Will the USF Survive the 5th Circuit?

Cite this Article
Eric Fruits, Will the USF Survive the 5th Circuit?, Truth on the Market (August 11, 2023), https://truthonthemarket.com/2023/08/11/will-the-usf-survive-the-5th-circuit/

The Telecom Hootenanny is back from a little summer break. As they say on AM radio: “If you miss a little, you miss a lot.” So rather than trying to catch up, let’s focus on some of the latest news from the telecom dancefloor.

For this edition of the Hootenanny: we’ve got a big-time challenge to the Federal Communications Commission (FCC) heating up in the 5th U.S. Circuit Court of Appeals; an upgrade to the rapidly running-out-of-money Affordable Connectivity Program (ACP); and some big contrasts in how states plan to use their Broadband Equity, Access, and Deployment (BEAD) Program funds.

If you’re reading this, you already know the FCC is an independent executive agency of the federal government. You also may already know that one of its functions is to administer the Universal Service Fund (USF). The USF collects fees from telecommunications providers and uses those revenues to support various programs that promote access to telecom services for low-income consumers, rural areas, schools, libraries, and health-care providers.

While the USF has been around for more than a quarter-century, the FCC currently faces a challenge to its authority to run and raise funds for the program. In January 2022, Consumers’ Research—a nonprofit organization that claims to represent the interests of consumers—along with other organizations and individuals filed a petition for review in the 5th Circuit arguing, among other things, that:

  • The USF is an unconstitutional delegation of Congress’ legislative powers and obligations, because Congress did not provide any intelligible principles or guidance for the FCC to follow in administering the program; and
  • The USF is an unconstitutional delegation of Congress’ taxing power, because Congress left it to the FCC to determine how much to charge providers to fund the USF.

The FCC, however, claims that:

  • It has sufficient statutory direction and oversight from Congress to administer the USF in accordance with the public interest, convenience, and necessity; and
  • The USF is not a tax, but a regulatory fee authorized by Congress under its Commerce Clause power to regulate interstate and foreign commerce.

In March, a three-judge panel of the 5th Circuit ruled in the FCC’s favor on these issues. In June, the court granted the petitioners’ request for an en banc hearing before the full court. This week, the New Civil Liberties Alliance (NCLA) filed an amicus brief with the court, arguing that:

  • With Section 254 of the Telecommunications Act of 1996, which established the USF, Congress wrote an “evolving” and open-ended statute. This left the FCC to set its own policies and extract money from Americans to fund the USF.
  • This vague and “evolving” standard does not provide an adequate “intelligible principle” to limit the FCC’s delegation of legislative power under the Constitution’s Vesting Clause.
  • As a result, the FCC has been exercising practically unlimited legislative and budgetary power in the USF context that Article I of the Constitution reserves for Congress alone.

The amicus brief concludes that the 5th Circuit panel wrongly upheld the statute by incorrectly interpreting the same court’s May 2022 ruling in Jarkesy v. SEC. In Jarkesy, the panel said the “nondelegation doctrine applies where Congress has provided ‘no guidance whatsoever.’” (Note: Jarkesy is scheduled for review by the U.S. Supreme Court this year.)

NCLA argues that the “no guidance whatsoever” is not the actual test of nondelegation. Rather, “no guidance” represents an extreme case in which nondelegation is indisputable. NCLA notes Jarkesy identifies two questions that must be addressed to evaluate whether Congress improperly delegated power:

  1. Whether the power granted would be legislative but for a “guiding intelligible principle”; and
  2. Whether the intelligible principle ensures “that the agency exercises only executive power.”

NCLA contends that, if the agency is exercising legislative power—even in the presence of an “intelligible principle”—then “immutable boundaries between the branches of government have been breached.”

The full court’s decision in this matter could have enormous consequences for the FCC and the USF. It could also affect the FCC’s ability to regulate and fund other public-interest initiatives, such as broadband deployment, network neutrality, and spectrum management. More broadly, the decision could set a precedent for other challenges to the constitutionality and legality of federal agencies and their actions.

In Other News

Isn’t ACP running out of money?

Last week, the FCC released a report and order in its ACP docket. The order adopts rules to establish an enhanced benefit of $75 a month that may be applied to monthly charges for broadband service provided to ACP participants in high-cost areas. This is in contrast to the standard ACP benefit, which is capped at $30 a month. The FCC has yet to determine which areas qualify as “high-cost” for purposes of distributing the enhanced benefit. As we’ve noted earlier, the ACP is likely to run out of funding sometime in the first half of next year. The enhanced benefits may hasten that timeline.

BEAD funding: All-of-the-above vs. fiber-above-all

In May, my International Center for Law & Economics (ICLE) colleague Kristian Stout cautioned that states might squander BEAD funds if they stick to a “fiber-above-all” approach to broadband deployment:

For example, while BEAD is supposed to adhere to the principle of technological neutrality, the NTIA’s funding sheet shows a clear preference for fiber over wireless and satellite providers. In order to achieve the program’s goals, funds should be distributed equitably to any provider that can meet the law’s requirements for 100/20 Mbps connections. Fiber, fixed wireless, satellite, and cable all can.

According to Fierce Telecom, it looks like Colorado is heeding that warning. Brandy Reitter, executive director of the state’s broadband office, announced that fixed wireless is “absolutely part of the equation” for the state’s BEAD-funding plans. She noted that fixed wireless would be especially useful in mountainous areas and box canyons, where fiber build-outs would be high-cost and difficult to execute.

In contrast, the article reports, California has taken the lead on a “fiber-above-all” approach, rather than a tech-neutral approach that would allow for more fixed wireless and other fiber-alternative projects in the state. In part because of this strategy, the California Public Utilities Commission’s draft five-year broadband plan revealed that the total $4 billion available in state and federal fu