Profiting Without Paying: Why Cloud Computing Firms Must Contribute to the Universal Service Fund (USF)
Statement on CCIA Report
As a broadband economist, I welcome CCIA’s consideration of participating in programs that ensure connectivity for all Americans. Strand Consult has published multiple reports about Universal Service Fund (USF) reform. Cloud computing is an essential service, and cloud computing providers should support universal service in an equitable, predictable, and sufficient manner.
Meanwhile, cloud computing has grown from zero to a service projected to generate $2 trillion in global revenue by the end of the decade, with the U.S. accounting for roughly half of the revenue, according to Goldman Sachs. Leading providers like Amazon Web Services, Google Cloud, and Microsoft Azure rely on broadband infrastructure to reach their customers—including the schools, libraries, and hospitals supported by the Universal Service Fund (USF). Cloud computing firms have reaped substantial economic benefits from public investments in connectivity while contributing little to none of its funding—a situation FCC leadership has aptly described as a pernicious free ride.
In response to growing calls for reform, CCIA has published a counter-intuitive study that argues cloud providers’ participation in universal connectivity efforts would lead to inflation and lower GDP. But a review of the study’s methodology reveals it was constructed to produce an alarmist outcome. Below are key ways in which the study manipulates the data to deliver spurious conclusions:
1. Artificially Inflated Contribution Rate
The study assumes a 5% USF assessment on cloud revenues—a figure no serious policy analyst has proposed. For example, Strand Consult asserts that no assessment should exceed 1% of a sector’s total revenue, ideally with the contribution rate declining over time. At such levels, the actual economic impact would be minimal.
2. Mischaracterization of Cost Pass-Through
The study claims cloud providers would simply pass USF costs onto consumers. But cloud computing is a business-to-business (B2B) market, not a consumer-facing one. Cloud providers sell Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS) to enterprises—not individuals. Like in digital advertising, the lack of a direct consumer payment relationship makes pass-through pricing highly constrained. This argument echoes previous CCIA tactics used to deflect industry responsibility. The study even invokes cost-push inflation—a concept ill-suited to a 1% levy on billion-dollar enterprises that pride themselves on competitiveness, flexibility, and economies of scale.
3. State-Level Fearmongering
The study extends its inflated assumptions to state-by-state projections, attempting to stoke regional anxieties. But these claims rest on the same exaggerated and flawed foundation and should be dismissed accordingly.
4. Ignoring Economic Gains from New Subscribers
The study arbitrarily values new cloud revenues at zero, ignoring the fact that 5 million firms currently operate in areas served by the USF, spending an average of $19,000 per year on cloud subscriptions. Cloud computing firms enjoy some $95 billion annually in subscriptions from these firms. As new firms come online—often aided by the economic development that USF enables—cloud providers gain substantial new revenue.
5. False Equivalence Between USF and Federal Taxation
The study conflates USF assessments with taxation, which is incorrect. USF is a sector-specific fee assessed on providers to fund services administered by the FCC—not a general revenue tax collected by the U.S. Treasury. Courts have consistently upheld this distinction. By statute and judicial precedent, USF is borne by industry actors, not the general public. Two-thirds of the cost of taxation is borne by US households while cloud computing giants have leveraged global arbitrage to avoid taxation and regulation in the USA.
Moreover, numerous market-based funding models—including spectrum proceeds, paid peering, reverse auctions, and network usage fees—have been proposed. Yet CCIA has routinely opposed these, while continuing to benefit from a $9 billion USF to which its members contribute virtually nothing.
In conclusion, it is reasonable for a trade association to advocate for the interests of its members. However, it is disappointing that Raul Katz—a respected economist and colleague—has lent his credibility to a study that constructs a regulatory fantasy. 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.