Fifth Circuit Court Finds Universal Service Fund Constitutional

By: Andy Regitsky

In a case that could have had tremendous repercussions for the industry, the Fifth Circuit Court of Appeals in New Orleans released a March 24, 2023, Opinion affirming the constitutionality of the universal service fund (USF) and the Universal Service Administrative Company (USAC). The legality of the Fund had been challenged by Consumer Research, Caused Based Commerce and several individuals (Petitioners).

Specifically, the Petitioners requested the Court to vacate the first quarter 2022 USF contribution factor. They argued that the current system in which carriers contribute to the Fund based on their interstate and international telecommunications revenues is unconstitutional because it involves Congress unlawfully delegating legislative and taxing authority to the FCC, and then the Commission delegating this authority to USAC. In essence, the Petitioners claim that Section 254 of the Telecommunications Act “place[s] no formula or meaningful limitations on the amount the FCC can raise,” and therefore fails to provide a meaningful principle limiting the program, a constitutional requirement.

For example, they point to the absence of a limit on how much the FCC can raise for the USF as evidence of a lack of proper guidance. With no objective ceiling on the amount that the FCC can raise each quarter, they contend that Congress’s alleged intelligible principles fail to place necessary limits on the FCC’s ability to assess fees from telecommunications carriers. Also, Petitioners aver that [section] 254(b)(1)-(7) contains mere public policy statements which impose no meaningful limitations on or guidance to the FCC’s revenue-raising obligation in its administration of the USF. In sum, Petitioners maintain that Congress has not articulated any guidance to the FCC in its administration of the USF—and that this failure violates the nondelegation doctrine. (Opinion pp. 7-8).

The Court disagrees:

Congress passed [section] 254 for the express purpose of preserving and advancing universal telecommunications services. To that end, [section] 254(b) provides that the FCC “shall base policies” on certain enumerated principles. Petitioners maintain that these principles offer no guidance to the FCC as it attempts to realize [section] 254(b)’s purpose. Their position is untenable. Section 254 expressly requires the FCC to ensure that telecommunications services are: (1) of decent quality and reasonably priced; (2) equally available in rural and urban areas; (3) supported by state and federal mechanisms; (4) funded in an equitable and nondiscriminatory manner; (5) established in important public spaces (schools, healthcare providers, and libraries); and (6) available broadly across all regions in the nation. And should the FCC ever conclude that these principles were insufficient, the statute enables, and likely obligates, it to add principles “consistent with” [section] 254’s overall purpose. Rather than leave the FCC with “no guidance whatsoever,” Congress provided ample direction for the FCC in [section] 254. (Id., at p. 8).

The Petitioners also attack USAC, arguing that the Commission’s delegation of Fund administration to this company is an impermissible delegation of regulatory authority to a private entity. Moreover, they claim that the FCC does not oversee USAC in the performance of its duties and almost never modifies the quarterly USF contribution factor that USAC calculates. In other words, the Commission is just a “rubber-stamp for USAC. Again, the Court disagrees:

Here, the FCC has not violated the private nondelegation doctrine. First, because federal statutory law wholly subordinates USAC to the FCC. Second…USAC does not enjoy the same type of sweeping rulemaking power—instead it makes a series of proposals to the FCC based off expert analysis, which are not binding on carriers until the FCC approves them. Third, the FCC permits telecommunications carriers to challenge USAC proposals directly to the agency and often grants relief to those challenges. Fourth, the FCC dictates how USAC calculates the USF contribution factor and subsequently reviews the calculation method after USAC makes a proposal. (Id., at p. 14).

The Court’s decision is a clear win for our industry. Imagine the chaos that would have been unleashed had the Fund been found illegal. FCC Commissioner Geoffery Starks released a statement that I think almost all can agree with!

I’m pleased that the Fifth Circuit agreed with what I and many others—including bipartisan members of Congress—have said about the Universal Service Fund. It is constitutional, both in concept and implementation. The Universal Service Fund continues to connect rural communities, schools, libraries, healthcare providers, and low-income households all across the country. It is a vital program for bringing equal opportunity to all Americans and closing the digital divide. (FCC March 24, 2023, News Release.