D.C. Memo: CCIA Study Finds USF Cloud Tax Would Hurt GDP, Fuel Inflation

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USF: The Computer and Communications Industry Association (CCIA) issued a study today assessing the economic impact domestically if cloud services were required to kick in to the $8.6 billion Universal Service Fund. “This study demonstrates that imposing USF fees on cloud computing services will harm U.S. consumers and economic growth across national and state economies. The negative impact would also affect key economic sectors throughout the country. Cloud services should remain exempt from USF contribution reform proposals to mitigate these potential negative impacts,” said study author Dr. Raul Katz, an MIT-trained PhD in Political Science and Management Science. Katz’s study, based on econometric analyses of six hypotheses regarding the impact of imposing a USF fee on cloud computing services, said a USF fee would slow enterprise adoption of cloud services. “Assuming a hypothetical imposition of a 5% USF fee on cloud service revenues that is entirely passed through to cloud customers, the impact on national GDP is expected to range from a decrease of $58 billion to $148.13 billion,” with a disproportionate impact on California, Texas, and South Carolina. Major cloud providers include Amazon Web Services (AWS) with around 31% of the global market share, Microsoft Azure with 20% and Google Cloud Platform with 12%. Katz argued that cloud a tax would reduce telecom capex by $7.63 billion while cause a spike in inflation. “The inflationary impact of a 5%, price increase for cloud services resulting from an imposition of a USF fee could yield up to a 0.13% increase in the overall inflation rate in the U.S.” Katz said. (PDF of CCIA paper after paywall.)