Supreme Court Upholds Universal Service Fund Contribution Scheme; Congressional Reform Efforts Intensify

In a significant 6-3 decision issued on June 27, 2025, the U.S. Supreme Court in Federal Communications Commission v. Consumers’ Research reversed the Fifth Circuit and upheld the constitutionality of the Universal Service Fund (USF) contribution mechanism under the nondelegation doctrine. The Court rejected arguments that Congress impermissibly delegated its taxing power to the FCC and that the FCC’s reliance on the private Universal Service Administrative Company (USAC) violated constitutional separation of powers principles.

Key Takeaways:

• The USF contribution scheme survives constitutional challenge and will continue operating
• The Court applied the traditional “intelligible principle” test rather than adopting a stricter standard for revenue-raising legislation
• Congress is simultaneously pursuing significant USF reform through multiple legislative vehicles
• The contribution factor continues to rise (now 36.0% for Q3 2025), increasing pressure for comprehensive reform

BACKGROUND: THE USF UNDER SIEGE

The Universal Service Fund, established under Section 254 of the Communications Act, faces mounting challenges on multiple fronts:

• Constitutional Challenge: Conservative advocacy group Consumers’ Research challenged the FCC’s authority to set contribution rates, arguing that Section 254 impermissibly delegates congressional taxing power to an executive agency. The Fifth Circuit initially ruled the scheme unconstitutional, finding an impermissible “double-layered delegation” from Congress to the FCC and from the FCC to USAC.
• Financial Strain: The contribution factor has skyrocketed from approximately 4% in 1998 to 36.0% for Q3 2025, as the traditional revenue base (interstate telecommunications) shrinks while program costs remain steady. In 2022, USF disbursements totaled $7.4 billion across four main programs.

• Congressional Scrutiny: Multiple reform proposals are pending in Congress, driven by concerns about the fund’s sustainability, rising contribution factors, and questions about whether “Big Tech” companies should contribute to a fund that supports the networks they heavily utilize.

SUPREME COURT DECISION ANALYSIS

The Constitutional Framework

Justice Kagan’s majority opinion, joined by Chief Justice Roberts and Justices Sotomayor, Kavanaugh, Barrett, and Jackson, applied the longstanding “intelligible principle” test to evaluate whether Congress provided sufficient guidance to constrain the FCC’s discretion.

The Court’s Core Holdings:

1. No Special Rule for Tax Delegations: The Court explicitly rejected Consumers’ Research’s argument that revenue-raising statutes must satisfy a stricter nondelegation standard requiring numeric caps or fixed tax rates. The majority relied on precedents in J.W. Hampton (1928) and Skinner v. Mid-America Pipeline Co. (1989) to conclude that the same intelligible principle test applies regardless of whether a delegation involves taxation.
2. “Sufficient” Provides Both Floor and Ceiling: The Court found that Section 254’s requirement that the FCC collect contributions “sufficient” to support universal service programs creates both a floor (cannot collect less than needed) and a ceiling (cannot collect more than necessary).
3. Adequate Statutory Constraints: The majority concluded that Section 254 provides sufficient guidance by identifying specific beneficiaries (rural/high-cost areas, low-income consumers, schools, libraries, rural hospitals) and requiring that subsidized services be essential, widely used, and affordable.
4. Private Delegation Permissible: The Court found that USAC operates “subordinately to” the FCC and merely provides recommendations that the Commission can accept, modify, or reject, distinguishing this arrangement from impermissible private governance.

The Vigorous Dissent

Justice Gorsuch’s dissent, joined by Justices Thomas and Alito, argued that the majority approved “a delegation of Congress’s taxing power unprecedented in this Court’s history”. The dissent emphasized several key points:

• Historic Practice: The dissent noted that “this Court has never approved legislation allowing an executive agency to tax domestically unless Congress itself has prescribed the tax rate”
• Inadequate Constraints: Justice Gorsuch characterized Section 254’s guidance as “little more than a blank check,” noting that USF disbursements nearly doubled from $2.29 billion in 1998 to $8.59 billion in 2024
• Rewriting the Statute: The dissent criticized the majority for essentially rewriting Section 254 to make its criteria mandatory rather than discretionary

Notably, the Court’s majority explicitly declined to address the constitutionality of Sections 254(c)(3) and (h)(2), which allow funding for “advanced” and “additional” services without the constraints that apply to basic universal service under Section 254(c)(1).

CONGRESSIONAL REFORM EFFORTS: MULTIPLE TRACKS

Despite the Supreme Court’s validation of the current system, Congress is pursuing comprehensive USF reform through several vehicles:

1. The Lowering Broadband Costs for Consumers Act of 2025

Status: S. 1651, introduced May 7, 2025, by Senators Markwayne Mullin (R-OK), Mark Kelly (D-AZ), Mike Crapo (R-ID), and Kevin Cramer (R-ND)

Key Provisions:

• Directs the FCC to complete a rulemaking within 18 months to expand the contribution base to include broadband providers and edge providers
• Limits assessments to edge providers with more than 3% of estimated broadband data transmission and more than $5 billion in annual revenue
• Aims to reduce the financial burden on traditional voice customers who currently bear the primary contribution responsibility

Industry Support: The bill has bipartisan support from over five national trade associations, 48 state associations, and 350 rural broadband providers

2. Bipartisan USF Working Group

Membership: Co-chaired by Senators Ben Ray Luján (D-NM) and John Thune (R-SD), with Senators Amy Klobuchar (D-MN), Shelley Moore Capito (R-WV), Gary Peters (D-MI), and Jerry Moran (R-KS)

Scope: The working group is examining fundamental questions about USF effectiveness, contribution mechanisms, program coordination, and potential reforms including eliminating the Eligible Telecommunications Carrier requirement

Recent Activity: Lawmakers relaunched the USF Working Group on June 12, 2025, recognizing the need for comprehensive reform regardless of the Supreme Court’s ruling

3. Alternative Reform Proposals

Multiple other bills were introduced in the 118th Congress, including the Reforming Broadband Connectivity Act (S. 975) and the FAIR Contributions Act (S. 856), indicating broad congressional interest in USF reform

WHAT HAPPENS NEXT

Immediate Implications

1. USF Operations Continue: With the constitutional challenge resolved, the USF will continue operating under its current structure while Congress considers reforms.
2. Contribution Factor Pressure: The FCC announced a 36.0% contribution factor for Q3 2025, maintaining pressure for expansion of the contribution base.
3. Legislative Momentum: The Supreme Court’s decision removes a major source of uncertainty, potentially accelerating congressional action on reform.

Key Drivers for Reform

Economic Pressures:

• NTCA survey data shows rural providers receive over $70 per month per broadband subscriber in USF support, and 67% have outstanding debt that could be at risk if USF were eliminated
• The contribution factor reached 36.3% for Q1 2025, which telecom customers ultimately pay as an additional fee

Market Evolution:

• Big Tech companies generate substantial traffic on broadband networks (some estimates suggest 5 GB per day from electric vehicles alone) but contribute nothing to network infrastructure costs
• Traditional revenue sources continue declining as consumers shift from voice to internet services

Likely Reform Directions

Based on the legislative proposals and working group activities, expect Congress to focus on:

1. Expanding the Contribution Base: Including broadband providers and major edge providers while potentially excluding smaller companies
2. Modernizing Program Structure: Streamlining overlapping programs and improving coordination across agencies
3. Enhanced Oversight: Strengthening USAC accountability and transparency requirements
4. Contribution Methodology: Moving beyond the current interstate revenue-based system

RECOMMENDATIONS FOR CLIENTS

For Telecommunications Carriers:

• Monitor Legislative Developments: Track progress on S. 1651 and working group recommendations, as contribution methodology changes could significantly impact business models
• Engage in Reform Process: Participate in FCC proceedings and congressional discussions to ensure voice in any new contribution framework
• Financial Planning: Prepare for potential changes in USF support levels and contribution obligations

For Edge Providers and Tech Companies:

• Prepare for Contribution Requirements: Begin analyzing potential financial impact of contributing to USF, particularly for companies exceeding the proposed thresholds
• Engage Strategically: Consider proactive engagement with policymakers rather than reactive opposition to likely legislative changes
• Monitor Implementation: If legislation passes, carefully track FCC rulemaking to understand specific contribution obligations

For Rural Providers and Beneficiaries:

• Advocacy Efforts: Continue supporting USF reform that maintains rural connectivity funding while expanding the contribution base
• Program Planning: Prepare for potential changes in USF program structure and funding mechanisms
• Coordination: Work with industry associations to present unified positions on reform proposals

For All Stakeholders:

• Constitutional Clarity: While the Supreme Court resolved the nondelegation challenge, monitor for potential future constitutional questions, particularly regarding Sections 254(c)(3) and (h)(2)
• Regulatory Proceedings: Expect the FCC to initiate contribution base expansion proceedings if legislation passes
• Interagency Coordination: Watch for improved coordination between FCC, NTIA, USDA, and other agencies involved in broadband funding

CONCLUSION

The Supreme Court’s decision in FCC v. Consumers’ Research removes a significant legal cloud over the Universal Service Fund while simultaneously highlighting the urgent need for congressional reform. With contribution factors reaching unsustainable levels and traditional revenue sources continuing to decline, the current system faces genuine sustainability challenges that constitutional validation alone cannot resolve.

The combination of the Court’s blessing of the current structure and Congress’s active consideration of comprehensive reforms creates a unique window for modernizing the USF to reflect 21st-century communications realities. Stakeholders across the telecommunications ecosystem should expect significant changes in the coming 18-24 months as policymakers work to ensure universal service funding remains viable for the digital age.

The ultimate shape of USF reform will depend on complex negotiations balancing rural connectivity needs, consumer costs, industry competition concerns, and fairness principles. Early and strategic engagement in this process will be crucial for all affected parties.

Contact your Responsible Partner should you have any questions or concerns regarding the implications of the Supreme Court ruling or pending Congressional activity or, in the alternative, contact Jonathan S. Marashlian at jsm@commlawgroup.com.