Brendan Carr, a Republican member of the Federal Communications Commission. “That’s like taxing horseshoes to pay for highways.”

The fund, which distributed $8.3 billion last year, helps connect schools, libraries and rural health care facilities. It also provides a connection subsidy for roughly 7 million poor households.

But over the past two decades the use of old-fashioned phone service has plunged and the revenues against which the levy could be charged dropped to $30 billion, from about $80 billion, according to Carr. That’s led to an increase in the rate of the tax, which has soared to more than 30% from 5.7% in 2000 and is typically passed along to the shrinking pool of landline users.

The pandemic has spotlighted the need for fast internet connections for schooling, work and health care and has emerged as an area of agreement as President Joe Biden and lawmakers of both parties grope for ways to support more broadband.

Carr, in an interview, said one way to do that is by getting companies such as Amazon, Google and Netflix to pay. He cited “businesses that are benefiting from the modern network and paying virtually nothing.”

The proposal adds to Big Tech’s travails in Washington, where lawmakers and regulators are threatening to break up social media providers, and to strip them of key legal protections. Now Carr, who once called for the FCC to “do our part to rein in Big Tech,” is bidding to deepen the pain.

Congress in December voted $3.2 billion for an emergency broadband program that offers $50 in monthly subsidies. The program has attracted more than 2.3 million households. But once it’s tapped out, perhaps in a matter of months, reliance reverts to the troubled subsidy set up decades ago – which generally pays $9.25 per month per household.

Carr in a Newsweek editorial suggested lawmakers and regulators could set fees for web companies such as Google, Facebook, Apple and even Microsoft for Xbox gaming.

The call from Carr, a Republican, has drawn interest.

“It’s an intriguing idea. And we’re going to need ideas,” FCC Acting Chairwoman Jessica Rosenworcel, a Democrat, told Bloomberg TV on June 11.

“Keeping the Universal Service Fund strong is really important for making sure that broadband helps reach rural America, and also provides support for broadband and affordability in urban America,” she said.

USTelecom backs having “all policy options on the table,” said Jonathan Spalter, president of the trade group, which includes top carriers AT&T and Verizon Communications. Spalter called for “a conversation” about having “the entire internet ecosystem” share in the responsibility.

AT&T, the largest U.S. phone company by revenue, perked up when Carr laid out his plan in Newsweek.

“Hard to imagine successful reform that does not include some version of this proposal,” Hank Hultquist, vice president of federal regulatory for AT&T, said in a tweet. The company has advocated for appropriations from Congress – an idea opposed by others who fear the subsidy may fall prey to annual funding fights.

AT&T CEO John Stankey on June 10 called the system “dramatically overtaxed.” If appropriations aren’t adopted, gathering fees from “across all of industry that benefits from the internet” could stabilize the subsidy, Stankey said in an interview with David Rubenstein at the Economic Club of Washington.

K. Dane Snowden, president of the Internet Association trade group, in an emailed statement called on the FCC to “take a common sense approach and not punish innovative, high-quality streaming services.” Members of the trade group include Facebook, Amazon, Google, eBay and other online companies.

Because the FCC doesn’t have authority over web companies, Congress would have to step in.

“It’s a ticking time bomb, and only getting worse. But I don’t see Congress moving quickly on this,” said Doug Brake, director of broadband and spectrum policy at the Information Technology & Innovation Foundation, a nonprofit research outfit. “Really almost any proposed source of funding is going to be controversial.”

The Universal Service Fund was created in 1996, and is financed by a charge on interstate and international calls. Companies pay the fee. They can – and do – pass the charge on to customers who find a universal service line item on their monthly bills.

That’s still the basic framework.

The rate jumped by more than half in the past year, raising fears of more hikes soon. Victims would include “the low-income consumers who are stuck with traditional phone services,” said John Windhausen Jr., executive director of the Schools, Health & Libraries Broadband Coalition.

“The need for reform is urgent,” said Windhausen, whose group works to bring broadband to community institutions. “Otherwise there is a risk the entire universal service system will collapse.”

One needn’t go as far as Carr recommends, said Windhausen. Including broadband internet service providers would lower the percentage charged to less than 5%, he said.

NCTA, the Internet & Telephone Association, a trade group representing broadband providers such as Comcast and Charter Communications, doesn’t have a comment on the topic, Brian Dietz, a spokesman for the trade group, said in an email.

Carr’s idea is “likely to get bogged down by deep-pocketed special interests fighting with each other,” said Andrew Brown, a Washington lawyer who represents large businesses from sectors including manufacturing and financial services that buy bulk communications. “There’s nothing wrong with the concept, it’s just nothing the FCC can do.”

If past is prologue, bogging down may be a likely outcome.

The Congressional Research Service looked at the Universal Service Fund and found “a growing consensus” that significant action is needed.

That report was issued in 2010.