Recent Legislative and Judicial Developments Suggest Universal Service Fund Contribution Reform is on the Horizon
We are writing to inform you about two recent developments impacting the future of the Federal Communications Commission’s (FCC) Universal Service Fund (USF) program. As detailed below, activities in Congress and before the U.S. Supreme Court are sending clearer and clearer signals as to what the future may hold for the USF program and how it will be funded.
As most in the industry are painfully aware, the USF program has been on shaky ground for many years, as the revenue-based contribution system struggles to keep pace with material shifts in consumer demand (away from traditional telecommunications, which has been the primary source of funding through the years). With contribution fee factors regularly topping 30% and the traditional base of telecommunications revenue sources continuing to decline, many believe the USF program is on a death spiral.
Just yesterday, legislation was introduced in the U.S. Congress that signals bi-partisan willingness to broaden the contribution base. Perhaps coincidence, perhaps not, the new legislation comes on the heels of another major development in the courts, where Consumer’s Research filed a Petition for a Writ of Certiorari with the U.S. Supreme Court, which seeks to topple the entire USF program (along with the program administrator, USAC) on the basis of alleged Constitutional infirmities. Each of these important developments is detailed below. Taken together, these (and other) recent developments certainly give the sense that major changes to the USF program are on the horizon.
DEVELOPMENT #1 — Introduction of the Lowering Broadband Costs for Consumers Act of 2023: On November 16, 2023, Senators Markwayne Mullins (R-Okla.), Mark Kelly (D-Ariz.), and Mike Crapo (R-Idaho) introduced a significant legislative proposal, the Lowering Broadband Costs for Consumers Act of 2023. The primary focus of this bill is to address contributions to the Universal Service Fund (USF) from edge and broadband providers.
Key Provisions of the Bill: The bill outlines several key provisions that, if enacted, would impact how edge and broadband providers contribute to the USF. The proposed measures include:
- Reforming the USF Base: The bill directs the Federal Communications Commission (FCC) to reform the USF by expanding the base to ensure that edge and broadband providers contribute on an equitable and nondiscriminatory basis.
- Limitations on Edge Provider Assessments: Assessments of edge providers would be limited to those with more than 3% of the estimated quantity of broadband data transmitted in the United States and more than $5 billion in annual revenue.
- New Mechanism for High-Cost Program: The FCC would be directed to adopt a new mechanism under the current USF high-cost program. This mechanism aims to provide specific, predictable, and sufficient support for expenses incurred by broadband providers that may not otherwise be recovered.
- FCC’s Authority Limitations: The bill seeks to limit the FCC’s authority over edge providers and broadband providers solely to requiring contributions to the USF.
At present, the complete text of the bill is not yet available, and we will continue to monitor and provide updates as soon as the text becomes accessible.
DEVELOPMENT #2 — Petition for Writ of Certiorari: Back on October 27th, Consumers’ Research, et al., filed a petition for a writ of certiorari with the U.S. Supreme Court challenging the constitutionality of the revenue-raising mechanism for the USF. The petition raises significant separation-of-powers concerns regarding the FCC’s power to raise revenue without statutory limits and its delegation of operational authority to a private company.
Key Issues Raised:
- Nondelegation Doctrine Violation:
- Petitioners contend that 47 U.S.C. § 254 violates the nondelegation doctrine by granting the FCC unchecked power to raise revenue for the USF without any statutory cap or formula. Unlike other programs, there is no limit imposed by Congress on the amount the FCC may raise or a formula for calculating contributions.
- The absence of meaningful implied limitations, coupled with vague and precatory universal service “principles,” leads to an unconstrained agency, violating the nondelegation doctrine.
- Private Nondelegation Doctrine Violation:
- The FCC’s delegation of its revenue-raising power to a private company, the Universal Service Administrative Company (USAC), is challenged as a violation of the private nondelegation doctrine.
- The USAC, led by industry “interest groups,” proposes the USF budget, which is automatically approved unless the FCC intervenes. This delegation lacks meaningful oversight, creating a constitutional concern.
Stakes and Constitutional Implications: The petition argues that the case warrants the Supreme Court’s review due to the unprecedented nature of the USF scheme, its violation of core constitutional principles, and the high stakes involved. If left unaddressed, the case suggests Congress could delegate its taxing power without limits, potentially reshaping the budgetary process fundamentally. While no circuit split currently exists, the Fifth Circuit’s decision to grant en banc rehearing in a parallel suit indicates the potential for divergence in rulings on nondelegation challenges. The petition for writ suggests this case merits the Supreme Court’s attention even without an existing split.
Potential Impact on Your Business: Given the potential changes in the contribution structure to the USF outlined in the proposed legislation or, perhaps, the toppling of the entire program should the Supreme Court agree to hear the challenge brought to its doorstep by Consumer’s Research, it is advisable to stay informed about developments impacting the USF program. We will continue to monitor these and other matters affecting the Universal Service Fund and provide you with timely updates. If you have any specific concerns or questions regarding how this may impact your business, please do not hesitate to reach out to us.