Streaming Providers Tell FCC That Taxing Streaming TV Would Be Dumb

For years, we've noted how telecom and media giants have been trying to force big tech" to give them huge sums of money for no reason. The shaky logic usually involves claiming that big tech" gets a free ride" on telecom networks, something that's never actually been true. This narrative has been bouncing around telecom policy circles for years, and recently bubbled up once again thanks to telecom industry BFF and FCC Commissioner Brendan Carr.

At the heart of the lie is a nugget of truth. the FCC does desperately need to find more funding revenue to shore up programs like the Universal Service Fund (USF) and E-Rate, which help provide broadband access to schools and low income Americans. The programs are funded by a line item fee on phone lines and some limited telecom services, but with the former dying and the latter restricted, more money is needed (assuming we actually care about bridging the digital divide" as much as we claim we do):

The funding mechanism that supports the USF is under significant duress. The contribution base"-the revenues used to calculate USF contributions-has declined 63% in the last two decades, from $79.9 billion in 2001 to $29.6 billion in 2021. Meanwhile, the contribution factor"-which is the USF fee assessed on interstate and international telecommunications service and certain telecommunications revenues-has increased from 6.9% in 2001 to a 29.1% in the fourth quarter of 2021. Assuming a continuation of historical trends, the contribution factor could approach 40% or more in the coming years. This situation is unsustainable and jeopardizes the universal broadband connectivity mission for our nation without immediate FCC reform.

So there needs to be reform. The problem: telecom and broadcast lobbying, and dumb partisan shenanigans once again risk ruining any serious adult policymaking.

The FCC recently announced it would be considering what has generally been heralded as a bad idea by many consumer groups and companies alike: expanding the USF fee contribution base to include big tech." The proposal is fairly large, and not only included a planned tax on streaming services, but a new tax on unlicensed spectrum and Wi-Fi (and effectively any device that uses it).

Public Knowledge lawyer Harold Feld has explained in detail why this idea (which he argues is largely promoted by the broadcast industry and NAB in a bid to target Microsoft for its white space broadband" proposal) is dumb:

The idea that a tax on unlicensed spectrum would only hurt Microsoft or big tech" is absurd. The whole point of unlicensed spectrum is that it's open for everyone to use. The effort by broadcasters to impose a Wi-Fi tax should be as laughably ridiculous as modem taxes and email taxes. But rather than simply deny the proposal, the FCC has put it out for public comment."

Streaming companies and the MPA also, unsurprisingly, oppose the move, argue in a recent filing that leveraging such fees on streaming TV not only doesn't make sense, it would be a logistical nightmare:

Online services do not require Commission licenses to operate, there is no effective cap on the number of providers in the marketplace, and that number is always changing," MPA said. Online platforms, including streaming services, social media networks, advertising platforms, and online marketplaces, are continually entering and exiting the market, creating a situation in which the Commission would be unable to properly determine which firms must pay contributions."

While it's not surprising that streaming companies don't want to be saddled with a new tax (even if it's passed directly on to consumers), opposition goes well beyond that. Most objective recommendations for fixing the USF program involve applying USF fees more fully to broadband, or even the assignment of wireless phone numbers.

Telecom giants (which are often broadcasters) don't want that. They very much like the current system where we throw billions of dollars in tax cuts, subsidies, regulatory favors, and other perks at them in exchange for networks they routinely only half deploy (with absolutely no repercussion).

A real reform of U.S. telecom subsidies and the USF program would almost certainly mean stricter oversight into how this gravy train gets distributed, and if you're a company like AT&T (which recently got a string of merger approvals, massive deregulation, and a $42 billion tax cut for doing jack shit), that's not really something you want happening.

Telecoms had already spent the last decade accusing companies of Google (despite the billions Google also pays for telecom transit and cloud infrastructure) of getting a free ride." The goal was always to saddle tech companies with the costs of upgrading and improving telecom networks to the benefit of telecom investors and executives. USF reform has proven to be the perfect opportunity to perpetuate and amplify those dated efforts with the help of captured policymakers.

Expanding the USF contribution base to streaming is something that we should at least have a conversation about. Again though, if you're a policymaker genuinely serious about shoring up broadband access and its funding mechanisms, the very first thing you should be looking at is the billions of dollars thrown at companies like AT&T, Comcast, and Verizon in exchange for half-completed networks.

AT&T alone has been accused of ripping off the government for decades when it comes to school telecom subsidies. Frontier has been dinged several times for ripping off the government for fiber networks they then failed to deploy. Verizon has also been long accused of getting billions of dollars for half-completed projects. Real reform of this stuff would involve actually taking this fraud seriously.

While regulatory action is sometimes taken, it's usually a decade after the fact, and involves paltry fines that are proportionally insignificant to the scope of the fraud perpetrated. That's assuming telecom lawyers can't simply avoid the fines altogether. If you're serious about telecom subsidy reform on any level, fraud perpetrated by dominant sector monopolies should be the first topic of conversation.

You'll notice this stuff is something telecom-allied FCC Commissioners like Brendan Carr just forget" to mention. Like, ever. Part of the reason is just rank corruption and regulatory capture. Another part is that these companies are tethered to our patriotic domestic surveillance efforts, which tends to make them above reproach when it comes to meaningful accountability for absolutely anything.

I'd like to think the Biden FCC understands all of this as they contemplate what to do about the USF, but in the never-ending and noble political quest to nab headlines about how they cured the digital divide" (which coincidentally rarely seems to fully involve seriously tackling telecom monopolization, competition, subsidy fraud, or state and federal corruption), you can never quite be sure.