Big Change in Universal Service Mechanisms Coming?

For the first time, both European Union and U.S. regulatory officials are considering whether  universal service should be supported by a combination of user and customer fees. The charges would be indirect, rather than direct, in several ways. 

In the past, fees to support access networks in high-cost areas were always based on profits from customers. To be sure, high profits from business services and international long distance voice calls have been the support mechanism. In more recent days, as revenue from that source has kept dropping, support mechanisms have shifted in some markets to flat-fee “per connection” fees. 

But that already seems not to be generating sufficient funds, either, at least in the U.S. market. So in what can only be called a major shift, some regulators are looking at levying fees on some users, who are not actually “customers.” 

Specifically, regulators are looking at fees imposed on a few hyperscale app providers, using the logic that they represent a majority of internet traffic demands on access network providers. Nobody has done so, yet, but the same logic might also be applied to wide area network transport. 

Ignore for the moment the obvious violation of network neutrality principles. To be sure, one might argue that net neutrality only applies to consumer services, and hyperscaler access might be viewed as a business service, to the extent data centers or content enterprises connect to any public networks.  

Hyperscale and other data centers now drive as much as half of all data traffic across wide area networks. In 2021, data traffic between data centers now represents as much traffic as used by internet users. 

So half of total demand for WAN capacity now is driven directly by data centers that need to connect to other data centers. To be sure, local access facilities are required, whether traffic is bound for an actual end user location or moving between data centers. 

source: Cisco 

Whether that is logical or “good public policy” can be debated. What cannot be debated is that the internet has essentially destroyed the traditional logic about how to fund universal service access networks. 

European internet service providers, who over the past couple of decades have been severely challenged in terms of their business models, now essentially argue that those broken business models can only be fixed by new taxes on a handful of users of their networks, and not customers. 

And those firms are “users” only because ISP customers make high use of some apps and content providers. That is not to say some big users might, here and there, be customers of access services as well. 

But that is not the argument advanced by proponents of the hyperscaler fees. The argument is a new one: “a few big content and app sources supply value that ‘my’ ISP customers want to use.” 

And because customers keep using more data, ISPs have to keep investing in capacity, but without a direct revenue match correlated to usage. 

Ignore for the moment the way ISPs rate internet access usage (generally flat rate for some bucket of usage), and the ability to change policies to better match usage and cost, as suppliers of virtually all other products tend to do. 

To be sure, streaming video services tend to price based on flat fees as well, with no relationship to consumption in any billing period. In many markets, local or domestic phone calls and text messages also are essentially flat rated. 

But other “public utility” products tend to have a usage-based pricing policy. Use more water, electricity or natural gas and you will pay more, even when there are flat-rate components of overall bills. 

The point is that such “charge users” proposals deviate from past “charge customer” support mechanisms. 

It is not stretching the analogy to note that existing support mechanisms shift payments from some customers to others (heavy usage customers are subsidized by low-usage customers). Some network apps get taxed while others do not. 

A fee to connect to the local network is charged, but not the number of text messages sent or phone calls made or number of ISP connection sessions or volume, the number of shows watched or songs listened to, the number of web pages viewed or the total connection time or data volume (with some reasonable usage limits). 

We can argue about the merits of creating new universal service support mechanisms. But fairness and logic should be part of the discussion. “Because we can” should not be a reason for doing so.