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.

 

 

 

 

 

 

The We Don’t Want to Pay for Universal Telecommunications Access Litigants Finally Hit Paydirt

           For several years now, a well-funded litigation group has sought a federal appellate court decision deeming unconstitutional congressional legislation directing the FCC to establish a subsidy mechanism to achieve affordable and ubiquitous access to telecommunications and broadband.  In three appellate court districts, the litigants filed the same claims and lost. 

         Even a panel in the nation’s most conservative district, failed to buy the argument that the decades long FCC-created subsidy mechanism constituted a tax, made worse by the Commission’s delegation of administrative duties to a private company.

        The litigants finally hit paydirt in an enbanc appeal to the Fifth Circuit Court of Appeals that ruled in their favor on a 9-7 vote.  See https://www.law360.com/articles/1861779/attachments/0. The litigants finally have a conflict in appellate court rulings that eventually will result in a Supreme Court appeal and the opportunity for the conservative majority there to issue yet another order framed as rightsizing the administrative state.

        The litigants ostensibly expressed concerns about constitutional rights, economic freedom, what constitutes a tax, how specific a congressional delegation of authority has to be, and the extent to which the FCC could lawfully delegate administration of the universal service program to a company.  These arguments are creative rationales to support a basic mission: to find a way for a court to eliminate an increasingly expensive subsidy burden flowing from telecommunications carriers to qualifying subscribers based on their income. Reduced to its basic premise the litigation is funded by stakeholders who do not want to pay anything to support affordable Internet for everyone, including all those Republican voters in rural America.

           Apparently jettisoning a successful, albeit expensive, subsidy program should be shut down as a unfair, and apparently unnecessary gravy train for undeserving beneficiaries, many of which happen to live in rural Red States!

           Ever since the onset of telephone service telephone companies, the FCC, and even Congress have supported a universal service mission.  For decades, no one objected to the basic premise that society benefits when as many people as possible have access to affordable telecommunications.  In light of how right-wing conservatives currently rail against universal service, historically sparsely populated Red, Republican states receive the largest share of universal service funding.  Now that universal surface funding has substantially increased to support broadband access, the right-wing rails against so-called Obama Phones and unconstitutional taxation.

           The 5^th Circuit En Banc decision reeks of partisan, doctrinal overreach.  The majority, emboldened by recent Supreme Court decisions to eliminate reliance on regulatory agency expertise, blows up a subsidy mechanism that has significantly achieved progress, and funneled billions of dollars into the coffers of telephone companies.

           The ultimate irony from this misguided mission will be a massive increase in employment at the FCC that no longer can off load administrative duties to a separate company.  Telephone companies quite likely will regret losing a generous subsidy and I expect them to lobby for a resurrection of the program, with even more explicit, unambiguous language now required by the Supreme Court.

 

 

About That Universal Service “Tax”

            Universal service opponents like to claim in real courts, and the court of public opinion, that the surcharge imposed by carriers represents an unlawful tax.

             Consumers’ Research, the advocacy group seeking to have universal service funding deemed unconstitutional, wants several courts to endorse its view that the “revenues raised for the Universal Service Fund pursuant to 47 U.S.C. § 254 are taxes and therefore Congress’s standardless delegation to the FCC of authority to raise and spend nearly unlimited taxes violates Article I, section 8 of the U.S. Constitution.” https://storage.courtlistener.com/recap/gov.uscourts.ca5.215996/gov.uscourts.ca5.215996.1.1.pdf?ref=broadbandbreakfast.com at p. 4.

             When asked whether universal service funding constitutes a tax, former FCC Commissioner Harold Furchtgott-Roth stated:  “I think the way it’s structured now it’s unambiguously a tax. It’s -- the people who pay in — and the statute’s very clear.” https://fedsoc.org/events/consumers-research-v-fcc-and-the-legality-of-the-universal-service-fund-contribution-regime.

             Several advocacy groups preach the gospel that Congress has no legal authority to create a universal service funding mechanism and in turn the FCC has no basis to establish policies and rules, nor can it delegate administrative responsibilities to the Universal Service Administrative Co.

             If, somehow, they never learned the distinction between a tax and a legislatively mandated charge, that carriers pass through in its entirety to subscribers, consider what a wireless reseller discloses in its terms of service:

             Surcharges

When imposed, unless prohibited by applicable law or agreement, you agree to pay all surcharges (“Surcharges”), which may include, but are not limited to: Federal Universal Service; various regulatory charges; Kroger Wireless administrative charges; gross receipts charges and certain other taxes imposed upon Kroger Wireless; or charges for the costs that we incur and pass along to you. Surcharges are not taxes, and we are not required to assess them by law. They are charges we choose to collect from you, are part of our rates, and are kept by us in whole or in part. The number and type of Surcharges will be provided and may vary depending upon the location of the transaction or the primary account address of the payment method or Device and can change over time. We determine the rate for these charges, and these amounts are subject to change as are the components used to calculate these amounts. https://www.krogerwireless.com/support/terms-and-conditions

             When creating contracts and tariffs, wireless service providers must play it straight.  Elsewhere it’s caveat emptor.

 

The Google Telephone Company?

Google has undertaken a beta-test of a telephony platform that includes the opportunity to route incoming calls to multiple devices and telephone numbers as well as free domestic long distance service. See http://www.google.com/googlevoice/about.html.

Google offers a service that fits somewhere between computer-to-computer, Internet telephony and Voice over the Internet Protocol telephony with access to and from the public switched telephone network. These service categories present polar opposites for U.S. regulatory purposes. The FCC’s Declaratory Ruling in Pulver.com clearly states that computer-mediated voice communications constitutes a largely unregulated information service. Without stating that PSTN accessible VoIP constitutes a regulated telecommunications service, the FCC has increasingly treated is as such. Using its elastic “ancillary jurisdiction,” provided under Title I of the Communications Act, the Commission has opted to apply Title II, common carrier duties on PSTN accessible VoIP service providers. These duties reduce the competitive advantages of VoIP as they impose significant costs including: financial contributions to universal service funding, wiretapping cooperation with law enforcement officials, emergency 911access, number portability to and from VoIP telephone numbers, and accessibility for people with disabilities.

Most recently the FCC specified that interconnected VoIP service providers must comply with Sec. 214 of the Communications Act that requires common carriers to file applications with the FCC and state public utility commissions before discontinuing any service. See IP Enabled Services, Report and Order, WC Dkt 04-36 (FCC 09-40 May 13, 2009); available at http://www.qsiconsulting.com/pdf/FCC_VoIP_order_5-13-09.pdf.

Does the launch of Google Voice create the potential for the company to become a major regulated telephone company? On one hand, the service clearly provides access to and from the PSTN. But on the other hand, Google Voice requires subscribers to launch an Internet browser and to enter instructions using a Web interface. Does computer-initiated voice communications migrate the service into the “computer-to-computer” Internet telephony classification, despite the PSTN link? Eventually at stake will be millions and possibly billions of dollars in revenues and universal service funding.