Supreme Court ruled the USF is constitutional. Now the debate refocuses on reform, and who pays in
Broadband-for-all advocates and telecom providers who serve rural areas have spent the last couple of years worried about whether the U.S. Supreme Court would essentially scuttle the Universal Service Fund, which helps to subsidize service in underserved, rural and remote areas of the country as well as connect libraries and schools across the country.
But last week, in a 6-3 decision, SCOTUS reversed a lower court decision and affirmed that the Universal Service Fund does not violate the Constitution, and that the Federal Communications Commission did not improperly delegate its authority to the Universal Service Administrative Company.
The nearly 30-year-old USF, administered by the private Universal Service Administrative Company (USAC), supports telecom services through four programs: the High-Cost Program (also known as the Connect America Fund), which subsidizes the provision of voice and internet services in unserved and underserved rural communities; the Lifeline program to subsidize voice service for low-income consumers; the E-Rate program that subsidizes broadband and Wi-Fi for schools and libraries; and the Rural Health Care Program, which financially supports telecommunications services to connect rural healthcare providers.
The amount that the USF collects and disburses varies by year, but generally is around $7 billion and has been as much as $9 billion.
Essentially, the question at issue was whether Congress improperly delegated power to “tax” to the FCC, which then further delegated power by enabling the USAC to set USF rates which telecom carriers must contribute and which are passed on to the consumer on their monthly telecom bills. The Fifth Circuit Court of Appeals, in an earlier ruling, had held that the USF fees were essentially a tax, and that in particular, the combination of congressional and agency delegation was unconstitutional—a holding reversed by the Supreme Court.
The Supreme Court ruling preserves the USF and means that program to subsidize rural telecommunications, wireless and broadband services can continue to operate. As analyst John Strand of Strand Research wrote in a research note, “The decision confirms the stability and continuity of an $9 billion per year program funding broadband, rural telecom, schools, libraries, healthcare, and service for low-income Americans. The decision also provides regulatory certainty about the FCC’s authority to manage the fund going forward.”
“For years, the FCC’s universal service program has played a key role in expanding connectivity and Internet service to Americans in communities across the country. In my time on the Commission, I have had the opportunity to see firsthand the benefits that have come with the connections powered by the agency’s USF program,” said FCC Chairman Brendan Carr in response to the ruling. “I am glad to see the Court’s decision today and welcome it as an opportunity to turn the FCC’s focus towards the types of reforms necessary to ensure that all Americans have a fair shot at next-generation connectivity.”
Newly confirmed FCC Commissioner Olivia Trusty also issued a statement reacting to the ruling and said: “Universal service is the cornerstone of the FCC’s mission. I welcome the Supreme Court’s decision and I look forward to working with my colleagues and Congress on thoughtful reforms to the universal service program to expand access to critical communications services and close the digital divide.”
Industry groups reacted to the ruling with relief—and indicated strong interest in moving onto USF reform, now that the program’s future is no longer is doubt.
“This is a major affirmation of the Universal Service Fund’s role in supporting the infrastructure that connects rural, remote, and underserved communities, and in sustaining the networks that power our economy, education, public safety, and so much more,” said Tim Donovan, president and CEO of the Competitive Carriers Association, in a LinkedIn post. “While this is a tremendous outcome, the work isn’t over. We remain committed to working with Congress, the FCC, and stakeholders across the industry to ensure that USF continues to deliver on its mission of ubiquitous connectivity for all Americans.”
NTCA–The Rural Broadband Association released a statement that said in part: “We greatly appreciate the court’s affirmation today of the universal service programs that, for many decades, have promoted the availability and affordability of critical communications services for rural health care facilities, schools and libraries, and millions of rural and low-income consumers across the nation.”
“We are relieved that the Supreme Court upheld the FCC’s congressionally delegated authority to administer the Universal Service Fund, and to work with the nonprofit Universal Service Administrative Company,” said John Bergmayer, legal director at Public Knowledge, which filed briefs in the case. He added: “This ruling confirms that the mechanisms that have been in place for managing Universal Service are lawful.”
Will USF reform mean changes to who pays in?
The FCC had opened a proceeding back in 2021 to debate the future of the fund, given the massive influx of funding during the covid years and through the BEAD program—which has since been revamped by the Trump administration. That FCC proceeding was interrupted by the court fight over whether the USF was even constitutional. With the constitutionality question settled, the questions that were the subject of the FCC inquiry can be meaningfully revived. And the debate is likely to look different with Carr at the helm.
Carr, who was a commissioner during the launch of 2021 proceeding, said at the time that USF was “stuck in a death spiral” and “funded through a mechanism that made sense back in the dial up and screeching modem days of the 1990s—back when you were far more likely to have a long-distance calling card in your wallet than an email address.”
Carr proposed that large technology companies such as Google and Facebook, as well as streaming services, start paying “a fair share” into USF. “After all, large technology companies are reaping trillions of dollars of revenues off of the networks that are supported and in many cases only exist because of USF expenditures,” he said, adding, “It is time to end this free ride.”
ISP and telecom industry groups like USTelecom have also made the case to the FCC and to Congress that Big Tech should help to pay for the networks that directly benefit those companies. A bipartisan bill, the Lowering Broadband Costs for Consumers Act, was reintroduced last month that would require broadband and edge providers to pay into the USF.
NTCA said in its statement: “With this ruling in place, we look forward to refocusing now on critical universal service reform efforts, including spreading contribution obligations more equitably among all who use and benefit from cutting-edge communications networks. We look forward to working with Congress and the FCC to achieve these essential reforms and sustain these critical programs.”
Bergmeyer also said that “Further reforms are needed to modernize the program for the broadband age. These include ensuring full FCC jurisdiction over broadband, allowing the agency to more fully address both payments into the fund (contributions), as well as ensuring payments from the fund (distributions) can be more properly targeted.” He argued that USF reform should include considerations for affordability, modeled on the Affordable Connectivity Program.
