The way fees are collected from telecommunications companies for the Universal Service Fund, which defrays the cost of phone and internet access in rural areas, is unconstitutional, a federal appeals court has ruled.
The system for collecting assessments from broadband providers that is used to fund the USF, which in turn funds the High Cost, E-Rate, Lifeline and Rural Health Care programs, “certainly amounts to a constitutional violation,” 5th Circuit Court of Appeals Judge Andrew Oldham wrote in a 9-7 en banc decision that overturned a previous ruling by a three-judge panel of the same court.
It does so, Oldham wrote, by putting the “quintessentially legislative” authority to choose how much telecommunications companies should pay in assessments in the hands of the Federal Communications Commission and the Universal Service Administrative Company, an independent corporation.
“American telecommunications consumers are subject to a multibillion-dollar tax nobody voted for,” the opinion says. “The size of that tax is de facto determined by a trade group staffed by industry insiders with no semblance of accountability to the public. And the trade group in turn relies on projections made by its private, for-profit constituent companies, all of which stand to profit from every single tax increase.”
The ruling was immediately criticized by NTCA – The Rural Broadband Association, which said in a press release joined by the Competitive Carriers Association and USTelecom that the USF "has been, and continues to be, a critical tool to narrow the digital divide and help address connectivity gaps.
"The court’s decision today 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 said. "We steadfastly believe that the [USF] is constitutional, and we will continue to fight for universal connectivity.”
Federal Communications Commission Chairwoman Jessica Rosenworcel also decried the decision, saying it “reflects a lack of understanding of the statutory scheme that helped create the world’s best and most far-reaching communications network” and adding that the agency “will pursue all available avenues for review.”
“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."
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The nonprofit group New Civil Liberties Alliance, however, welcomed the ruling. “The taxing power is a core legislative power,” New Civil Liberties Alliance president Mark Chenoweth said in a release. “Congress cannot divest such core legislative powers to independent executive branch agencies like FCC. The en banc Fifth Circuit is correct to rein in this improper delegation.”
Attorneys representing the FCC against the claims made by Consumers' Research claimed the USF’s payment structure was not a tax, but a fee under the argument that it grants the companies that fund it benefits not shared by other members of society, in this case by “expanding the network such carriers can serve.” But Oldham rejected this argument, saying that the fees were more likely to benefit schools, libraries, healthcare facilities and low-income individuals than the telecommunications companies themselves.
Oldham added that USF contributions are not voluntary "act but rather a condition of doing business in the telecommunications industry.” He also noted while the costs are imposed on telecommunications carriers, “carriers overwhelmingly pass the cost of contributions on to consumers, as is expressly permitted by FCC regulation.”
Oldham also wrote the agency delegated power to the private Universal Service Administrative Company (USAC) to determine the size of the universal service contribution amount and thus the ability to determine the amount of the assessments levied on carriers. USAC, Oldham added, “is run almost entirely by stakeholders who stand to benefit financially when universal service subsidies grow.”
“We do not doubt that most of the industry is staffed by individuals of the utmost integrity, but we cannot agree that private entities are no more than ministerial bean counters when it comes to setting the USF Tax,” Oldham wrote.
Judge Carl Steward, in a dissenting opinion joined by six other judges, said the majority’s decision “has created a split in a sweeping opinion that crafts an amorphous new standard to analyze delegations, overturn — without much fanfare — circuit precedent holding that this program collects administrative fees and not taxes, blurs the distinction between taxes and fees, and rejects established administrative law principles and all evidence to the contrary to create a private nondelegation doctrine violation.”
Steward, in response to the majority’s arguments about FCC granting USAC decision-making power, said “USAC is fully subordinate to the FCC as its functions are strictly ministerial” and that under the private nondelegation doctrine, agencies can obtain the assistance of private parties in implementing their mandates under federal law as long as those parties are “subordinate” and follow the agency’s guidance.
“With respect to the FCC’s control over USAC, the list of what USAC cannot do is instructive. USAC cannot make policy,” Steward wrote. “It cannot interpret unclear provisions or rules. It cannot unilaterally give its proposals the force of law.”
He also said the contributions are “fees,” not “taxes,” since they are imposed upon a specific industry and not the general public.
