USF constitutionality upheld: New ruling raises Supreme Court questions

The Federal Communications Commission (FCC) secured another win in the Eleventh Circuit Court of Appeals, where judges affirmed the constitutionality of the Universal Service Fund (USF). In doing so, the court supported the FCC's choice to delegate the administration of USF programs to a third party – the Universal Service Administrative Company (USAC).

But analysts told Fierce Telecom USF isn't out of the woods yet.

The Eleventh Circuit’s decision was “expected,” said New Street Research’s Blair Levin. He told Fierce Telecom, “Given the 6th Circuit decision that went the same way, it was not huge. But, like avoiding a car wreck, when one considers the alternative, the decision avoids a very big loss for the FCC.”

USAC’s responsibilities include collecting data from carriers to calculate contribution rates and proposing a quarterly budget to the FCC for the USF. The percentage of telecom revenues required to support universal service has been steadily increasing and now stands at around 30%.

The Eleventh Circuit ruling was in response to a petition which challenged the FCC’s and USAC’s roles in determining the USF contribution model. Petitioners included Consumers’ Research, a nonprofit organization; Cause Based Commerce, a company that resells telecommunications services; and several individuals who pay into the USF through monthly phone bills.

Those petitioners argued that the actions taken by both the FCC and USAC are unconstitutional under non-delegation doctrine jurisprudence, a legal principle that suggests certain responsibilities cannot be transferred to another entity unless there are clear guidelines and limits established by law.

In its opinion the Eleventh Circuit held that there is no violation of the private non-delegation doctrine in the USAC’s administration of USF.

“The Petitioners argue that the FCC’s use of the USAC violates the private non-delegation doctrine because: the USAC decides how much money to raise and how to spend it, and the FCC exercises no meaningful oversight of these decisions. We disagree,” the judges wrote.

The ruling found that a government agency may delegate authority to private entities without violating the private non-delegation doctrine, so long as the entity “function[s] subordinately” to the agency and the agency retains “authority and surveillance over the activities” of the private entity.

In considering an identical private non-delegation challenge to a previous FCC Contribution Factor, the Sixth Circuit found that the USAC is “subordinate to the FCC and performs ministerial and fact-gathering functions.”

The Eleventh Circuit maintained that the USAC cannot make policy or interpret unclear provisions or rules, because where there is confusion about how USAC should act, it must seek direction from the FCC.

Reform remains a question

Levin had previously indicated that if one or more of the courts declares the USF illegal and subsequently suspends the program, it would bring about “immediate damage” to the institutions and low-income families depending on those funds. 

Amid fears over that the USF’s revenue base is "trending toward $0" the fate of the program still hangs in the balance, with recent calls to change its funding model to include contributions from broadband providers.

Levin said efforts to reform the USF seem "to have moved away from the FCC and over to the Congress,” referring to a bipartisan Senate working group tasked with evaluating and proposing potential reforms to the USF, led by Senators Ben Ray Luján (D-NM) and John Thune (R-SD).

“I don't think any problems have been resolved and I am skeptical that any thing will happen next year. I think we are looking at 2025 as the earliest reform could happen unless the courts force it to happen quicker,” added Levin.

USF question could go to the Supreme Court

The Eleventh Circuit’s decision this week to uphold the USF’s contributions regime was hailed by the Competitive Carriers Association, NTCA–The Rural Broadband Association, and USTelecom–The Broadband Association. In a joint statement, the groups called the ruling “a victory for the many rural and urban consumers and anchor institutions across the country who rely on the services supported by the federal Universal Service Fund.”

But the USF isn’t out of rough waters yet.

In March, the Fifth Circuit Court of Appeals also upheld USF constitutionality, but just months later granted a request for the full court to re-hear the challenge to USAC’s oversight of the program. 

NSR’s Levin said that the Eleventh Circuit’s decision “preserves the status quo, and, along with the Sixth Circuit decision, sets up a potential Supreme Court decision down the road if the Fifth Circuit goes the other way.”

Eric Fruits, an adjunct professor of economics at Portland State University, said the grant of en banc review by the Fifth Circuit and subsequent oral arguments suggest that the court is “likely to find it violates the non-delegation doctrine.”

“This would set up a circuit split and strengthen the case for Supreme Court review,” Fruits told Fierce Telecom.

He noted that in the Eleventh Circuit opinion, there are concurrences by Judges Newsom and Lagoa that indicate potential grounds for the Supreme Court to reconsider precedents that the FCC relies upon, one which is related to the concept of an "intelligible principle."

This refers to the legal requirement that when Congress delegates authority to an agency, it must provide clear guidelines and limits for the agency to follow.

Specifically, Judge Newsom's concurrence suggests that the contribution scheme “could be characterized as a tax because it isn’t for the benefit of those contributing,” said Fruits. “This contrasts with a fee in which the fee-payer expects to receive a benefit for the fee paid.”

“Congress should pass USF reform that puts the program on an unquestionable constitutional footing by putting real limits on how much can be charged and how it can be collected,” he concluded.