FCC Defends USF and Role of USAC at Supreme Court

The FCC in a U.S. Supreme Court filing defended the USF in general, and the contribution factor more specifically, as the justices prepared to hear what could be the most consequential FCC case in years (see 2412100060). SCOTUS agreed in November to review the 5th U.S. Circuit Court of Appeals' 9-7 en banc decision, which sided with Consumers' Research and found that the USF contribution factor is a "misbegotten tax.”

The 5th Circuit’s decision “conflicts with decades of precedent and centuries of practice; reflects a misreading of the Communications Act and the FCC’s rules; and threatens to nullify the universal service programs, to the detriment of the millions of Americans whom those programs serve,” the pleading said. As is the case with filings from the government, DOJ also signed it.

Until the 1990s, the commission and state regulators “promoted universal service primarily through a system of implicit subsidies,” the FCC said: Telecom carriers “were required to charge below-cost rates in rural areas, but were allowed to charge above-cost rates in cities. Through that approach, urban customers implicitly subsidized the provision of telephone service to rural customers.”

But in 1996, Congress “overhauled” the Communications Act, directing that the FCC establish a set of programs known as the USF, the pleading said. Congress said the agency must follow six principles, including that “services should be available at ‘just, reasonable, and affordable rates,’” that “‘all regions of the Nation’ should have access to services” and that customers throughout the U.S. “should have access to services that are ‘reasonably comparable’ in quality and price to those provided in urban areas."

Congress required that providers pay for USF through “equitable and nondiscriminatory” contributions and that subsidies should be “specific, predictable and sufficient.”

The FCC defended its decision in 1997 to establish the Universal Service Administrative Co., which administers the USF. The 5th Circuit raised questions in particular about USAC's role (see 2407240043), saying it "sets the USF tax" that's "subject only to FCC's rubber stamp."

The agency filing argued that USAC “is subject to the FCC’s oversight and control” and its “sole stockholder” is “an association of carriers” that “must ‘act in compliance with the [FCC’s] Rules and Orders when exercising its stockholder duties and powers.’” Although USAC “performs administrative tasks on the FCC’s behalf, it exercises no independent regulatory power.”

The pleading discusses in detail how the contribution factor is computed quarterly, based on information that providers submit. The commission “announces the projections and contribution factor in a public notice and on its website,” the pleading said: “The Commission reserves the right, at any time during the ensuing 14 days, to revise the projections (and thus the contribution factor) and to set them ‘at amounts that the Commission determines will serve the public interest.’”

The 5th Circuit “erred in holding that the universal service contribution system violates the nondelegation doctrine,” the FCC said. Section 254 of the Communications Act “does not affect an impermissible delegation of legislative power to the FCC,” the agency said. “Although Congress may not delegate legislative power to executive agencies, Congress may authorize an agency to exercise discretion in implementing a statute.”

The test “is not demanding,” the filing said. SCOTUS “has upheld statutes that authorize agencies to regulate in the ‘public interest,’ to fix ‘just and reasonable’ prices, and to identify and recover ‘excessive profits.’” It added, “Those decisions are consistent with the Constitution’s original meaning, as evidenced by early Congresses’ enactment of statutes granting broad discretion to the Executive Branch.”

The filing said the FCC didn’t “subdelegate legislative power” to USAC. “Within the limits set by Congress, the FCC determines the amount of money that carriers must contribute” to the USF, the agency explained: USAC “simply gives the FCC advice -- namely, projections of the universal service programs’ expenses and the carriers’ revenues for the upcoming quarter, calculated according to FCC rules” and those projections “do not bind the Commission.”

The FCC noted that only twice in U.S. history has SCOTUS held that a statute was an unconstitutional delegation of legislative power to the executive branch. Both cases involved laws “enacted during the depths of the Great Depression” and one of the laws “authorized the President to ‘regulate the entire economy on the basis of no more precise a standard than stimulating the economy by assuring ‘fair competition.’” In contrast, the court “has repeatedly upheld broad statutory grants of discretion to executive agencies.”