Broadband Industry, Advocates Uneasy about Fifth Circuit USF Ruling

WASHINGTON, July 25, 2024 – Broadband industry groups and advocates were not feeling good about yesterday’s federal court ruling that a major broadband subsidy program was unconstitutional.

In a 9-7 ruling, the full U.S. Court of Appeals for the Fifth Circuit in New Orleans held that the Federal Communications Commission’s Universal Service Fund violated the Constitution by taking the power to levy taxes away from Congress, creating a conflict with other federal court opinions that made a Supreme Court review likely.

FCC Chairwoman Jessica Rosenworcel said yesterday that the agency will “pursue all available avenues for review.”

Funded by fees on interstate telecom revenue, the USF last year spent about $8 billion to buoy four subsidy programs that support rural broadband infrastructure, plus internet discounts for schools, libraries, healthcare centers, and low-income households.

Three broadband industry groups issued a joint statement saying they “steadfastly believe" the USF was constitutional.

“The Universal Service Fund has been, and continues to be, a critical tool to narrow the digital divide and help address connectivity gaps,” the groups wrote. “The court’s decision today deals a severe blow to these efforts and could put at risk the availability and affordability of essential communications services for millions of rural Americans, low-income consumers, and community anchor institutions.”

The statement was issued by NTCA - The Rural Broadband Association, the Competitive Carriers Association, and USTelecom -The Broadband Association. They all have members, wireline or wireless, who draw from the USF to provide service.

Trent McCotter, a partner at Boyden Gray PLLC, the law firm representing Consumers’ Research, the conservative group challenging the fund, praised the ruling.

“The en banc Fifth Circuit just GRANTED our petition for review and held that the FCC’s Universal Service Fund VIOLATES the nondelegation doctrine – a great victory,” he wrote in a post on X.

Affordable Broadband Campaign spokesperson Gigi Sohn noted that low-income households were already seeing bills go up after the demise of the Affordable Connectivity Program, a separate program that provided a $30 monthly internet discount for low-income households.

The USF’s low-income program, called Lifeline, provides about $10 a month, but has fewer participants and different eligibility criteria for both subscribers and providers.

“The digital divide in this country will grow from a valley to a gorge, leaving untold Americans excluded from modern life,” Sohn said in a statement. “We look forward to the U.S. Supreme Court overturning this decision and urge the Congressional USF Working Group to act quickly to solve this.”

In addition to Rosenworcel, the FCC's other two Democratic commissioners, Geoffrey Starks and Anna Gomez, also publicly opposed the ruling.

“The Universal Service Fund is an extraordinarily successful program that stands as a model internationally to supporting universal connectivity. This decision threatens our ability to close the digital divide domestically and our global economic leadership," Gomez said in a statement Thursday.

John Bergmayer, legal director at consumer advocacy group Public Knowledge, had harsh words for the Fifth Circuit judges in the majority.

He said the result was “in keeping with many recent Fifth Circuit rulings that disregard settled law and, where necessary, the facts, to achieve results desired by fringe, anti-government groups who want to use the courts to impose their unpopular agenda on the American people.”

Consumers' Research Executive Director Will Hild said the Fifth Circuit decision was a win for consumers and the Constitution.

"American consumers should not have to pay a tax that they did not get to vote for, nor did the elected officials that represent them legislate. It is good to see federal courts agree that unelected bureaucrats setting a universal service tax on telecom consumers is unconstitutional.”

New Street Research analyst Blair Levin wrote in an investor note that he thinks an eventual Supreme Court reversal is likely, but swift congressional action might not be coming in the face of gridlock on Capitol Hill.

He wrote that if the Supreme Court upholds the Fifth Circuit decision, it would “severely complicate” the job of a group of House and Senate lawmakers currently working on legislation to modernize the fund. Leaving the decision standing would toss out the fund’s current framework and could make options currently under discussion, like broadening the pool of companies in the contribution base, more difficult to implement.

He also noted that the decision did not vacate an FCC order but remanded the proceeding to the agency. The Fifth Circuit case was triggered after Consumers’ Research fought a rise in the FCC's USF contribution factor, or the percent of interstate voice revenue telecommunications carriers need to pay into the fund each quarter.

The remand makes it likely the fund will continue to operate as usual until a likely Supreme Court ruling, Levin wrote.

Joe Kane, director of broadband and spectrum policy at the Information Technology and Innovation Foundation, was more optimistic.

The USF’s “old course was unsustainable because the tax on consumers’ phone bills known as the ‘contribution factor’ has been skyrocketing,” he wrote in a statement. “Now, since the old course also has been found to be legally unsound, there is all the more reason for Congress to directly appropriate funding for important broadband programs, such as ACP, while letting obsolete and redundant ones fall away.”

Kane added that the Fifth Circuit's ruling could spark needed structural reform to the USF.

“[W]hile it may cause some chaos, this ruling is also an opportunity for policymakers to refocus broadband funding in ways that will do the most good for the most people,” he wrote.