NTA Issue Focus – November 2024, the Federal Universal Service Fund Funding Dilema

Andrew Isar, Miller Isar, Inc.
 

This is the first in a series of industry issue focus discussions to highlight regulatory and legislative matters that may impact Nevada Telecommunications Association (NTA) members.  As a long-time practitioner in the telecommunication’s regulatory arena, I clearly understand initial negative reactions to “regulatory” maters by some.  And indeed, for many, regulation is simply a necessary evil of doing business in our industry.  There is an upside to understanding issues that are in play and how those issues may impact corporate bottom lines. In other words, looking at regulatory and legislative issues with a member planning and profitability mindset.  This is the perspective being taken in these Issue Focuses. With that in mind, let’s dive into our first topic.

During the NTA fall conference, I spoke about Consumers Research’s challenges of the FCC’s universal service fund (USF) framework and quarterly assessments. These challenges have gained traction, first through a U.S. Court of Appeals for the Fifth Circuit (New Orleans, LA) and now on appeals to the U.S. Supreme Court.  The outcome of the appeals, now coupled with the election results, may significantly impact how much service providers and ultimately their subscribers “contribute” to maintaining universal service funding and the effect of profitability and service affordability.
 

For those unfamiliar with the issue, Consumer Research, is a non-profit corporation founded in 2021 whose mission it characterizes as “seeking to increase knowledge and understanding of issues, policies, products, and services of concern to consumers and to promote the freedom to act on that knowledge and understanding.”   Since 2022, Consumers Research has challenged the FCC’s quarterly federal universal service fund surcharge each quarter. Consumers Research maintains that the FCC’s USF funding methodology is unconstitutional, violates statutory authority, and is ultimately illegal, among other things, as most recently argued in its November 4, 2024 comments regarding the proposed 1Q25 contribution factor.  Beyond challenging the USF before the FCC, Consumers Research has challenged the FCC’s USF contribution factor before several U.S. Courts of Appeal and this year achieved a favorable decision before the full Fifth Circuit, which remanded the case back to the FCC. Consumers Research was also successful in its request for the U.S. Supreme Court to grant a writ of certiorari regarding the U.S. Court of Appeals for the 11th Circuit (Atlanta, GA) denial on Consumers Research’s USF challenge.

As anticipated, on September 30, 2023, the FCC petitioned the U.S. Supreme Court for a writ of certiorari seeking review of a U.S. Court of Appeals for the 5th Circuit decision that granted Consumers’ Research, et al.’s petition for review.  The Commission argued the Fifth Circuit decision was incorrect and that Congress did not delegate legislative power to the Commission. In October, the Schools, Health and Libraries Broadband Coalition, et al. filed a letter with the Supreme Court supporting the FCC’s appeal as well as its own separate appeal, while attorneys general of West Virginia and 14 other states and the Arizona state legislature submitted a friend of the court brief supporting Consumers Research’s appeal, arguing that Congress should find a way to provide universal telecommunications services for everyone and that the Court needs to be the one to act, not industry participants.
 

Pending action by the U.S. Supreme Court, the election results may now point to Congressional action on the issue. Following his reelection, Texas senator Ted Cruz, current ranking member of the Senate Committee on Commerce, Science, and Transportation, is poised to become committee Chairman and move to recast the USF funding process through a Congressional appropriations process rather then through the current FCC process, as Cruz has argued.
 

With a change in the administration and Republican majority in the Senate, the chances of a recasting of the federal USF through Congressional action are fairly good.  At time when the quarterly USF contribution factor has reached a whopping 35.8 percent of interstate and international revenues and likely growing, it becomes increasingly challenging for USF funding to maintain the status quo.  The possibility of Congressional appropriations to the USF may benefit consumers by spreading funding over a broader range of taxpayers rather than through telecommunications service users alone. Doing so would stand to reduce the financial burden on service users, promote increased service usage if users no longer have to factor in USF assessment costs, and streamline USF reporting to the Universal Service Administrative Company in what has become an exceptionally challenging FCC Form 499 reporting process.  On the flip side, a change in the funding process may begin to limit USF programs funding, including the E-Rate for Schools and Libraries, and overall subsidies that USF recipients have grown accustomed to.
 

Given the outcome of the elections, the Supreme Court may now find that Congress and not the FCC is to establish how USF will be funded, as Consumers Research has argued.  This will undoubtedly have ramifications on state USF programs that have been modeled after the federal USF framework – now moving the state USF funding discussion to state legislatures.  We will keep you posted.

To make these Issue Focuses as relevant, informative, and useful as possible, please share your comments.  And if you have a regulatory-legislative topic of interest, believe an Issue Focus is missing the mark, or have questions, certainly contact me at aisar@millerisar.com.

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