The fate of the Universal Service Fund (USF) remains uncertain, as the Fifth Circuit Court of Appeals on Tuesday held an en banc hearing to debate whether the current system is illegal.
The USF includes four main programs aimed at addressing the digital divide – High Cost, Lifeline, E-Rate (for schools and libraries) and Rural Health Care. Telcos are required by law to make contributions to the fund, and that money often comes from a charge on consumer phone bills.
The Federal Communications Commission (FCC) has tasked the Universal Service Administrative Company (USAC) – a private third-party – to help run USF programs.
Initially, a three-judge panel in March voted to uphold the USF’s constitutionality. However, the en banc session means all the Fifth Circuit judges are rehearing the case – and could potentially overturn the original ruling.
The new hearing comes after the petitioners who lost in the Fifth and Sixth Court of Appeals successfully appealed to have the USF case reheard.
Should the Fifth Circuit decide the current universal service framework is illegal, it could result in “potentially negative implications for all ISPs,” said New Street Research’s Blair Levin.
Opponents of the USF have argued the FCC illegally delegated its responsibility of the fund to USAC. The petitioners also said Congress cannot delegate to the FCC the power to tax, referring in this case to the contribution mechanism.
In a note to investors, Levin commented the hearing “went better for the petitioners than for the FCC.” But one “bright spot” was that many of the questions the FCC’s lawyer had to answer were related to how USAC operates.
“We say bright spot in that while USAC is important to the FCC in various operational ways, if the Court focuses on the USAC issues, the FCC will be able to ‘fix’ the program without significant disruption to beneficiaries of the program,” Levin added.
In addition to the legal battles, Congress is deliberating on how to reform the USF and its programs. Earlier this year, a group of senators created the USF Working Group, inviting broadband industry groups and other stakeholders to comment on the current state of the USF and its future.
The Council for Citizens Against Government Waste (CCAGW) told the USF Working Group in August it is “difficult to continue to justify keeping the USF program at its current level.”
CCAGW has said it’s in favor of replacing the USF’s Lifeline program with the Affordable Connectivity Program – something ITIF has called for as well.