Supreme Court Upholds Constitutionality of the Universal Service Fund

With their decision in the consolidated cases of Federal Communications Commission v. Consumers’ Research and SHLB Coalition v. Consumers’ Research, the U.S. Supreme Court has upheld the constitutionality of the Universal Service Fund (USF). USF is a $9 billion fund under the purview of the Federal Communications Commission (FCC) and is intended to ensure affordability of telecommunications services throughout the country. Funded by fees charged to telecommunications providers based on their revenues, these contributions are distributed among a number of programs (i.e., High-Cost Program, Connect America Fund, Lifeline Program, Rural Health Care Program and the Schools and Libraries Program).

The FCC was created by the Communications Act of 1934 as an independent federal agency to regulate interstate and international communications via television, wire, radio, satellite and cable. However, following passage of the Telecommunications Act of 1996, which directed the FCC to create a program to support the goal of universal service through affordability, the FCC created the Universal Service Administration Company as an independent nonprofit corporation to administer USF. USAC manages the contributions made by telecommunications carriers and disburses funds to each of the USF programs.

Constitutionality of USF

Consumers’ Research challenged the constitutionality of USF in an attempt to revive what is known as the “nondelegation doctrine.” The nondelegation doctrine is an extensive limitation on Congress’ ability to delegate decision-making powers to executive branch agencies. Specifically, plaintiffs argued that Congress violated Article I of the Constitution (which defines Congress’ powers) by delegating too much of its authority in directing the FCC to determine carrier fee amounts to support USF. Among Consumers’ Research’s argument was that the USF contribution amounted to a tax, thus implicating Congress’ taxing authority and requiring that Congress include a cap on expenditures in order to satisfy the nondelegation doctrine.

Expressing concern that ruling in favor of Consumers’ Research could create fresh doubt over numerous other revenue-raising delegations to agencies, the court found that whether a charge is a tax or fee is irrelevant. The court held that Congress outlined the goals of USF in a manner sufficient to inform the FCC’s administration of the fund consistent with Congress’ intent and does not give boundless authority. Rather, the court held that Congress sufficiently  bound the FCC to what constitutes permissible USF contributions  to subsidize service.

Regarding USAC, the Supreme Court also held that the current structure of USF’s administration through the nonprofit corporation is constitutional. Given that the FCC retains meaningful oversight, authority and review powers over USAC and its administrator, USAC remains subordinate to the FCC. Because USAC is subordinate to the agency, it is a constitutionally permissible administrative structure.

Next Steps

Following the Supreme Court’s decision in this case, the USF will remain operational and continue in its current form. However, the potential for increased discussions in Congress on USF reform is strong. The congressional USF Working Group was recently relaunched and there may soon be opportunity for public input. FCC Chairman Brendan Carr and lawmakers have also expressed interest in broadening USF’s contribution base to include certain internet edge providers (providers of online content or services). Discussions and work on these issues are likely to heat up in the coming months as a result of the Supreme Court’s decision.

THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING A SCOTUS DECISION ON THE FCC’S UNIVSERSAL SERVICE FUND AUTHORITY. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.