- The Supreme Court upheld the legality of the Universal Service Fund
- The law clearly states how the FCC should administer USF, said the Court
- But the road to USF reform remains rocky
The Supreme Court has finally ruled to uphold the constitutionality of the Universal Service Fund (USF), meaning the $8 billion subsidy program lives to fight another day.
The Court on Friday rejected the Fifth Circuit’s ruling that the USF funding mechanism violates Congress’ nondelegation doctrine – the principle that Congress can’t delegate legislative powers (e.g., taxation) to other entities.
The Fifth Circuit claimed the USF is a “misbegotten tax” because the Federal Communications Commission (FCC) outsourced management of the USF to a private entity – the Universal Service Administrative Company (USAC). The Sixth and Eleventh Circuits had voted to uphold the USF’s legality, which was how the program’s fate landed on the Supreme Court’s doorstep.
The Supreme Court’s move today was a long time coming, but not unexpected, according to New Street Research Policy Analyst Blair Levin.
“The court decision allows the FCC to continue to operate the USF as it has done in the past,” he said in a note. “It also takes away any legal timing pressures on reform.”
Essentially, the Supreme Court stated the USF contribution mechanism passes the “intelligible principle test.” In other words, Congress has given the FCC clear guidelines on how to administer USF via the Telecommunications Act of 1996.
“The statute makes clear whom the program is intended to serve: those in rural and other high-cost areas (with a special nod to rural hospitals), low-income consumers, and schools and libraries,” the Court wrote. “And it also defines the services those beneficiaries should receive.”
Telecom industry groups issued statements en masse praising the Supreme Court’s decision. But as they celebrated the end of the legal battle, they acknowledged there’s still a long road ahead for USF reform.
“As welcome as this decision is, the underlying threat to the Universal Service Fund remains, with the program's funding shrinking by the day,” said Gigi Sohn, executive director of the American Association for Public Broadband (AAPB).
Telecom companies are currently required each quarter to contribute 36.6% of interstate and international service end-user revenues to the USF. But that pool of money continues to dwindle as fewer consumers subscribe to traditional telephone services.
This issue, coupled with the demise of the Affordable Connectivity Program (ACP), “means that the promise of the USF program – to deliver affordable broadband directly to homes, schools and libraries, and rural communities – remains unfulfilled,” Sohn added.
USTelecom President and CEO Jonathan Spalter urged the federal government to require “trillion-dollar tech companies,” including major cloud players like Amazon, Meta and Google, to “get off the sidelines and join the telecom providers who fund this vital program.” But cloud companies aren't keen to be pulled into the USF contribution pool and have claimed that requiring them to contribute will hinder both cloud and economic growth.
The future of USF also hinges on how the revamped Broadband Equity, Access and Deployment (BEAD) pans out. Levin has noted if BEAD funds shift to more satellite providers, the federal government may question if USF needs to subsidize rural broadband deployments via its High-Cost Fund, which supports programs like the Rural Digital Opportunity Fund (RDOF).
Catch our full coverage of the thorny USF issue here.