Author Archives: Doug Dawson, CCG Consulting

The Industrial Metaverse

When Facebook changed the company name to Meta in 2021, it looked like the company would be taking the lead to bring virtual reality into everyday life. The company promised in 2021 that it would create an interconnected and immersive digital world where users could engage in socializing, working, learning and creating. Meta invested over $60 billion since then to create metaverse technologies.

In the market, Meta released a series of Quest virtual reality headsets that were popular with some gamers but never got wide acceptance. The most successful product is Ray-Ban smart glasses, which are largely a phone you wear as glasses and that don’t include VR technology.

This month, Meta announced its new priorities for the future, which don’t include more exploration of the metaverse. The company laid off 100 workers from Reality Labs, and there are industry predictions that Meta will back out of metaverse research by the end of the year.

At least for now, this kills the idea of having virtual reality meetings at work and of taking virtual vacations. There were predictions in 2021 that this would be the new killer app for broadband usage and that home VR would finally be able to fully utilize home gigabit connections.

However, virtual reality has not been a total bust. A recent article in Wired describes how virtual reality has been embraced by manufacturers. There are some major advantages to being able to build a virtual version of a factory to try new ideas.

Cited in the article is report from the World Economic Forum that believes that industrial virtual reality will be a $100 billion business by 2030. This new industry might best be described as spatial computing. This combined virtual reality and augmented reality to benefit industrial applications.

The purpose of industrial VR is to create simulations of large industrial settings. The article says that Amazon uses a virtual simulation of its warehouses to train the robots that move and retrieve packages. Lowe’s uses the technology to consider its options before changing store layouts. There is a long discussion of how BMW uses the technology to improve efficiency in its auto factories.

Virtual reality for gaming is far from dead, and a dozen companies are making headsets for gaming. But the idea that we’ll all create avatars of ourselves that will navigate in a virtual world is going to go on the shelf for a while – maybe forever.

Broadband and Rural Real Estate

Over the last decade, I’ve heard from dozens of real estate agents who work in rural America. They universally tell me that it’s gotten exceedingly hard to sell rural homes that don’t have good broadband.

I’ve also written a few blogs over the years about people who moved to a rural home and were shocked to find they couldn’t buy broadband. They probably moved from a place where broadband is ubiquitously available, and they never imagined that there were places without broadband. The most famous such story in my neck of the woods involves Brian Rathbone, who owns the broadband consulting company Broadband Catalyst. When he found his new home didn’t have fiber, he undertook nearly a decade-long effort to get it, including building the fiber to reach from the road to his remote home.

The Brattle Group released a study late last year that concluded that bringing fiber to a home might add as much as 14% to the value of the home. They undertook the study by comparing the prices for homes in 2023 that didn’t have fiber to prices in the same neighborhoods in 2024 after getting fiber. This was a time period with some significant inflation, so the increase can’t be attributed entirely to fiber, but there is no doubt that getting fiber added significant value to homes. Over the last decade, I recall estimates made by others that estimated the increase in home value for getting fiber of 6% to 8%.

The value of bringing fiber to a rural home has to be greater than for an urban home. How do you quantify the value of adding fiber to a rural home if it suddenly makes the home marketable? In my mind, a house that is put up for sale and gets no offers can be said to have no value. Some rural real estate agents have told me stories of homes without broadband that sat vacant for years after the owners left the home for some reason.

Of course, fiber isn’t the only form of rural broadband. When real estate agents talk about homes without broadband, they include homes served by rural DSL, cellular hotspots, or high orbit satellite broadband. In rural areas, I’ve run across numerous residents who tried and abandoned each of these options as inadequate and not worth the cost.

The rural broadband landscape has gotten more complicated in recent years. For example, most counties now have a few cell towers that provide FWA home cellular broadband. But the coverage areas for decent broadband from towers are small, perhaps two miles, and in the counties I’ve examined, FWA typically covers 20% or less of the area.

WISPs have been stepping up their game in many markets with new radios and better backhaul. It wasn’t unusual three or four years ago to find counties where all WISP customers saw speeds of 10 Mbps or slower. WISPs are often now delivering much faster speeds in these same places.

The big wildcard is Starlink. There are rural customers who rave about it, particularly those for whom Starlink brought the first really workable broadband. But I’ve talked to Starlink customers who complain that the quality of broadband varies throughout the day, making it a challenge to work from home. Many people moving from a cable company or fiber connection are likely to be skeptical of satellite broadband.

Of course, the advantages of bringing better broadband to rural homes go far beyond just the value added to the real estate. The counties I know that have worked hard to get better broadband have several other major goals. They understand the boost to the local economy when rural folks can make good incomes working from home. Counties are universally desperate to keep young residents from leaving the County to find jobs, and they hope that better broadband opens up local opportunities. Good broadband is also key to attracting retirees to move from cities. It’s nearly impossible to put a dollar value on these benefits.

OBBB and Spectrum

The cellular industry is taking a victory lap after passage of the One Big Beautiful Bill (OBBB). The law reinstates the FCC’s authority to hold spectrum auctions and sets goals for the FCC to raise as much as $85 billion from selling spectrum. The following are the key provisions of the new law.

The bill instructs the FCC and the Assistant Secretary of Commerce (NTIA) to identify at least 800 megahertz of spectrum to be auctioned – between 1.3 GHz and 10.5 GHz. The law largely leaves it up to the two parties to determine the spectrum that will be up for sale. It will be interesting to how the FCC and NTIA coordinate on this.

The FCC is ordered to auction at least 300 megahertz of spectrum within two years, which must include at least 100 megahertz of the C-Band spectrum between 3.98-4.2 GHz. The FCC and NTIA must then identify 500 megahertz of spectrum that will support full-power commercial licensed use cases. That’s been a major goal for years for CTIA, the lobbyist for the cellular industry.

The bill carves out two bands of spectrum that cannot be considered for auction or relocation. The 3.1-3.25 GHz spectrum has been used by the military for many years. Also excluded is spectrum between 7.4-8.4 GHz, which is part of the X-Band spectrum that is used for military satellites.

The new law does not protect CBRS spectrum, which sits at 3-55 – 3.7 GHz. This spectrum is being used by today by over 1,000 entities today such as WISPs, private networks, ports, schools, sports venues, hospitals, airports, and the DOD. Part of this spectrum band is available for use by anybody, but subject to a system that shares bandwidth among users. AT&T had proposed late in 2024 that the FCC auction CBRS, which led to a letter signed by 23 ISPs from Texas and WISPA and sent a letter to Senators Ted Cruz and John Cornyn of Texas.

The bigger controversy comes from considering auctioning all or part of the 6 GHz spectrum that is used today for WiFi. The FCC approved this as public spectrum in April 2020, and the bandwidth available in this spectrum band has enabled the development of WiFi 6 and WiFi 7. Critics of the legislation point out that WiFi is by far the most valuable spectrum in the country. A study published by NCTA said the value of WiFi to the U.S. economy is $1.6 trillion in 2025, and the value is growing rapidly and will be 33% more by 2027.

The potential raid on the 6 GHz spectrum has raised alarm bells worldwide. This spectrum has been earmarked around the world for WiFi and unlicensed and shared spectrum use. The fear is that carving out some of U.S. 6 GHz spectrum will threaten WiFi innovation, and would make it harder to develop interoperable hardware and chip sets.

Trade groups such as the Wi-Fi Alliance and NCTA have filed objections with the FCC that suggested that any value generated by cellular use would pale against the huge benefits of expanded WiFi.

The FCC is going to have a major battle to auction 6 GHz spectrum that will pit the biggest cellular carriers against ISPs and the many other industries that benefit from WiFi. I remember a quote in an article a few years ago that resonated with me, which said that most people use WiFi from waking until bedtime, making it the most valuable spectrum.

Final BEAD Rules Released

The guessing game is over since NTIA has released the final rules about how the new BEAD grant process will work. Unfortunately, it’s still impossible to make any guesses about the percentage of BEAD that will be awarded to fiber or other technologies. There have been both optimistic and pessimistic predictions of awards for fiber written in the last few weeks, and as you’ll see below, there is still no way to guess who is right.

There are a few things we know. It’s clear that a lot of State Broadband Offices (SBOs) still want to maximize the amount of awards made to fiber. We also know that overall eligible BEAD locations are being reduced by allowing a map challenge from WISPs that use unlicensed spectrum. Preliminary estimates are that as many as 15% of BEAD passings might be removed from the grant process, but we’ll have to wait and see if WISPs use this challenge.

NTIA has specified the process for SBOs to make proposed grant awards. The highlight of that process is as follows:

  • SBOs must start over, and all ISPs will be invited to bid in a single Benefit of the Bargain grant round (this is probably the dumbest new industry term I can recall).
  • SBOS can designate a project as a Priority Broadband Projects, meaning projects that get the first crack at funding (see more below). In areas where more than one priority project is eligible for funding, the ISP asking for the lowest amount of grant funding per passing wins, with the caveat that an SBO can award the grant to a project that is no more than 15% higher than the lowest bidder.
  • Areas with no priority projects are directly awarded to the ISP asking for the lowest amount of funding.
  • SBOs are given a number of options to find ISPs willing to serve locations that nobody has requested to serve.

Priority Broadband Projects. An SBO gets to decide if a given grant application is going to be designated as a Priority Broadband Project. To meet this requirement, a proposed project has to 1) be able to deliver 100/20 Mbps service today with a latency under 100 milliseconds, 2) be able to scale over time to meet evolving connectivity needs of households and businesses, and 3) support the deployment of 5G and successor wireless technologies and other advanced services.

The second requirement implies that an SBO can determine some future goal faster than 100/20 Mbps that applicants must agree to eventually meet. The new rules don’t specify how to do this. I’ve already seen a few SBOs suggesting ultimate speeds between 200 and 300 Mbps download. Faster future speed requirements might be a reason for not giving satellite a priority designation, but WISPs would likely qualify.

The last test for supporting 5G is a harder hurdle to satisfy. It’s clear that building last-mile fiber supports 5G and future wireless technologies, because new 5G towers or repeaters can be placed anywhere in a last-mile fiber network. This will be harder for a WISP to guarantee. A WISP might be able to meet this requirement if they are building a BEAD network that includes fiber backhaul to towers instead of using wireless backhaul. A WISP that isn’t proposing to build some fiber is going to have a challenge to meet this requirement.

The bottom line is that it should be easy to designate last-mile fiber projects as priority. WISPs have more of a challenge in being designated as a priority project, and I expect some WISPs will achieve this designation and others won’t, depending on the proposed network and specific technology. It seems to be easy to exclude satellite service from the priority designation.

NTIA Taking an Active Role in BEAD Awards. There is a new surprise rule that means that tentative grants awarded using the above rules might still not be final. NTIA has made it clear to SBOs that it must be kept in the loop during the entire grant process. The ultimate touchpoint is that NTIA wants to see and approve every proposed grant award.

There is no end to the ways that NTIA could exercise this power. The folks making optimistic predictions for fiber awards could be right and NTIA could elect to let SBOs call the shots and could rubber-stamp most proposed grants.

However, there has been a lot of speculation that Commerce wants to significantly reduce the size of the $42.5 billion program, and having the final approval might be the mechanism for lowering grant outlays. NTIA might set an arbitrary cap on the amount if BEAD per passing for fiber awards. NTIA might veto grants made for fiber if a WISP or satellite provider offers a lower price for the same area, which would largely undo the priority areas designation. NTIA might override proposed grant awards in blue states but not red states, in large states but not small ones, or for small ISPs but not big ones. NTIA could decide that Starlink gets no grants, if we are to believe the current spat between Elon Musk and the administration.

Unless somebody has inside knowledge of NTIA’s intentions for awarding grants, it’s impossible to guess what NTIA might do with its power to approve grant awards. I’m done guessing the amount of fiber that will be built by BEAD. At this point, I think we’ll have to wait until September to see what pops out of the BEAD award process.

Seasonal Broadband

The 4th of July is a good day to talk about seasonality, as millions of folks visit their second homes for the holiday. A lot of ISPs operate in seasonal markets where customers regularly spend many months away from the market. Northern states are familiar with the annual migration of snowbirds who flee to somewhere warmer in the winter. These same states often see visitors coming in the summer to visit lakes and rural cabins to beat the southern heat. Any community close to the ocean understands the huge difference between the tourism season and the off-season. One of the most challenging seasonal markets is a small college town where residents leave in the summer to often be replaced in the fall with a new wave of students.

Seasonal visitors are a challenge for ISPs. A lot of seasonal visitors won’t buy broadband if they have to pay full price all year. Selling to seasonal customers has gotten more complicated since some bring a portable Starlink unit with them when they travel.

But seasonal visitors increasingly need broadband. A lot of seasonal visitors want to work remotely while moving between residences. Broadband brings access to video and to the many parts of daily life that are now conducted online. Many seasonal communities also have poor cellular service, particularly during tourist season when cell towers get overwhelmed.

Seasonal customers aren’t all the same. Some want to visit their seasonal property occasionally in the off-season for maintenance or for holidays. Many seasonal customers want to maintain security cameras and perhaps indoor sensors when they are away from the property but hate to pay a full rate for broadband for the months they aren’t there.

I’ve seen a wide range of ways that ISPs deal with seasonal customers.

  • The harshest solution is to bill for every month of service at full rates. This is the general treatment of seasonal customers by some of the largest ISPs.
  • Some ISPs let customers turn off service when they leave the market. There might be a reconnection charge to reestablish service when the customer returns for the next season. But that means no cameras or sensors or broadband when visiting the property in the off-season.
  • It’s also common to charge a reduced rate for the off-season. This allows customers to maintain security cameras and leak detectors without paying a full rate.

Some ISPs are getting more creative.

  • I know an ISP that reduces the fee to an off-season rate but automatically bills for a full month if the customer uses broadband in a significant way more than two days in a month during the off-season. They can do that because of the ability to track customer usage by location on their fiber network.
  • I know several ISPs who offer an off-season safety package. The ISP installs security cameras, burglar alarms, and leak detectors and monitors the devices for activity. They will alert the police if the burglar alarm is triggered. They will send a technician to investigate if a leak detector is triggered. They provide easy access to the owner of stored video camera recordings.
  • I know ISPs that have special rates for rental properties to encourage property owners to offer good broadband as an amenity while making it affordable for the whole year.
  • I know an ISP who has mastered the challenges of operating in a small college town. They swarm the campus when classes start each semester to make sure that students and parents know that they are a cheaper alternative to the cable company. They market a reduced rate for each semester for parents who will pre-pay for the semester. This is popular and saves students from being disconnected for non-payment in the final month of each semester when they often run out of funds.

The goal with seasonal packages is to maximize ISP revenue while not making customers feel like they are being overcharged. An ISP who finds the right package or products for their market will have loyal seasonal customers for years.

A Look at Cell Towers

The Wireless Infrastructure Association (WIA) released a recent report that looks at the state of cellular infrastructure in the country. WIA is a trade association representing the companies that build, own, and operate wireless infrastructure. Membership includes wireless carriers, firms that own towers, and professional service firms.

It’s always been a challenge outside of reports like this to get a good snapshot of wireless infrastructure. According to the report, at the end of 2024, there were:

  • 154,800 cell large towers built for the purpose of serving a single wireless carrier.
  • 248,050 macrocell sites. These are tall towers that provide space for two or more carriers.
  • 197,850 small cell sites. These are neighborhood cell sites located on poles and rooftops that are generally under 50 feet in height.
  • 802,500 indoor small cell nodes that support DAS, small cells, CBRS private network, millimeter wave transmitters, and other licensed frequency bands.

The report says there was a slight decrease in the number of small cell sites in 2024. A decade ago, the industry promised to build a million of these and put a small cell site in every neighborhood. However, when people started working at home during the pandemic, there was a decreasing need for small cell sites that needed to support a workday concentration of cell users. It’s interesting that there are still twice as many large cell towers as there are small cell sites.

The cell tower business nationwide supports 368,750 people who are engaged in building, maintaining, and operating cell networks.

There is still a lot of spending on cell infrastructure, and WIA says the industry spent $10.8 billion in 2024 to expand capacity and coverage. That figure represents only new and upgraded cell sites and includes the cost of new towers, electronics, installation, engineering, and deployment costs. The biggest part of this spending was $8.4 billion on RAN electronics.

Total network operating outlays for the industry in 2024 was almost $63.6 billion. That includes the $10.8 billion mentioned above for new towers and upgrades. Spending on cell tower maintenance is increasing while spending on new cell sites has been falling. Part of the increase in maintenance costs is for carriers paying to lease towers rather than build new ones.

The fastest-growing industry segment is indoor infrastructure that serves locations like stadiums, convention centers, hotels, business buildings and complexes, and large apartment complexes. Landlords and owners of this infrastructure are investing in infrastructure to bring good cell coverage indoors – something that is becoming increasingly problematic as cell carriers shift to higher frequencies that don’t penetrate buildings as well.

WIA thinks the most important trend in the industry is carriers moving to more shared macrotower sites. The infrastructure savings and the efficiencies for transport are too large to ignore.

From a broadband perspective, this means that existing sites might need a lot more bandwidth when multiple carriers share an existing tower. But the trend also means a lot fewer new cell sites being constructed, meaning less new revenue opportunity for fiber providers.

This report made me wonder how enthusiastic the big carriers are for the FCC to ever launch the 5G Plan for Rural America, which would have them opening a lot more low-margin rural cell sites. I suspect the folks who build towers love the idea, but I have to wonder if carriers are lukewarm on the idea of permanently supporting new rural towers.

Cellular Upload Speeds

T-Mobile recently announced a cellular speed test where the company was able to achieve an upload speed of 550 Mbps on a live cellular link. The test was clearly done in ideal conditions in order to achieve the fast speed, but T-Mobile acknowledges that upload speeds are increasingly important to customers. Fierce Network quoted T-Mobile President of Technology Ulf Ewaldsson as saying, “uplink is the next big thing.”

This is something the broadband industry has known for many years. Fiber companies set a standard of symmetrical download and upload speeds, which frankly provide more upload speed than people need. But the public complained loudly about the slow upload speeds from cable companies during the pandemic, and cable companies have scrambled to increase upload speeds using mid-split upgrades. Cable companies have upgraded many markets to upload speeds of 100 to 200 Mbps.

This new speed test record seems to have been released to complement T-Mobile’s press release in April, where it announced that it now offers the first nationwide 5G Advanced network. By that, T-Mobile means its 5G network has begun to incorporate the latest industry 5G standards included in 3 GPP Release 17 and 18. According to the press release, T-Mobile has implemented 5G Advanced nationwide, although there is some discussion in the Fierce Network article saying that is not likely.

There is no doubt that T-Mobile has upgraded networks to a greater degree than the competition, as documented in the latest report from Ookla for the end of 2024 where T-Mobile had a median download speed of 281.5 Mbps, compared to 199.1 Mbps for Verizon and 140.1 for AT&T.  However, during that same period, T-Mobile’s median upload speed, as measured by Ookla, was much slower at 21.3 Mbps. In the April press release, T-Mobile said its typical upload speeds are between 6 and 31 Mbps.

Upload speeds likely matter a lot more to T-Mobile now that it has passed the 6 million customer mark with its FWA home broadband product. Folks who use broadband for gaming, working from home, online schooling, and conferencing are not going to be enamored with a broadband product where poor upload speeds can degrade performance. The current median speed of 21 Mbps is basically the same as the speed customers don’t like on cable company networks.

Upload speeds are probably the biggest long-term weakness of FWA broadband. FWA customers who live in rural areas might not have another alternative other than Starlink, which also has slow upload speeds. But a lot of FWA’s growth is coming from suburbs and cities where customers have a broadband alternative. Cable companies are scrambling to get much faster upload speeds, and fiber generally has symmetrical speeds. Ookla points out in its latest quarterly report that upload usage is growing at a much faster pace than download usage. T-Mobile is being smart in looking at a way to improve upload speeds.

Implications of Satellite Being Broadband

We’ve had a quiet policy change in the country over the last year where satellite broadband is starting to be considered to be broadband by the federal government. Any rural household that subscribes to and loves Starlink would wonder why this is news, but from a policy perspective, it is a big deal. I’ve been considering what this shift might mean in the future.

The FCC decided that Starlink wasn’t broadband when it rejected Starlink’s long-form filing in August 2022 where Starlink wanted to claim the funding it had won in the RDOF reverse auction. The FCC ruled in that process that it couldn’t “subsidize ventures that are not delivering the promised speeds or are not likely to meet program requirements”. NTIA recognized low-orbit satellite as an acceptable alternative for BEAD funding for high-cost locations in a ruling in 2024 that made it acceptable for States to make RDOF awards to satellite companies. The real change in policy came with the recent Notice from NTIA that reshuffled BEAD grant rules and put satellite on an equal footing with fiber, fixed wireless, and other broadband technologies. The NTIA Notice said that satellite is eligible to win any amount of BEAD funding if it asks for the lowest amount of BEAD funding at a location.

But as is typical with regulatory policy, the NTIA didn’t make a full pivot to satellite. The same Notice that allows satellite to win BEAD anywhere did not change the BEAD map to recognize existing satellite customers as served. The Notice allows WISPs that use unlicensed spectrum to ask to remove locations from the BEAD map if they are already providing speeds of at least 100/20 Mbps. The NTIA did not give this same option to satellite – which could have theoretically allowed Starlink to ask to take all BEAD locations off the map and kill the grant program. I’m having trouble grasping why a home in a BEAD area that is using Starlink is not considered to be served with broadband while Starlink can ask for funding to serve the neighbor, who will then be considered as served. That dichotomy highlights the satellite regulatory issue in a nutshell – is satellite service broadband or not? Apparently, it’s not broadband for mapping purposes, but it is broadband for awarding federal grants and subsidies.

There are definite implications for satellite service being considered as broadband. First, doing so might eliminate any perceived federal need for future broadband grants. There will likely be millions of rural homes incorrectly left out of BEAD due to the faulty FCC maps. We’re still seeing additional RDOF defaults, like the 41,000 locations that CenturyLink just turned back to the FCC. But the FCC and the rest of the federal government can be totally off the hook for future grants with a simple finding by the FCC that satellite service is fully considered to be broadband. The FCC will be able to take a bow and declare rural universal service has been accomplished – regardless of the rural folks who still don’t think they have a broadband option.

If satellite service is broadband, there probably is no need for future federal subsidies that support high-cost areas. Rural subsidies are the biggest part of the Universal Service Fund at $4.5 billion in 2024. That includes subsidies for RDOF, EA-CAM, and other high-cost support mechanisms for rural telcos.

The only part of this fund that might not be a target to end is the $500 million spent each year to support rural cellular carriers. As satellite companies continue to get into the business of connecting directly to cell phones, this subsidy might also eventually be questioned.

If satellite is broadband, then the big telcos are completely free to finally dismantle rural copper. The California Public Utility Commission has been making that hard for AT&T and other telcos.

We have reached the place where satellite broadband is considered to be broadband for some purposes but not others. It will be interesting to see how long we maintain this dichotomy. I’m guessing for now that we’ll live with treating satellite differently depending on the context – but that can’t last for long.

Supreme Court Upholds the Universal Service Fund

On Friday, the Supreme Court ruled that the FCC has the authority to operate and fund the Universal Service Fund.

The case that prompted the Supreme Court Decision was FCC v. Consumers’ Research.  Consumers’ Research is a nonprofit activist group that originally filed cases in multiple courts alleging that the method used to fund the USF is an illegal tax since it did not arise from specific direction or approval from Congress. Consumers’ Research also argued that Congress neglected its legislative responsibility allowing the FCC to establish the size of the Universal Service Fund and to decide the method for collecting revenues to fund it.

The case made it the Supreme Court when the U.S. Court of Appeals for the Fifth Circuit agreed with Consumers’ Research and said that the USF is unconstitutional. That ruling conflicted with rulings from the Sixth and Eleventh Circuits that largely blessed the FCC and the USF.

Consumers’ Research had argued that fees to fund the Universal Service Fund are a tax, and, as such, must fit a special nondelegation rule such that Congress must set a numeric fixed cap, a tax rate, or the equivalent. The Court rejected this argument. The Court points out that Section 254 directs the FCC to collect contributions that are “sufficient” to support universal service programs. The Court said the word “sufficient” acts as a cap on the amount of revenue that the FCC can collect since it can only collect money for purposes to benefit those “in rural areas and other high-cost areas (with a special nod to rural hospitals), low-income consumers, and schools and libraries.”

Consumers’ Research had argued that the Act gives the FCC boundless authority, but the Court disagreed and said that the FCC is free to periodically redefine its programs as long as those programs are aimed at accomplishing universal service goals.

Consumers’ Research also took exception to the FCC’s delegation of the USF to USAC (Universal Service Administrative Company). The Court rejected this assertion because USAC is broadly subordinate to the FCC. The FCC appoints the Board of Directors, approves the budget, and requires USAC to act consistently with FCC rules and directives.

Finally, the Court rejected the argument that the combination of Congress’s grant of authority to the FCC and the FCC’s reliance on USAC together violate the Constitution, although neither one does so alone.

Overall, the Supreme Court ruling is a total repudiation of the ruling of the Fifth Circuit. This ought to put attacks on the existence of the Universal Service Fund to rest for a while. Just as an aside, if you’ve never read a Supreme Court ruling, they are not easy reading, but worthwhile for those interested in the topic.

However, this doesn’t take the Universal Service Fund out of the news or off the hot seat. The funding mechanism for the USF is clearly broken and the fund can’t continue with fees assessed only on interstate telecom services. There are bills pending in both the House and Senate that would spread funding to broadband customers and to the biggest companies that use the web (referred as edge providers in the legislation).

USF and Cloud Services

The Computer & Communication Industry Association (CCIA) released a paper recently warning about the impact of imposing Universal Service fees on what it characterizes as cloud services. CCIA is an association that lobbies on behalf of some of the largest web companies like Amazon, Meta, Google, Apple, Netflix, and Cloudflare.

The author quantifies the impacts of imposing a USF fee on cloud service providers and uses an example of a 5% USF fee on cloud services. Some of the cited impacts include:

  • The author of the report says that the cloud service industry is extremely price-sensitive and that there would be a loss of business if a cloud service provider passes USF fees to customers. The report says that a 1% increase in the price of cloud services would result in a drop in business between 0.5% and 0.6%.
  • A 5% fee passed on to customers would decrease national GDP between $59 billion and $148 billion annually. This means impacts on State GDPs, with California having a downside as large as $25 billion, Texas an impact up to $17 billion, and South Carolina an impact of as much as $2.2 billion. To put that last number into perspective, the total annual State budget for South Carolina in 2024 was only $40.2 billion.
  • The industry invests around $54 billion annually on infrastructure, and the report suggests that this would cause the industry to cut back on new investments by $7.6 billion.
  • A 5% fee would increase overall national inflation by up to 0.13%.

It’s somewhat refreshing to see that the lobbyists in other industries are as willing to greatly exaggerate claims about the impact of regulatory and legal changes as the telecom industry. Let’s put the claims to a reasonableness test.

The total Universal Service Fund was $8.5 billion in 2024. USF is funded today entirely by a fee levied on telecommunications services. There are no proposals that I’ve seen that would ask cloud companies to fund that entire amount – the current bills being contemplated by the House and Senate would ‘equitably’ allocate the fee between telecom services, broadband services, and ‘edge services’, which is the same as what the paper calls cloud services.

It’s hard to think that the share of USF allocated to cloud companies would be much more than perhaps $3 billion per year – far smaller than the 5% increase included in the CCIA analysis. A $3 billion fee would not create the dire consequences warned by the paper.

Cloud companies are already paying a significant portion of USF fees that are imposed on the fiber circuits sold for Internet backbone. Fiber circuits to data centers are a big piece of the fiber transport network that is part of the telecom base for USF. Reducing the USF fees paid by telecom companies would significantly reduce the fees charged for backbone fiber. This might offset a significant portion of new direct fees on cloud companies.

The interesting thing that nobody knows yet is which companies in the cloud industry would pay any new fees. That’s something that would only be solidified by Congress at the time they adopted the new method of funding the USF. The fees charge to telecom companies are assessed on everyone from the giant telcos down to the smallest telco. The impact of a USF fee on cloud companies will be diluted if the fees are spread across a wider number of companies than just the large members of CCIA.

The bottom line is that the CCIA analysis is downright silly when it threatens that a $3 billion fee on cloud services might wipe out 5% of South Carolina’s annual State budget or might decrease national GDP by at least $59 billion. But you have to give it to lobbyists – the purpose of the analysis was to provide talking points for politicians in DC, and I suspect it provided the talking points CCIA was looking for.

This blog is being published on Friday morning. Later this morning, the Supreme Court should be announcing the results of the case that asks if the FCC has the authority to operate the Universal Service Fund. Expect my reaction to that case on Monday if the Court decides the FCC has the authority – expect something sooner if they don’t.