5th Circuit Sides With Consumers' Research in USF Contributions Challenge

The 5th U.S. Circuit Court of Appeals in a 9-7 decision sided with Consumers' Research following an en banc rehearing of the group's challenge of the FCC's Universal Service Fund contribution methodology. Calling the contribution factor a "misbegotten tax," the court in a Wednesday ruling in docket 22-60008 held that as a "practical matter," the Universal Service Administrative Co. "sets the USF tax" that's "subject only to FCC's rubber stamp" (see 2406180055). In a statement, Chairwoman Jessica Rosenworcel said the agency will "pursue all available avenues for review."

The FCC "never made a substantive revision to USAC's proposed contribution amount prior to this litigation," the court said in its opinion, adding that the commission "does not even have a documented process for checking USAC's work." USAC’s role in "perpetuating USF waste is equally well known," the court said, citing a 2010 Government Accountability Office report that found USAC lacked "key features of effective internal controls."

Communications Act Section 254 "reflects a policy goal of making telecommunications services available to all Americans," the court said: "But it is our judicial duty to ensure that Congress pursued its goal through lawful means." The "combination of Congress’s broad delegation to FCC and FCC’s subdelegation to private entities certainly amounts to a constitutional violation," it said, noting that Section 254 "did not delegate to the executive any power even remotely executive in character."

The court rejected the FCC's argument that the contribution factor is a fee rather than a tax, saying the contributions "are not incident to a voluntary act but rather are a condition of doing business" in the telecom industry. The court noted that the FCC "abdicated responsibility for ensuring compliance to the very entities whose universal service demand projections dictate the size of the contribution amount." The court also noted the FCC's contributions methodology was a nondelegation doctrine violation, saying Congress "did not delegate because FCC has some technical knowledge about the optimal amount of universal service funding."

"This decision is misguided and wrong," Rosenworcel said. 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." Moreover, it "reflects a lack of understanding of the statutory scheme that helped create the world’s best and most far-reaching communications network."

Commissioner Geoffrey Starks also criticized the decision, saying he was "gravely disappointed" and calling it a "monumental blow in our long-running effort to close the digital divide." The Schools, Health & Libraries Broadband Coalition was "deeply dismayed" by the decision, said Executive Director John Windhausen. The group will "continue to support the FCC" on its efforts, Windhausen said. Benton Institute for Broadband & Society Senior Counselor Andrew Schwartzman noted there's a "strong likelihood that the Supreme Court will uphold the constitutionality of" the USF despite the majority opinion's attempt to "break new ground by ignoring" 5th Circuit and Supreme Court precedent.

In a joint statement, NTCA, USTelecom and the Competitive Carriers Association said USF "has been and continues to be a critical tool to narrow the digital divide." The groups said the court's decision "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." They vowed to "continue to fight for universal connectivity."

The decision is "outrageous," Affordable Broadband Campaign spokesperson Gigi Sohn said. "The digital divide in this country will grow from a valley to a gorge, leaving untold Americans excluded from modern life," she predicted. "We look forward to the U.S. Supreme Court overturning this decision," said Sohn, who's also executive director of the American Association for Public Broadband. Joe Kane, Information Technology and Innovation Foundation director-broadband and spectrum policy, warned that the decision "throws federal broadband policy into an uncertain future." He added, "But while it may cause some chaos, this ruling is also an opportunity for policymakers to refocus broadband funding in ways that will do the most good for the most people."