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.

 

 

 

 

 

 

An Epidemic of Overreach at the Supreme Court, FCC and Beyond

           Recent precedent overturning decisions by the Supreme Court prompted thoughts about the human proclivity to overreach when assuming—correctly or not—the opportunity and divine duty to act. I am certain the conversative majority at the Court thinks they should exploit their numbers to the max, having toiled in the vineyards for so many years as a minority voice of reason.

           It seems almost a foregone conclusion that an unfortunate and harmful sequence of increasingly unwise and ill-conceived actions start when an individual or group perceives an opportunity to overplay an advantage that might be a long time coming.

           In quick succession, the Supreme Court conservative wing has checked off a longstanding wish list. Surely there is strength in numbers and reinforcing validation. Having achieved longstanding goals, the Court conservatives now expand their list of attainable ambitions in an ever more aggressive and risky selection of outcomes previously considered both unattainable and unlawful.

           The possibility exists that overreach may reach an endpoint and pushback. Overconfidence morphs into hubris, inflexibility, results-driven decision making, sanctimoniousness, and arrogance.  Having reversed Roe v. Wade, why not press onward and outlaw the decades-long use of medications that terminate early pregnancies. Why stop there? How about outlawing contraception? Might there be a way to execute the religious view that in vitro pregnancies, supported by federally approved fertility enhancing medications, can be judicially deemed unlawful? While they are at it, might the end point be a complete prohibition on any sort of pregnancy termination?

           I hope pushback eventually reaches a critical mass, when overreach, of any sort and political basis, has become unpopular, unlawful, and based on assumptions and personal views rather than facts. 

           Let’s consider overreach at the FCC by Democratic and Republican majorities.  A Democratic majority FCC can engage in mission creep, sometimes the product of Chevon Doctrine deference to agency expertise.  A Republican majority might interpret a statute as authorizing its result-driven determination that current market conditions justify deregulation and industry self-regulation.

           A humble judiciary, not motivated by doctrine, politics, and personal bias, might not second guess the FCC’s interpretation of an ambiguous law. Often this makes sense, because a hands-on, close understanding of technology and market change trumps insistence on narrow, historical extrapolation.  For example, a reviewing court should uphold an FCC expansion of its regulatory wingspan to include fiber optic cable, even though the Communications Act of 1934 specifies jurisdiction only for “wire and radio.”  See https://telefrieden.blogspot.com/2024/06/who-needs-humility-when-you-have-6-3.html.

           Democratic overreach might delay or reject deregulation based on a determination that self-regulation will harm consumers, promote market concentration, and stifle market entry by small ventures with a promising new business plan. Republicans might search for regulations they consider job killing, innovation stifling, and a threat to national security.

           I cannot understand how FCC Commissioners, of either party, can come up with a rationale for more or less regulation based on mere conjecture, not science, statistics, and facts.

           Republicans and their sponsored researchers spoke with absolute certainty that network neutrality regulation reduces infrastructure spending by wireless carriers.  These Commissioners ignored whether the carriers had to invest in next generation plant, or having previously done so, they could reduce capital expenditures for a while. If network neutrality had such a stifling effect on plant investment, what evidence shows a significant increase in capex now that network neutrality rules have evaporated?

           Democrats and their sponsored researchers also speak with absolute certainty about the benefits of network neutrality rules. I think they overreached with some unnecessary safeguards that could harm broadband subscribers rather than protect them from unlawful carrier behavior.  I consider some types of so-called paid prioritization potentially desirable and beneficial to some consumers without constituting unlawful discrimination. 

           Might some video streaming subscribers want “better than best efforts” routing of mission critical bits?  How about access to video content at the highest bit rate a carrier can deliver instead of an industrywide (collusive?) decision to throttle wireless video streams to “CD quality”? If carriers can lawfully package service tiers on bitrate and data volume, why would any FCC administration permit deliberate service degradation?

          Bottom line: overreach occurs everywhere often with readily identifiable harms.

Summary of the Supreme Court Aereo Decision

            The Supreme Court has ruled that the Aereo operates much like a cable television service whose retransmission of copyrighted material constitutes a public performance requiring broadcaster consent. [1] The decision effectively shuts down Aereo and appears to nullify the lower court decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121 (2008) that considered subscriber ordered copying of content a private act that does not violate copyright law.

            Writing for the majority Justice Breyer distilled the case into two questions: “First, in operating in the manner described above, does Aereo “perform” at all? And second, if so, does Aereo do so ‘publicly.’” [2]  The majority decision answers both question in the affirmative.  Aereo performs, because its broadcast signal retransmission and copying function parallels the functions of a cable television venture and satisfies the definition of performance enacted by Congress in the 1976 amendment of the Copyright Act. [3] 

            Referring to the legislative history of the 1976 amendment, Justice Breyer reports that Congress consciously sought to reverse two Supreme Court decisions that considered the cable television retransmission function not a public performance. In Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), the Court held that a community antenna television (“CATV”) system did not publicly perform copyrighted broadcast television content  when it simply distributed it to subscribers without alteration in much the same way that individuals could have done using their own antennas. In Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), the Court considered the copyright liability of a CATV provider that delivered broadcast television programming from distant sources that subscribers could not receive if they had erected a rooftop antenna.  The Court had reasoned that cable operators functioned like a private viewer and not a broadcaster, or performer. [4] Justice Breyer reasoned that because Congress expressly created language deeming content transmission a public performance, the Court had to treat the Aereo delivery service as the functional equivalent of a transmission and public performance, notwithstanding the fact that subscribers initiate the transmission and copying functions performed by the company:

This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, “perform[s]” (or “transmit[s]”). Aereo’s activities are substantially similar to those of the CATV companies that Congress amended the Act to reach. [5] 

            The majority decision rejects as insignificant a difference in the manner by which copyrighted content reaches subscribers. [6] Cable retransmission occurs simultaneously and continuously without authorization, or direction from subscribers while Aereo requires subscribers to initiate the service and determine whether to direct equipment to make copies.    Writing in dissent, Justice Scalia considers this difference significant, because the transmission and copying function does not occur unless and until a subscriber directs Aereo equipment to activate. [7] Justice Scalia analogized the coordination between Aereo and its subscribers to that which occurs when a copy center issues an equipment activation and library card for customers who make copies on their own volition using the copy center’s equipment. [8]

            On the issue of whether Aereo publicly performs copyrighted material, the Court majority determined that the company did despite having installed a dedicated antenna for the exclusive use of one subscriber.  Even if the Court were to accept the view that Aereo initiated a new performance in its reception and retransmission function, the majority still considered the performance public. [9]  Justice Breyer reasoned that Congress intended on protecting broadcasters’ copyrights even if technological innovations involved subscriber interaction with equipment and content streams did not flow instantaneously and constantly to subscribers:

[W]hy should any of these technological differences matter? They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers’ screens. They do not render Aereo’s commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo’s subscribers. Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multisubscriber antenna or one small dedicated antenna, whether they arrive instantaneously or after a few seconds’ delay, or whether they are transmitted directly or after a personal copy is made? And why, if Aereo is right, could not modern CATV systems simply continue the same commercial and consumer-oriented activities, free of copyright restrictions, provided they substitute such new technologies for old? Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies. [10] 

            The majority opinion interprets the Transmit Clause contained in the 1976 Copyright Act amendments[11] as applicable regardless whether there are multiple, geographically diverse, discrete, time-delayed or subscriber-initiated transmissions from Aereo equipment.[12] While sensitive to the possibility that its decision at least temporarily block technological and entrepreneurial innovations, the Court suggests that Congress can and will act, just as it did in response to the onset of cable television. The Court also recognizes that fair use may allow some innovations to flourish and also seeks to exempt the decision from related questions about Internet-based, “cloud” storage of content.

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[1]           American Broadcasting Cos., Inc. v. Aereo, Inc., ___ U.S. ___ (June 25, 2014) (slip op.); available at: http://www.supremecourt.gov/opinions/13pdf/13-461_l537.pdf [hereinafter cited as Aereo Revesal].

 

[2]           Id. at 4.

 

[3]              17 U.S.C. §101 et seq. (2012).

 

[4]           “Although the Court recognized that a viewer might not be able to afford amplifying equipment that would provide access to those distant signals, it nonetheless found that the CATV provider was more like a viewer than a broadcaster.” Aereo Reversal at 6.

 

[5]           Id. at 8.  “Aereo’s equipment may serve a ‘viewer function’; it may enhance the viewer’s ability to receive a broadcaster’s programs. It may even emulate equipment a viewer could use at home. But the same was true of the equipment that was before the Court, and ultimately before Congress, in Fortnightly and Teleprompter.” Id. at 9. 

 

[6]              “Given Aereo’s overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here.” Id. at 10. 

[7]           “Rather, it assigns each subscriber antenna that—like a library card—can be used to obtain whatever broadcasts are freely available. Some of those broadcasts are copyrighted; others are in the public domain. The key point is that subscribers call all the shots: Aereo’s automated system does not relay any program, copyrighted or not, until a subscriber selects the program and tells Aereo to relay it.” Justice Scalia Dissent at 6.

 

[8]            “A comparison between copy shops and video-on-demand services illustrates the point. A copy shop rents out photocopiers on a per-use basis. One customer might copy his 10-year-old’s drawings—a perfectly lawful thing to do—while another might duplicate a famous artist’s copyrighted photographs—a use clearly prohibited by §106(1). Either way, the customer chooses the content and activates the copying function; the photocopier does nothing except in response to the customer’s commands. Because the shop plays no role in selecting the content, it cannot be held directly liable when a customer makes an infringing copy.” Id. at 4. “Aereo does not “perform” for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the Networks’ public-performance right.” Id. at 6.

 

[9]           “When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber. Aereo thereby “communicate[s]” to the subscriber, by means of a “device or process,” the work’s images and sounds. §101.And those images and sounds are contemporaneously visible and audible on the subscriber’s computer (or other Internet-connected device). So under our assumed definition, Aereo transmits a performance whenever its subscribers watch a program.” Aereo Reversal at 12.

[10]            Id. at 12.

 

[11]            17 U.S.C. §101.

 

[12]          “Therefore, in light of the purpose and text of the Clause, we conclude that when an entity communicates the same contemporaneously perceptible images and sounds to

multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.” Aereo Reversal at 14. “So whether Aereo transmits from the same or separate copies, it performs the same work; it shows the same images and makes audible the same sounds. Therefore, when Aereo streams the same television program to multiple subscribers, it ‘transmit[s] . . . a performance’ to all of them.” Id.