Appeals Court Denies Petition Challenging FCC Administration of Universal Service Fund

WASHINGTON, March 27, 2023 – An appeals court ruled Friday that Congress provided sufficient guidance and limits on the Federal Communications Commission in its administration of the Universal Service Fund, turning away a petition that argued the agency was unjustly collecting arbitrary amounts from telecommunications service providers and was unduly delegating that collection to a private entity.

Early last year, non-profit research house Consumers’ Research and communications service provider Cause Based Commerce asked the U.S. Court of Appeals for the Fifth Circuit to find that Congress under Section 254 of the Telecommunications Act of 1996 gave the FCC unfettered delegatory authority to raise revenues akin to taxation for the fund that provides basic telecommunications services and that the commission has illegally delegated that authority to a private entity known as the Universal Service Administration Company.

But the appeals court denied the petitioners’ points in a decision Friday, ruling that Congress provided sufficient guidance to the agency when administering the $9 billion fund, put in place guardrails to guide that administration, and that the FCC has sufficient oversight of USAC to allow for the subordination. In other words, the FCC is not deviating far from the guidance and the limits imposed on it by the legislative house, according to the court.

On the first point, the three-panel court ruled that – contrary to the petitioners’ claim – Section 254 offers specific guidance, such as offering affordable telecommunications services of decent quality, making it equitably available in rural and urban areas, and funded in an equitable and nondiscriminatory manner.

“Rather than leave the FCC with ‘no guidance whatsoever,’ Congress provided ample direction for the FCC in S 254,” the decision read, adding Congress chose to “confer substantial discretion” over the USF’s administration to the FCC.

On the FCC’s revenue-raising ability, the court also ruled that Section 254 provides adequate limits on that ability. Section 254 “certainly, did not leave the matter to the FCC ‘without standard or rule, to be dealt with as [it] pleased,’” the decision read. “Instead, § 254 requires that the FCC only raise enough revenue to satisfy its primary function.”

Those limits under the provisions of Section 254 include specific guardrails for the expenditure of those funds on telecommunications services that are essential, deployed in public networks by telecoms, and consistent with the public interest.

“Taken together, these provisions demonstrate that the FCC is not in the dark as to the amount of funding it should seek each quarter,” the decision said, referencing how much USAC needs to collect from the largely voice service providers to sustain the fund. “Instead, § 254 sets out the FCC’s obligations with respect to administration of the USF and the FCC, in turn, calculates what funds are necessary to satisfy its obligations.”

Finally, the petitioners argue that the FCC has violated the private nondelegation doctrine by giving authority of the USF over to USAC with no oversight, in part because the FCC only has 14 days to approve the amounts to be collected for the fund and thus rarely exercises its power to change the contribution amount. The petitioners’ argue that the combination of those factors make it so that USAC, not the FCC, administers the fund.

But the court disagreed on that point as well. First the court established that federal statutory law expressly subordinates USAC to the FCC, with the private entity not being able make policy or interpret provisions or the intent of Congress. Second, it said the FCC dictates how USAC calculates the contribution amount and reviews the calculation after the private entity makes a proposal. Third, it noted that those proposals made by the USAC must be approved by the FCC before they are required of the communications companies. Finally, the agency allows for challenges to USAC proposals and “often” grants those challenges, the court ruled.

Still more appeals to go

The court, however, ruled against an FCC argument that the petition is “time barred” because it was not brought when Section 254 was enacted by Congress. The court noted that constitutional challenges are allowed when the approval of contribution amounts by the FCC are applied to companies.

That said, the petitioners also filed appeals in the 6th and 11th Circuit courts on the matter.

“While we are disappointed that the three judge panel ruled against us, we are encouraged that they saw through the FCC’s absurd preliminary arguments, including that our case was not timely,” William Hild, executive director of petitioner Consumers’ Research, told Broadband Breakfast in a statement. “With the acknowledgement that our case is ripe and that we have standing, we will look forward to continuing the legal fight to defend consumers from the unconstitutional USF tax on their phone bills set by unelected bureaucrats.”

The Schools, Health and Libraries Broadband Coalition, whose institutions are recipients of the fund’s money, also filed a brief in the case and said in a statement on Friday it was pleased with the decision.

“SHLB is extremely pleased that the court recognized the importance of the universal service program for the thousands of schools, libraries and health care providers that receive Universal Service Fund (USF) support,” said its executive director John Windhausen. “In the 1996 Telecom Act, Congress provided the FCC with both specific guidance and flexibility to adjust the USF program over time to embrace changes in the marketplace.

“With two more decisions to go, support for thousands of anchor institutions nationwide is still in jeopardy,” Windhausen added. “If the USF is ruled unconstitutional, it would put at risk the funding for four key programs: the Connect America Fund, Lifeline, Schools and Libraries (E-Rate), and Rural Health Care.”

Greg Guice, director of government affairs at advocacy group Public Knowledge, which filed a brief in the case, added “the Fifth Circuit has once again affirmed the importance of our nation’s universal service mission and the FCC’s obligation to ensure it is achieved by placing the program on a sound financial footing,” adding the organization hopes the other courts “take notice of this opinion and rule consistently.”

The National Lifeline Association, which advocates for the continuity of the USF program Lifeline, and industry association INCOMPAS also praised the decision. The latter added “we believe reforms to the USF are necessary to ensure this critical service can continue to exist.”

Those reform calls stem from concern that the fund is unsustainable because it is largely supported by voice service providers who have seen dwindling revenues as more Americans use other forms of communication.

The FCC has left it to Congress to provide it the authority to make changes to the fund for its long-term support, including possibly expanding the base to include broadband service providers and Big Tech.