There is a political consensus that the United States should continue its nearly century long commitment to assuring that the tools of modern communications are universally accessible and affordable.

There is also a consensus that the primary program through which we keep that commitment—the Federal Communications Commission’s Universal Service Fund (USF)—is breaking down. While it has multiple problems, including legal and administrative challenges, the primary problem is that the system by which we fund USF is unsustainable. As many readers may know, any entity that provides interstate telecommunications services to the public for a fee must contribute to the USF. Various new mechanisms have been proposed but we think there is a better way: assess online gambling.

Before explaining why that mechanism is better, let us describe the current alternatives for funding and their flaws.

Keep the status quo. While no one advocates for this alternative, this has been the de facto policy for the last decade. The simple truth, however, is that the USF contribution base—the communications revenues subject to the USF assessment—keeps going down forcing the contribution factor—the percentage assessment of the contribution base revenues—to keep going up. For example, in the last quarter, the contribution base revenues were approximately $329 million less than the previous quarter, and the lowest quarterly revenue in the history of the USF. As a result, the USF contribution factor for the fourth quarter of 2024 will rise from 34.4 percent to 36.5 percent—the highest quarterly contribution factor in the history of the USF.

Pay for it through annual appropriations. While this alternative has some theoretical attractiveness, it ignores that the service providers cannot make long-term capital plans that depend on annual appropriations that are subject to the vagaries of politics. While nothing is certain in life, too much uncertainty will cause the ISPs to underinvest in capital projects both because the funding for long-term investments may not survive a bad political cycle and the demand side for low-income customers may also be cut off, rendering their models moot.

Assess broadband revenues. The FCC could assess broadband revenues. The FCC so far has chosen not to. The FCC’s argument was that it does not want to raise the cost of the broadband service, making it less affordable for tens of millions of households.

Assess Big Tech. A new favorite, championed by FCC Commissioner Carr and others, is to assess Big Tech. This alternative has the advantage of going after a large revenue stream garnered by a currently unpopular sector. It has the disadvantage of going after a complicated revenue stream enjoyed by a sector that, despite its unpopularity in the public on some fronts, has a perfect record of defeating any Congressional efforts to regulate or tax it more. Carr’s efforts have garnered him great headlines but there is no traction for it so far in Congress.

Assess Online Gambling. There is another alternative.

Let’s start with this question. What will be the biggest social problem in the US in the year 2030 that rides on communications platforms? A December 2022 Wall Street Journal article provided evidence that it is likely to be young men gambling online.  For example, it noted that the “number of 11th and 12th grade males experiencing gambling problems, such as lying about how much they lost, or being unable to control their gambling, rose to 8.3% in 2022 from 4.2% in 2018, according to one survey of 7,500 7th through 12th graders in Wood County, Ohio.” Another example was that “more male college students are coming in for treatment, often at the insistence of parents who discover tuition money and other college expenses have gone toward sports betting and other gambling.” 

Another recent story in The Atlantic provided further evidence. Noting that sports gambling is now legal in 38 states and the District of Columbia, yielding $10 billion a year in revenue, it pointed to three studies showing devasting consequences: one, finding that sports gambling depletes households’ savings; a second finding that sports gambling increases the risk that a household goes bankrupt by 25 to 30 percent and increases debt delinquency; and a third finding a link between sports gambling and increased domestic violence.

What are we doing about it? The New York Times reported, “to reap millions of dollars in fees, universities are partnering with betting companies to introduce their students and sports fans to online gambling.” And that “Government oversight of sports betting offers scant consumer protections and looks to the industry to police itself.”

There is an argument that sports gambling should be banned. But we don’t see that as likely. There are, however, many things the government should do short of that to reduce the harm. One of them is to do what government has done before to reduce the harm of legal but problematic behaviors such as the consumption of alcohol and cigarettes: tax it. While there is a current tax, we would propose raising it to fund some, if not all, of the USF program.

Such a tax would not have the problem of raising the cost of broadband, something we don’t want to cause. It would also not have the problem of assessing a tax on a complicated corporate revenue stream. It provides a steady and, unfortunately, growing revenue stream that can be relied upon. And its revenue opportunities are sizable enough to be part of a meaningful broadband subsidy solution. According to the Legal Sports Report, some $2.14 billion dollars in taxes was collected on $11 billion in revenue for 2023 in states where such betting is legal (which excludes Texas and California). Online sports gambling is only a portion of overall online gambling revenue; online casinos and online lotteries generated another $8.5 billion in revenue for operators in 2023.

So as a matter of policy, it is clearly superior to the alternatives offered to date.

As a political matter, we understand Commissioner Carr’s desire to blame the tech industry for many ills. Whether justified or not, it is remarkable how many policies he recommends in his chapter on the FCC in the now infamous Project 2025 book relate to policies the FCC has nothing to do with but that would have the impact of raising costs for Big Tech enterprises. But while that might work in terms of Republican messaging, when it comes to rewriting the tax code in Congress, there is a good reason his proposal has gone nowhere.

It is never easy to assess a new tax on a sector. But if the tech and communications sectors were to align in support of the using such assessments to fund USF, the political odds would improve.

In short, if government is going to sanction something with proven harms, why not tax it to fund something with proven benefits? 

John B. Horrigan is a Benton Senior Fellow and a national expert on technology adoption, digital inclusion, and evaluating the outcomes and impacts of programs designed to promote communications technology adoption and use.

Blair Levin is the Policy Advisor to New Street Research and a nonresident senior fellow at Brookings Metro​. Prior to joining New Street, Blair served as Chief of Staff to FCC Chairman Reed Hundt (1993-1997), directed the writing of the United States National Broadband Plan (2009-2010), and was a policy analyst for the equity research teams at Legg Mason and Stifel Nicolaus. Levin is a graduate of Yale College and Yale Law School.

The Benton Institute for Broadband & Society is a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, High-Performance Broadband regardless of where they live or who they are. We believe communication policy - rooted in the values of access, equity, and diversity - has the power to deliver new opportunities and strengthen communities.

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