The fifth circuit court reversed an earlier decision and ruled the Universal Service Fund (USF) unconstitutional. Industry groups rebuked the ruling and analysts predicted a reversal in the Supreme Court.
In a nine-seven ruling, the United States Court of Appeals for the Fifth Circuit ruled the Universal Service Fund (USF) unconstitutional on Wednesday. The USF, which funds several of the FCC's high-cost and low-income broadband programs, now faces an uncertain future.
As per the court's opinion: "In the Telecommunications Act of 1996, Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation. That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the "universal service" tax that appears on cell phone bills across the Nation. We hold this misbegotten tax violates Article I, § 1 of the Constitution."
The ruling reverses an earlier decision by a three-judge panel of the same court and sends the matter back to the FCC. Both the sixth and eleventh circuit courts previously upheld the legality of the USF. The USF has been enduring court challenges brought by conservative group Consumers' Research.
Supreme Court may weigh in
In a note for New Street Research (registration required), policy analyst and former FCC official Blair Levin explained that Wednesday's decision means the case is likely to head to the Supreme Court.
"The 5th Circuit does not vacate the FCC order, instead remanding the proceeding to the FCC for further proceedings. Thus, we think the status quo will stay in effect until the Supreme Court rules which could be by June 2025," said Levin.
At that point, Levin expects the Supreme Court, which has overturned other decisions from the fifth circuit, to do the same here.
However, Levin added: "If we are wrong about what the Supreme Court will do and the 5th Circuit decision stands, it will severely complicate Congress' effort at reform, as the Court based its decision on Constitutional grounds. It narrows the options beyond what the current working groups are discussing and will make it difficult to create a system that could adjust to changes in the market."
Reactions
In a statement following the decision, FCC Chairwoman Jessica Rosenworcel said: "This decision is misguided and wrong. It upends decades of bipartisan support for FCC programs that help communications reach the most rural and least-connected households in our country, as well as hospitals, schools, and libraries nationwide. The opinion reflects a lack of understanding of the statutory scheme that helped create the world's best and most far-reaching communications network. We will pursue all available avenues for review."
Industry groups were also swift to weigh in on the matter.
In a joint statement, the Competitive Carriers Association, NTCA–The Rural Broadband Association and USTelecom said: "The Universal Service Fund has been, and continues to be, a critical tool to narrow the digital divide and help address connectivity gaps. 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. We steadfastly believe that the Universal Service Fund is constitutional and we will continue to fight for universal connectivity."
The decision on USF comes at a particularly difficult time for broadband subsidies. The USF itself is in need of contribution reform, which rests with Congress. And the Affordable Connectivity Program (ACP), which was subsidizing broadband for 23 million households, ran out of funding in June.
In a statement regarding the fifth circuit's decision, Gigi Sohn, spokesperson for the Affordable Broadband Campaign, who has also been advocating for the FCC to revive the ACP through the USF, called the ruling "outrageous," adding that it will have "catastrophic consequences for low-income Americans."
"This, coupled with the lapse in funding for the Affordable Connectivity Program, is a slap in the face to low-income families, rural America, schools and libraries that rely on USF-funded programs to get online. The digital divide in this country will grow from a valley to a gorge, leaving untold Americans excluded from modern life — from telemedicine, work opportunities, homework, online learning and community," said Sohn.
She added: "It is a disgrace that this country seems incapable of providing affordable broadband to all. We look forward to the US Supreme Court overturning this decision and urge the Congressional USF Working Group to act quickly to solve this."
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