Fifth Circuit decision striking down USF a ‘severe blow,’ says industry

In a nine-seven ruling, the United States Court of Appeals for the Fifth Circuit ruled the Universal Service Fund (USF) unconstitutional on Wednesday. The USF, which funds several of the FCC’s high-cost and low-income broadband programs, now faces an uncertain future.

As per the court’s opinion: “In the Telecommunications Act of 1996, Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation. That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay for the “universal service” tax that appears on cell phone bills across the Nation. We hold this misbegotten tax violates Article I, § 1 of the Constitution.”

The ruling reverses an earlier decision by a three-judge panel of the same court and sends the matter back to the FCC. Both the sixth and eleventh circuit courts previously upheld the legality of the USF. The USF has been enduring court challenges brought by conservative group Consumers’ Research.

Supreme Court may weigh in

In a note for New Street Research (registration required), policy analyst and former FCC official Blair Levin explained that Wednesday’s decision means the case is likely to head to the Supreme Court.

“The 5th Circuit does not vacate the FCC order, instead remanding the proceeding to the FCC for further proceedings. Thus, we think the status quo will stay in effect until the Supreme Court rules which could be by June 2025,” said Levin.

At that point, Levin expects the Supreme Court, which has overturned other decisions from the fifth circuit, to do the same here.

However, Levin added: “If we are wrong about what the Supreme Court will do and the 5th Circuit decision stands, it will severely complicate Congress’ effort at reform, as the Court based its decision on Constitutional grounds. It narrows the options beyond what the current working groups are discussing and will make it difficult to create a system that could adjust to changes in the market.”

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