The shift in telecom service provider business models has obvious implications for all other parts of the ecosystem, including mechanisms for funding universal service. That will be obvious in coming debates about how universal service should be funded.
There are big potential winners and losers. So behind all the rhetoric are perceived financial interests that will be helped or harmed. Among the coming key questions is which parts of the value chain should bear direct burdens.
Up to this point, direct customers of communication services have been the funding source, even when service providers have had the option of paying themselves (out of profits or shareholder returns) or passing such charges along to their customers.
The coming debate might challenge that notion, adding other stakeholders to the formal contribution base. But make no mistake: such changes are favored because they help sonme parts of the value chain and harm others.
But make no mistake: ISPs argue their costs are climbing, and somebody has to pay.
The only issue, they argue, is "who" should be directly funding universal service. Up to this point, it has been service providers held responsible in a formal sense, even if service provider customers have been the actual payers, ISPs and telcos acting only as collectors of a "fee" that is more akin to a tax.
(Yes, regulators, lawmakers and ISPs will insist universal service payments are fees, not taxes. Such payments are taxes in practice, no matter what the form suggests.)
What helps ISPs will necessarily harm others: customers, citizens, consumers, other participants in the internet value chain. It cannot be avoided.
Perhaps ironically, taxes on long distance voice usage remains the foundation for funding high cost or rural networks. And the problem with that mechanism is that “fees” (taxes, essentially) have to keep rising as the contribution base keeps shrinking.
Logically, the shift to broadband access as the key product also means broadband has to be the funding source and the destination of funds, over the longer term.
And that means changing the rules, which always means potential winners and losers if the rules are changed. And there is at least a possibility--however slight--of a revolution of sorts in funding mechanisms.
In the European Union, regulators and policymakers are considering levying fees directly on app and content providers, not just direct customers of access networks. The U.S. Federal Communications Commission says it will look at such approaches as part of its review of the funding mechanism for universal service.
In the United States, additional funding for rural area networks comes from the Rural Utilities Service and the National Telecommunications and Information Administration as well. But so far, the FCC has not moved to make “mobile service” a universal service objective, though support is available for mobile voice and internet as an alternative to fixed network service.
As always, support mechanisms are a highly-political matter, as any proposed changes will produce winners and losers.
And that is where perceived financial interests emerge. Though some might argue that shifting support mechanisms (taxes, essentially) from declining voice to broadband access is logical, there are reasons internet service providers oppose such moves.
The obvious stated reason is that doing so raises the effective cost of home broadband. Since higher prices reduce demand, basing universal service support mechanisms on broadband access has the effect of damping down broadband take rates, which is the point of universal service.
But ISPs also argue that taxing broadband instead of voice is only a temporary measure, as the reasonable amounts any such tax can raise are insufficient for long-term support. And that is why there is more vocal support for taxing some hyperscale app or content providers, for the first time shifting support mechanisms beyond service providers or access customers.
“A diverse and wide-ranging group of commenters supported a second idea related to USF contributions: further broadening the USF contribution base to include entities including “edge providers” such as streaming video providers, digital advertising firms, and cloud services companies rather than relying solely on the end users—or consumers and enterprises—that have historically paid the line item fees passed through by providers,” the FCC notes.
Whether such an approach would be adopted might hinge on whether it can be adopted. “The Commission has never analyzed its authority to regulate edge providers, which broadly defined, encompass a wide variety of different entities that provide Internet content, applications, and services,” the FCC says. “Before the Commission could require contributions under its permissive authority for any type of edge provider, it would need to conduct a rulemaking proceeding and establish a record that analyzed and applied the definition of “telecommunications” to edge providers and demonstrated that the public interest supports requiring contributions.”
There also is some belief that a specific charge from the U.S. Congress would be needed. “A wide variety of commenters called for legislation to expand the Commission’s authority so it could assess contributions on the broadest range of service revenues, including from digital
advertising and other online edge services that benefit from broadband networks,” the FCC says.
The FCC believes “there is significant ambiguity in the record regarding the scope of the
Commission’s existing authority to broaden the base of contributors.”
So the FCC recommends “Congress provide the Commission with the legislative tools needed to make changes to the contributions methodology and base in order to reduce the financial burden on consumers, to provide additional certainty for entities that will be required to make contributions, and to sustain the Fund and its programs over the long term.”
In the end, no matter how the funding issue is resolved, consumers and customers will wind up paying. In the final analysis, customers always wind up paying for all entity costs of doing business.
The coming battle will simply pit value chain participants against each other to shift the burden someplace else, in a direct sense.
In the end, though, no matter where the formal burden is placed within the value chain, customers and end users scattered along the value chain will wind up paying, as the higher costs of doing business will simply be passed along to direct customers at every stage of the value chain.
One might argue the logical approach is simply to base universal service obligations on buyers of broadband access services. It is simple, transparent and logical. But ISPs will fight that suggestion, by and large. The last thing they want is for their customer demand to be exposed to new challenges.
From an ISP point of view, the better solution is to shift the blame elsewhere, by making some other entity collect the fees (taxes) in their own retail prices. That still passes the payment burden onto consumers or customers, but hides the pain by disbursing it.
As always, for every valid public purpose there are private interests. And we are about to see those private interests go to battle over a very public purpose.
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