Major broadband subsidy faces uncertain 2025

This summer, a federal court threw into doubt a longstanding program to help get underserved communities online. Next year, the U.S. Supreme Court will decide on its future.

The U.S. Court of Appeals for the Fifth Circuit ruled in late July that the funding mechanism that underpins the Universal Service Fund, known as USF and administered by the Federal Communications Commission, is unconstitutional.

USF helps fund various programs’ efforts to reduce the digital divide in rural and underserved communities, including the Lifeline and High Cost subsidy programs, as well as the Rural Health Care Program and E-Rate, which subsidizes telecoms and other services for public schools and libraries. The amount of funding required for those programs is determined by the Universal Service Administrative Company, which assesses a contribution from each telecom service provider in the U.S. on the FCC’s behalf. Those assessments are then passed onto consumers via their monthly bills.

But the court held that this method, established under the Telecommunications Act of 1996, gave the FCC too much discretion in how it sets USF contribution rates, so the agency is making major policy decisions without congressional oversight. The court also found that the FCC’s delegation of certain functions to the USAC was not authorized under law.

The USF is something that states and localities have long seen as a key way of getting people connected. Were it to go away, it could jeopardize various federal assistance efforts and potentially put the onus on states to step up instead or leave those communities unconnected.

In their ruling, the justices said the funding mechanism is a “misbegotten tax” and said that the ability to levy contributions is a “quintessentially legislative power.” Their ruling argued that the FCC delegating the power to determine contribution rates to the USAC is unconstitutional, and that Congress could not have delegated how to determine universal service to the FCC, as that is based on policy, not the agency’s technical expertise.

“Unlike delegations implicating special agency expertise, [the law] delegates to FCC the power to make important policy judgments, and to make them while wholly immunized from the oversight Congress exercises through the regular appropriations process,” the ruling says.

Some states have warned that the program is not sustainable. In a brief filed with the Supreme Court, West Virginia Attorney General Patrick Morrissey — alongside 14 other states and the Arizona legislature — called the USF “another example of a problematic agency undertaking” based on a “vague statute” that has left states “worried.” The brief said the FCC and other agencies “have been exercising legislative power without meaningful legislative oversight for far too long.”

Outgoing FCC Chairwoman Jessica Rosenworcel said she was “pleased” that the Supreme Court would review the Fifth Circuit’s “misguided decision.”

“For decades, there has been broad, bipartisan support for the Universal Service Fund and the FCC programs that help communications reach the most rural and least-connected households in the United States, as well as hospitals, schools, and libraries nationwide,” Rosenworcel said in a November statement.

State leaders may get flashbacks to discussions over the Affordable Connectivity Program, which expired earlier this year, affecting 23 million households that received it. The $30-a-month internet bill discount was funded through the bipartisan infrastructure law, and while it was popular among state and local officials, federal leaders could not find a way to fund or reform it. Funding the ACP via USF money was one option on the table.

“The ACP was a real lifeline to our residents, and county governments also facilitated the enrollment of many people in the ACP,” said Mark Ritacco, chief government affairs officer for the National Association of Counties. “It was a really impactful way that counties could facilitate connection to services for their residents.”

In the meantime, lawmakers have floated reforming USF in a bid to keep it viable. Sen. Ben Ray Lujan, D-N.M., has helped lead a bipartisan working group alongside Sen. John Thune, R-S.D., to evaluate potential reforms, including different companies to collect contributions from and the level of those contributions. No legislation has yet emerged.

Meanwhile, Sen. Ted Cruz, R-Texas, who is in line to chair the Senate Commerce Committee, earlier this year released his blueprint on USF reform. He said Congress must be put “back in the driver’s seat” to define what universal service is and where funds can go and accused the FCC of “mission creep.” Cruz’s proposal also suggested eliminating duplicative programs, targeting low-income subsidies to those that truly need them, and establishing better controls against waste, fraud and abuse.

Some worry that, amid other tech debates in Congress, including on the future of Section 230 and content moderation on social media, USF may be overshadowed.

“It's not clear at this point whether there's going to be a serious appetite for doing anything substantial on USF next year, or if it's going to fall to the wayside,” said Angelina Panettieri, legislative director for IT and communications for the National League of Cities.

Whatever happens to the USF and other broadband subsidies, observers do not anticipate state governments giving up on closing the digital divide.

“I don't think it's likely that a lot of states are going to walk away from connectivity as a priority for their state, even if some things change,” Panettieri said. “When ACP ran out of funding, a lot of states were really counting on ACP to help underpin the affordability requirements in their broadband plan. When that went away, states didn't necessarily back off from that ideal, but they did start looking internally to see what they could do to create that consistency for their residents.”