U.S. Gross Domestic Product (GDP) could drop by billions of dollars if Congress decides to let the Federal Communications Commission (FCC) assess Universal Service Fund (USF) fees to cloud providers, according to a new report from CCIA, an international trade association.
The report says assessing USF to cloud companies would reduce cloud adoption. That would result in higher prices for cloud services, leading to less innovation, job losses, and other dire consequences.
Members of CCIA include Amazon, Apple, CloudFlare, Google, Intel, Intuit, Meta, and several other major companies.
Each CCIA member company benefits from expanded internet access, but none are assessed fees by the USF. Instead, fees are assessed to interstate broadband providers. Typically, they pass the cost on to their subscribers in the form of fees on their monthly bill (but that practice isn’t required by law).
Tuesday’s report was written in response to calls to diversify funding sources for the USF, potentially to cloud and edge service providers who benefit from the increased access the USF provides. The idea has been around for several years, but hasn’t found traction among elected officials.
The report doesn’t address any of the ways increased funding for the USF could grow the economy, but predicts a rash of negative outcomes.
The first pillar of its argument is that cloud companies would pass the fee on to customers if they are assessed the fee, and that would lead to a decrease in cloud adoption. The authors expect a 0.5–0.6% decrease in cloud adoption with a price increase of 1%. Were the price of cloud services to increase by 7% (assuming a 7% USF fee), the expected decrease in cloud adoption is 33.2%.
Next, the paper predicts that increases in the cost of cloud services would result in GDP decline. If cloud providers are assessed at a 3% USF rate, national GDP would drop by at least $35.33 billion, the authors of the report say. At 5%, it would drop by at least $58.88 billion. At 7%, it would drop by between $82.43 and $207.46 billion.
State GDPs would be impacted too, the authors say. They project a 5% fee on cloud services would have the following impacts:
- California: Annual GDP decrease of $10.3–$25.8 billion
- Texas: Annual GDP decrease of $6.8–$7 billion
- Mississippi: Annual GDP decrease of $0.4–$1 billion
- West Virginia: Annual GDP decrease of $300–$700 million
- South Carolina: Annual GDP decrease of $900 million–$2.2 billion
The dire warnings continued from there. The authors of the report believe a 5% USF fee could decrease capital investment by cloud service providers by $7 billion, including impacts to key infrastructure buildouts.
Everyday consumers could also feel the pain. The authors expect the overall price level could go up by 0.13%.
One day after the CCIA released its report, Broadband Economist Robin Layton called for cloud companies to help fund the USF.
“Cloud computing is an essential service, and cloud computing providers should support universal service in an equitable, predictable, and sufficient manner,” she writes, adding that the industry is projected to generate $2 trillion in global revenue within the next decade.
She took direct aim at several claims made by the CCIA report before reaching the following conclusion:
“The report advances tendentious, unfounded, and inflammatory claims in an attempt to shut down a necessary conversation about industry responsibility. Cloud computing companies have flourished thanks in part to the very infrastructure supported by the Universal Service Fund. It is time they contribute meaningfully to the public programs from which they have long benefited—or alternatively, engage in meaningful market-based cost recovery.”
Each year, the $8–$9 billion USF fund pays for programs including E-Rate, Rural Health Care, Lifeline and High Cost. These programs help pay the cost of internet access for needy families and help rural providers build infrastructure in hard-to-reach places. The USF program has been in effect since the Telecommunications Act of 1996, but its constitutionality is under review by the U.S. Supreme Court.
