Experts Look to SCOTUS Following 5th Circuit USF Ruling Despite Little Immediate Impact

The 5th U.S. Circuit Court of Appeals' ruling Wednesday against the FCC's Universal Service Fund contribution factor for the first quarter of 2022 will likely have little to no immediate impact on the commission's USF-funded programs and providers contributing to the fund, trade groups and legal experts told us (see 2407240043). It's uncertain how the U.S. Supreme Court would interpret conflicting rulings of the 5th, 6th and 11th circuits. Consumers' Research asked SCOTUS in a supplemental brief filed Thursday (docket 23-456) to grant rehearing as a result of the circuit split.

With the decision remanding the issue to the FCC, the status quo will likely hold until SCOTUS considers the circuit court split on the issue. New Street Research’s Blair Levin believes SCOTUS probably would agree with 6th and 11th Circuit decisions upholding the funding mechanism's constitutionality, “though that is not a certainty.”

While Congress could opt to fund USF directly through appropriations, effectively funding capital expenditure programs on an annual basis is difficult because amounts aren’t consistent year to year, Levin said. Many companies may prefer the current USF system because of the chaos of implementing the 5th Circuit’s ruling and marketplace uncertainty as federal and state officials debate alternative methods, Levin wrote in a note after the 5th Circuit’s decision was released.

Chamber of Progress technology policy head Todd O’Boyle hopes any SCOTUS response to the circuit split would happen quickly given the program's importance and the impact on households without it. He said the 5th Circuit decision opens the door to Congress creating a direct appropriation and addressing the funding mechanism, which would be a less contentious route than broader changes. While there have been numerous USF reform proposals in Congress, there doesn't appear to be legislative consensus, he added.

State Concerns

The USF decision concerned Chris Nelson, state chair of the Federal-State Joint Board on Universal Service. It “puts funding of the universal service fund in jeopardy,” the South Dakota Public Utilities Commission member said. “Along with that goes funds to ensure broadband availability for a wide spectrum of the American populace,” he said. “The issue the court hinged on is not one that can be resolved by the Joint Board. At this point, we’ll need to see if the Supreme Court chooses to weigh in and what response the FCC or Congress chooses to take to ensure continued funding of the USF programs.” If the funding mechanism “is struck down nationally,” Nelson said, “it may be the impetus Congress needs to look at serious contribution reform as it crafts language to preserve the fund.”

There are several considerations, including "what the petitioners may do at the court and at the FCC," Benton Institute for Broadband & Society Senior Counselor Andrew Schwartzman said, as well as "the uncertainty of the court's remand." Schwartzman noted the decision applied to one quarterly contribution factor, but it's unclear whether any new challenges will be filed in the same court.

"Another complicating factor is that two other circuits ruled the other way," Schwartzman said. It's uncertain whether the 5th Circuit's opinion trumps the 6th and 11th circuit rulings that sided with the FCC, he said, as well as whether carriers and the Universal Service Administrative Co. can "figure out how to limit the effect" of the decision on the applicable states.

"We’re still evaluating the implications of the decision," said NTCA Executive Vice President Mike Romano. "But it is our understanding that there should be no impacts in the near-term on the ongoing distribution of support under the universal service programs given that the court remanded the matter to the FCC for further consideration and action." Romano added, "There is concern, however, about the uncertainty this kind of decision could have on future investment plans and strategies."

A 'Literal Lifeline'

The Lifeline program "is a literal lifeline for millions of low-income Americans to connect to work, school, telehealth, community and digital life," National Lifeline Association (NaLa) Chairman David Dorwart said. "The potential loss of this program, coupled with the end of the Affordable Connectivity Program earlier this year, means that there could soon be zero federal support to connect low-income families to broadband." The decision is "unacceptable and will set back millions of Americans financially more than we can even fathom."

"We hope that [SCOTUS] will reverse this decision during its next term," Dorwart said, but meanwhile "we hope that this decision serves as a catalyst for the bipartisan, bicameral USF Working Group to complete its work and pass USF reform legislation in this Congress."

The decision could play havoc with the proposed 5G Fund reverse auction (see 2403260052), which is reliant on USF funds, Rural Wireless Association General Counsel Carri Bennet told us. “At this point, we do not believe the FCC can move forward with the auction since it is based on USF funding, which likely has not yet been collected from telecommunications carriers who collect it from their subscribers.”

Former FCC Commissioner Michael Copps called the 5th Circuit decision “mind-boggling.” The USF “has played a central role in connecting all of us to the modern world, and now comes this hopelessly uninformed decision that puts the brakes on connectivity and would actually disconnect millions of Americans,” Copps said. “One wonders what travesties will be next?”

Joe Kane, Information Technology and Innovation Foundation director-broadband and spectrum policy, said the case is probably headed to SCOTUS. A stay will likely “preserve the status quo” in the meantime, he said. Since there’s a “decent chance” SCOTUS will uphold the 5th Circuit, “Congress would do well to moot the case by passing USF reform before that happens.”

TechFreedom Internet Policy Counsel Corbin Barthold said the 5th Circuit ruling is “a potential constitutional earthquake.”

“Congress set up the current USF system in the 1996 Act with Section 254 and it has survived many appeals,” emailed Cooley’s Robert McDowell, who agrees that the circuit split makes SCOTUS review more likely. “It will be an uphill battle for those arguing that the USF system can’t exist either according to the explicit will of Congress or under the Constitution,” McDowell said: “No one should make a prediction regarding the outcome with any certainty. In the meantime, practical questions abound regarding how USF programs should be administered going forward in the wake of this monumental decision.”

The challenge faces a “steep climb” to prevail at SCOTUS, Free State Foundation President Randolph May said. “I wish the decision would spur Congress to do its job and adopt market-oriented universal service reform that is efficient, fiscally sound, politically accountable, and subject to effective controls to prevent waste and fraud.”

American University administrative law professor Jeff Lubbers also said he expects the case will end up at the Supreme Court and said the high court will likely overturn the 5th Circuit. Lubbers compared the 5th Circuit’s USF decision to its ruling against the Consumer Financial Protection Bureau in Consumer Financial Protection Bureau v. Community Financial Services Association of America, which SCOTUS overturned.

It's "fortunate" the court remanded the case and didn't vacate the current rules, Schools, Health & Libraries Broadband Coalition Executive Director John Windhausen said. "We expect the FCC to begin a proceeding to reduce USAC's role, change the USAC board, and bring more decision-making authority in-house in order to comply with the court's decision," which "can be accomplished without substantially changing the USF funding process."