Fifth Circuit to Hear Long-Overdue Constitutional Challenge to Universal Service Fund

Each quarter, the Federal Communications Commission (FCC) determines the Universal Service Fund (USF) surcharge that is placed on customers’ telecommunications bills. The surcharge is calculated by estimating the cost of the agency’s various universal service programs, divided by the industry’s anticipated telecommunications revenue. As those programs have grown, and that revenue has shrunk, the surcharge has risen from 3 percent in 1998 to a whopping 33 percent in 2021. The USF surcharge is a tax in all but name, to fund an $8 billion program that operates outside the federal budget and is administered by a private subsidiary of an industry trade group with little direct oversight from Congress. On December 5, the US Court of Appeals for the Fifth Circuit will hear arguments about whether this arrangement is constitutional. In Consumers’ Research v. FCC, petitioners argue that Section 254 of the Telecommunications Act of 1996, which establishes the modern universal service program, is an unconstitutional delegation of legislative authority to the FCC. They also argue that the agency’s decision to outsource management of the program to the Universal Service Administrative Company (USAC) is an unconstitutional delegation of power to a private entity. If successful, the suit will rein in an increasingly unstable program and prompt Congress to put its universal service initiatives on firmer legal ground with more accountability.

[Daniel Lyons is a nonresident senior fellow at the American Enterprise Institute, where he focuses on telecommunications and internet regulation. He is also the associate dean of academic affairs and a professor of law at Boston College Law School, where he teaches telecommunications, administrative, and cyber law, among other courses.]