While Congress weighs proposals to reform federal broadband programs aimed at closing the digital divide, policymakers must carefully evaluate how imposing new fees on startups could impact the innovation ecosystem.
Lawmakers recently revived the bipartisan, bicameral Universal Service Fund (USF) Working Group to overhaul the $8 billion program designed to expand high-speed Internet access across the country. Telecommunications providers currently fund the program by adding fees to consumer’s monthly phone bills—a source of funding that has declined steadily as fewer households have dedicated phone lines. Those funds support four major USF efforts including expanding service to rural and remote communities through the High Cost program; supporting low-income households via Lifeline; connecting libraries and schools via E-Rate; and helping connect rural healthcare providers through the Rural Health Care program.
Across the country, too many rural areas and disadvantaged communities still lack affordable, reliable Internet access. Julia Somerdin, Co-Founder & CEO of Labby, a Rochester-based startup providing diagnostic hardware and software for dairy farmers to improve milk quality, explained how “rural connectivity is critical to future innovation,” yet half the farms she works with need more stable, reliable Internet. These broadband gaps prevent potential founders, startup employees, and users from entering and participating in the innovation ecosystem. For startups, USF programs like High Cost can be a critical tool for leveling the playing field by advancing access to high-speed Internet. The focus of USF reform should be to ensure connectivity initiatives are effectively achieving the goal of closing the digital divide rather than placing further barriers on startups that are fueling innovation.
However, one prominent proposal to address the decline of the USF’s current funding base is to expand the contribution base to charge digital services, effectively creating a new fee for using Internet-based tools. Including digital services in the USF contribution base could lead to higher operating costs for startups, which would inevitably flow down to users. Providers may have to raise prices on services that have traditionally been free. Unlike telecom carriers that itemize fees on users’ phone bills, startups cannot pass these charges to customers, so they would be forced to absorb the added operating cost. Ultimately, the additional costs could discourage potential founders from entering the startup ecosystem, which could result in less innovation and undermine U.S. competitiveness.
Any proposal to include digital services in the USF contribution base must be approached with thorough consideration of unintended harms to early-stage companies and potential negative downstream impacts on users. Policymakers should reform USF so that it is effective, efficient, and sustainable and can help close the digital divide, but they should do it in a way that promotes innovation and competitiveness.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
