Subsidizing Universal Broadband Through a Digital Advertising Services Fee: An Alignment of Incentives

With the transition of millions of children and post-secondary students to online-based emergency remote teaching and the widespread need for online telecommuting, the COVID-19 pandemic has underscored the need for nationwide reliable broadband access. A fixed, landline Internet connection is critical not only for education, but also for locating and applying for a job, working remotely, and partaking in telemedicine treatments. This study examines the current funding mechanism for the universal service fund (USF), and estimates the amount of annual funding necessary to provide broadband service to those who currently cannot access it, as well as to those who can access it but cannot afford it. Absent any unexpected deviations from the trajectories that historical data indicate, the current USF mechanism is unsustainable and will fail to meet the needs of its target consumer base within the next five years. Next, the study reviews and assesses potential sources of USF funding along objective economic criteria. Based on our review of two alternative funding options—assessing a fee on digital advertising platforms or wireline Internet service providers (ISPs)—we conclude that assessing a service fee on digital advertising constitutes the best policy option according to our economic criteria. Even if the current USF funding levels were increased to $17.5 billion annually (generously assuming a 75 percent participation rate by eligible, low-income households, and a $50 per month subsidy regardless of location), by 2029 the contribution factor on digital advertising would only reach 7.3 percent, compared to a 14.6 percent contribution factor if the fees were levied on wireline ISPs.