States, courts – not Congress or the FCC – could rule telecom policy in ‘23

Congress and the U.S. Federal Communications Commission (FCC) will have plenty of telecom issues on their plate as the country heads into 2023. Tax breaks for grant funding. ReConnect reform. Pole attachment problems. Perhaps even net neutrality – again. But New Street Research’s Blair Levin told Fierce a handful of truly pressing policy issues appear poised to be decided by the states and courts.

According to Levin, a recent ruling by the Supreme Court in the West Virginia v. EPA case opened the door for anyone to “question anything the FCC does and provides new grounds for challenging” rules they don’t like.

With this in mind, Levin said there are two court cases he’s got his eye on going into 2023: one in the U.S. Court of Appeals for the 5th Circuit (Consumers’ Research v. FCC) weighing the constitutionality of the Universal Service Fund (USF) and another in New York looking at whether the state has the authority to require ISPs to offer broadband plans at a certain price point. Arguments in the former were heard earlier this month and nearly identical challenges are also playing out in the 6th and 11th Circuits.

Levin said unlike other attempts to challenge the FCC’s authority, the 5th Circuit case is not frivolous. And moreover, it could force the FCC and Congress to act to address the continued viability of the current USF system and weigh the related issue of what happens when money from the $14.2 billion Affordably Connectivity Program (ACP) runs out. That will likely happen in 2024, leaving millions of program participants without the $30 per month subsidy they’ve been receiving to help pay for broadband service.

While it might seem like the FCC is already working on USF reform given Chairwoman Jessica Rosenworcel called on Congress last year to address the issue, it doesn’t really appear to be a pressing priority for the agency. Correspondence between Rosenworcel and Congresswoman Cathy McMorris Rodgers in October, in which the former provided a list of pending action items at the FCC, showed two of the three rulemaking items related to USF were more than a decade old and the most recent was from 2017.

“This is a big, big pothole coming up. But what I don’t see is any effort by Congress or the FCC or anybody else to fix the potholes before they come up. There’s a lot of discussion about it, but I don’t see it really on anybody’s priority list,” Levin said. “At the end of the day, if we don’t fix this in the next couple of years we will have a crisis.”

Meanwhile, there’s the case in New York, which in a strange way also ties into the fate of the USF and ACP.

That case relates to a law the state passed in 2021 requiring ISPs to provide low-income plans offering speeds of at least 25 Mbps at $15 per month or less. In June 2021, the US District Court for the Eastern District of New York ruled in favor of ISPs challenging the law, but an appeal is currently being considered by the 2nd Circuit.

Levin said the law had “almost zero impact” on operators since many were already offering service options which met the requirements. But the upcoming appeals court decision in the case could end up being a huge deal. That’s because a ruling in New York’s favor would establish a precedent that states can require certain pricing packages, Levin explained. And with the ACP set to fade away in a few years' time, it’s entirely plausible that more states would begin adopting rules like the one in New York.

“If there’s one case that could cause telecom stocks to fall it would be the 2nd Circuit case,” Levin concluded. “Investors would get very nervous about that.”