In Consumers' Research v. FCC, the Universal Service Fund (USF) is under legal and constitutional attack in the Fifth Circuit. A decision striking the USF would have wide-ranging impacts on the telecommunications industry and the various beneficiaries, such as consumers in high-cost areas, low-income households, schools, libraries, and rural healthcare providers. That outcome, while unlikely, is still possible.
The case involves the core funding mechanisms for the FCC's Universal Service Fund. The challengers argue that Section 254 of the Communications Act, the statute governing the USF, unconstitutionally delegates legislative and/or taxing authority to the FCC. They also attack the Universal Service Administrative Company (USAC), arguing that the FCC's use of USAC to administer the fund is an impermissible delegation of regulatory authority to a private entity.
Some background: The USF is a fund administered by USAC, a nonprofit entity, under the direction of the FCC. Telecommunications providers contribute to the USF based on an assessment of their interstate and international end-user revenues, which is then subjected to a contribution factor to determine how much is owed. Billions are then distributed through USAC to other entities through various programs, such as carriers serving high-cost areas, low-income households, schools, libraries, and rural healthcare providers. If the court were to side with the challengers, revenues for the USF program would drop to zero, and there would be no money to distribute.
In the case, the challengers are asking the Fifth Circuit to vacate the first quarter 2022 USF contribution factor, arguing that the USF contribution system is unconstitutional because it involves Congress unlawfully delegating legislative and taxing authority to the FCC, and then to USAC. The challengers argue that Section 254 "place[s] no formula or meaningful limitations on the amount the FCC can raise," which fails to provide an intelligible principle bounding the program, a constitutional requirement. The challengers also contend that the system is an improper delegation of Congress's taxing power in that USF contributions are taxes and not regulatory fees in that they are designed to further broad societal goals. With regard to USAC, the challengers argue that the FCC's "re-delegation" to USAC, a private entity, violates the private nondelegation doctrine by delegating to a non-government entity regulatory power over the program and its participants.
The FCC has responded by denying that there is an improper delegation in that Congress provided sufficient guidance to the agency (by requiring that "all universal service contributions be equitable and nondiscriminatory") in Section 254 to bound the program, by denying that USF contributions as a matter of fact are not taxes, and by stating that USAC only performs "fact gathering" functions by making various expense, demand, and revenue projections that are then used by the FCC to calculate the contribution factor.
The case is fully briefed and was argued on December 5, 2022. While odds are that the court will uphold the delegation and the program, the Fifth Circuit is notoriously aggressive and suspicious of agency overreach, so there is some possibility that the USF is in jeopardy.
