Traditionally, broadband providers and electric utilities have built essential infrastructure subject to heavy amounts of regulation. Many believed digital platforms, based on software on the edge of networks, should come under light regulation. “That fiction has expired,” writes European-based Strand Consult, examining the effect that hyperscalers building data centers to support artificial intelligence (AI) is having on U.S. consumers.
“Hyperscale data centers are capital-intensive industrial facilities with large footprints, heavy power requirements, land and water needs, and direct impacts on broadband networks, local grids, communities, and ratepayers,” says Strand in a recent Research Note. In some areas, consumers are already feeling the expense that data center demand for electricity creates.
Efforts to modernize the Federal Communications Commission’s Universal Service Fund program could offer a direction for hyperscaler regulation. “Today, broadband networks carry exponentially greater volumes of data driven by hyperscale platforms … yet USF contributions remain narrowly assessed on legacy services while the largest sources of traffic and value creation contribute little or nothing,” Strand says.
Broadband industry representatives and some in Congress support legislation to require currently exempt service providers and hyperscalers to contribute to the USF. A similar fund with a broad pool of contributors might be an answer to the “mismatch” forming between electricity providers and hyperscalers, according to the analysis.
Hyperscalers tend to negotiate wholesale rates for traffic on digital platforms, which explains why most regulators and communities are focused on the strain on electric infrastructure, Strand says. The Trump administration says it is working with Microsoft to develop a “pay their own way” regulation for hyperscalers to defray electricity costs.
Rising broadband costs have not yet affected consumers as dramatically, but the logic of the situation, Strand says, calls for developing some form of cost-recovery for broadband providers as well. “As with electricity, broadband is an essential service — and a politically ripe area for action,” Strand says.
Strand specified that its analysis of “hyperscalers” centers on four companies — Microsoft, Alphabet (Google), Meta (Facebook), and AWS (Amazon). Of the four, Microsoft does the most business with the federal government and has been most willing to work with the government on potential solutions. AWS is “probably the most visible target [for regulation] in the data center debate” and has consumed the most electricity among the hyperscalers.
Strand says that Meta has taken a lead in “clean power” for data centers, especially nuclear facilities. Onsite nuclear generation, thought to be at least a decade away, eventually could save costs by bypassing the utilities. Alphabet has focused on renewable power, which some critics say will never generate enough power to meet data center needs
