The Universal Service Fund and Taxing Internet Content Providers

This past tax day I wrote an article examining whether the government might soon be coming after content creators like Google or Netflix. Such a notion would leave many in complete befuddlement after the past two years have seen the pro-Net Neutrality camp deeply entrenched in spreading concerns of impending doom that would be headed to the Internet if we continued even one more day without a regulatory regime placing its grip over the network.

One must understand that the heart of the much of the Network Neutrality debate has been the fear that Internet Service Providers (ISPs) like that of Comcast, Verizon, or AT&T would begin charging content creators to receive prioritized connections to the Internet. If they were to do this, then the pro-regulation crowd suggests that this would create an unfair advantage for large or established web companies and that small startup companies would not have the capital to pay these fees or “taxes” for faster, prioritized service and would therefore be at an immediate disadvantage. Therefore any present day suggestion that any governmental agency or program should place a taxation on content as a right of way to exist on the Internet seems contrary and ironic to the goals and concerns that have been much of the fight for the pro-regulatory side of the debate.

At a February 23rd Congressional Internet Caucus panel, Shirley Bloomfield, CEO of National Telecommunications Cooperative Association (NTCA) who notes themselves as being “the voice of rural telecommunications” said that, “We would really like to see the FCC also grapple with the contribution side of the equation as well.”

Currently, the main focus of overhauling the Universal Service Fund (USF), an $8 Billion fund that is designed to improve access and availability of telephone and emergency services to unserved and underserved communities, is directed at the distribution model of the services and whether that distribution model should be modified to focus on broadband Internet instead of telephone services.

When Bloomfield commented on discussing the contribution side of the program, Blair Levin, fellow at The Aspen Institute, and former chief architect of the National Broadband Plan, interjected that bringing about the discussion of remodeling the contribution side of the USF while the discussion of the distribution side was currently underway would be a “recipe for absolute stalemate”. Levin said that the taxation of Google was “extremely popular” amongst rural phone companies. Which simply makes sense considering that roughly 15% of their end-user and interstate revenue is going to the USF. These companies want help paying the bills that are chewing into their bottom line.

Levin went on to comment about the contribution to USF by content companies like Google or Netflix saying that it would be “an appropriate debate to have, I’m all for it.” To me this indicated that Levin was in favor of both the discussion and approach. Over the last few days I’ve had the chance to speak with Levin on multiple occasions, and he assures me that this could not be further from the truth. Levin feels that I misquoted him, I contend that I misunderstood what he intended and took Levin out of context. I am fine with the readership making the call. In any case, Mr. Levin seems to me to be a straight shooter, and my apologies to him for the trouble.

I’ve had the chance to follow up with Levin and ask him to clarify his position on the taxation of content creators in order to fund the contribution side of the USF. He was additionally asked why the taxation of such businesses and organizations may be a bad idea. Levin commented that he simply supports debating the issue so that it may be made more clear to the public and ultimately this approach may lead to better policy and additionally he says that he does “entertain the possibility that [he] might be wrong”.

When commenting about the taxation of content, Levin explained that taxing content would be a “bad idea” for many reasons, but mainly he noted that he “didn’t think the problem today is lack of money but rather it is how we spend the money.” He said that, “Debating how to raise more funds is not as important as spending the funds more effectively.”

Levin did not want to comment on the issue of how taxation of content for the USF may relate to Net Neutrality regulation stating that he thought it was “irrelevant to the USF debate” and would therefore pass on commenting since he had “not been a player in the Net Neutrality debate.”

Levin would, however speak on the subject of the overhaul of the USF and noted that he thought the fund should move from a focus on broadband expansion to unserved and underserved communities rather than on telephone connections as long as it was a thoughtful transition.

He said that the overhaul would be a benefit to consumers by creating a more efficient design that would allow the billions spent every year to be done in a way that will “more effectively address the country’s broadband gaps.” He continued by explaining that, “The [USF] money can be far more productively used for deployment in those markets without any broadband.”

It is hoped that a new strategy for the deployment side of the USF will be in place by the end of the year.