Fifth Circuit Court of Appeals Declares FCC’s Universal Service Fee Unconstitutional

Certain excerpts pulled from The CommLaw’s Client Advisory found here: https://commlawgroup.com/2024/fifth-circuit-court-of-appeals-declares-fccs-universal-service-fee-unconstitutional/

On July 24, 2024, the en banc Fifth Circuit Court of Appeals issued its ruling in the Consumers’ Research v. FCC case declaring the Federal Communications Commission’s (FCC) Universal Service Fee (USF) to be unconstitutional. The court found that the structure and application of the USF, managed by the Universal Service Administrative Company (USAC), violates the nondelegation doctrine and the Appointments Clause of the U.S. Constitution. This ruling has profound implications for the telecommunications industry and the future of universal service funding.

Note that this ruling is specific to those states within the jurisdiction of the Fifth Circuit of Appeals including Louisiana, Mississippi, and Texas. Also note that this ruling is specific to the Universal Service Fee and not the Universal Service Fund.

The Universal Service Fund, administered by the Universal Service Administrative Company (USAC), funds high-cost and low-income broadband programs by the Federal Communications Commission. For example, communications companies that provide rural communications get federal subsidies so rural customers don’t pay more for their communications than customers in more built-up areas.

“In the Telecommunications Act of 1996, Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation,” reads the opening of the 9-7 Appeals Court opinion. “That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the universal service tax that appears on cell phone bills across the Nation. We hold this misbegotten tax violates Article I … of the Constitution.”

Money for ‘universal service’

In the “pursuit of universal service,” the decision notes, “Congress authorized the FCC to establish ‘specific, predictable, and sufficient . . . mechanisms to preserve and advance universal service.’ Pursuant to this grant of authority, FCC levies ‘contributions’ to a Universal Service Fund from telecommunications carriers and it distributes the monies raised to people, entities, and projects to expand and advance telecommunications services.”

Debating the fine differences between a “fee” and a “tax,” the Fifth Circuit added that “Congress has bestowed upon FCC the power to levy taxes, and we accordingly conclude that it has delegated its taxing power.

“ ‘There are limits of delegation which there is no constitutional authority to transcend,’ ” the opinion added.

Two Key Points of the Ruling

Nondelegation Doctrine:

• Core Issue: The court found that Congress violated the nondelegation doctrine by delegating legislative power to the FCC and USAC without providing an intelligible principle to guide their actions. The nondelegation doctrine requires that when Congress delegates authority, it must lay down clear and specific guidelines.

Appointments Clause:

• Core Issue: The court ruled that the way USAC operates violates the Appointments Clause of the U.S. Constitution. This clause mandates that significant authority can only be exercised by officers of the United States, who must be appointed in accordance with constitutional procedures.

What next?

Previous courts have reportedly upheld the legality of the USF, and the FCC, not surprisingly, was displeased with Fifth Circuit ruling. FCC Chairwoman Jessica Rosenworcel called the decision “misguided and wrong. 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.”

“The Universal Service Fund is an extraordinarily successful program that stands as a model internationally to supporting universal connectivity,” added FCC Commissioner Anna M. Gomez.

The remand to the FCC means that the court has sent the case back to the FCC for further action consistent with the court’s ruling. The FCC must now reassess and potentially restructure the USF program to comply with constitutional requirements.

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