Reviling Universal Service Subsidies and then Touting the Results

           Today, the Supreme Court will consider a challenge to the universal service subsidy program established soon after the introduction of telephone service by the AT&T Bell System and later officially adopted by the FCC as mandated by a 1996 law. See https://www.supremecourt.gov/orders/courtorders/112224zr1_7l48.pdf; https://assets.noviams.com/novi-file-uploads/shlbc/PDFs_and_Documents/2025_Filings/24-354_SHLB_et_al__Opening_Brief.pdf. Universal service funding supports access to telephone and broadband service by subscribers in rural locales that commercial ventures will not serve absent a subsidy.  Additional programs reduce the cost of access for low-income subscribers and specific beneficiaries such as schools, clinics, hospitals, and libraries.

          The programs help mitigate what economists consider market failure: the inability of unregulated and unsubsidized markets to achieve socially desirable outcomes. As we recover from the Covid-pandemic, who would ignore the essentialness of “remote access” to government services, social networks, entertainment, etc.?

          After failing in multiple Circuit Courts of Appeal, a well-funded advocacy group convinced a majority of 5^th Circuit judges that FCC exceeded its statutory authority in implementing the subsidy program and assigning administrative tasks to a private venture. See https://www.supremecourt.gov/DocketPDF/24/24-354/336896/20250108184903404_24-354ts_FCC.pdf.

          I participated in the Circuit Court cases as the co-author of a Friend of the Court brief explaining how universal service funding works.  For decades nobody considered the program controversial, or worse yet, yoke, taxing, and confiscatory.  Over time the program has grown into an $8.1 billion subsidy that telecommunications carriers pass through to subscribers by way of a billing line item.  The substantial subsidy increase has resulted from an uncontroversial decision by the FCC to subsidize broadband Internet access in addition to telephone service.

          The Supreme Court today surely will not understand that the Congress used clear language codifying the subsidy and directing the FCC to require regulated carriers to contribute to the fund.  The Court will not understand that the carriers can lawfully elect to pass through the costs to subscribers and also determine what percentage of their services are subject to the subsidy requirement. 

          This flexibility helps the opponents of universal service funding to characterize the program as an unconstitutional tax on consumers, rather than a long-standing program that everyone used to consider essential.

          I have devoted a lot of bandwidth explaining how the program works, its woeful inefficiencies and inequities, and its lawfulness. See, e.g.,  Rob Frieden, Remedies for Universal Service Funding Compassion Fatigue, 39 SANTA CLARA HIGH TECH LAW JOURNAL 395 (2023); https://digitalcommons.law.scu.edu/chtlj/vol39/iss4/2/; Rob Frieden, How to Remedy Post Covid Pandemic Setbacks In Bridging The Digital Divide, 25 NORTH CAROLINA JOURNAL OF LAW AND TECHNOLOGY, Issue 1, 57 (2023); https://ncjolt.org/wp-content/uploads/sites/4/2023/10/Frieden_Final.pdf; Rob Frieden, The Mixed Blessing of a Deregulatory Endpoint for the Public Switched Telephone Network, 37 TELECOMMUNICATIONS POLICY, No. 4-5, 400-412 (May, 2013); https://doi.org/10.1016/j.telpol.2012.05.003; Rob Frieden, Killing With Kindness: Fatal Flaws in the $6.5 Billion Universal Service Funding Mission and What Should be Done to Narrow the Digital Divide, 24 CARDOZO ARTS AND ENTERTAINMENT LAW JOURNAL, No. 2, 447-490 (2006); https://cardozoaelj.com/wp-content/uploads/Journal%20Issues/Volume%2024/Issue%202/Frieden.pdf; Rob Frieden, Lessons From Broadband Development in Canada, Japan, Korea and the United States, 29 TELECOMMUNICATIONS POLICY, No. 8, 595-613 (Sept. 2005); doi:10.1016/j.telpol.2005.06.002.

          It is quite unnerving to see this issue reframed as an assault on consumers and characterized as a tax.  It’s quite humbling to see the efficacy of campaigns to discredit the FCC’s decision to delegate funding collection and disbursement to a private venture, despite the inconvenient truth that if the FCC had to perform these tasks, it would have to employ hundreds more staff.

          Worse yet, it is painful to see elected officials revile the subsidy mechanism, but hold press conferences bragging about the millions of dollars made available to constituents.