Federal Lawsuits Allege FCC Phone Surcharge Unconstitutional

Dating back to 1934, Americans have paid into a fund that began as a mechanism for providing every household with telephone service and evolved into the federal initiative for universal internet access.

Cell and landline phone customers still contribute to the Federal Communications Commission Universal Services Fund (USF), which is passed onto them by service providers in the form of a monthly surcharge, even though Congress never approved the tax.

With that coffer running short of cash—along with the exhaustion of the FCC’s Affordable Connectivity Program for low-income households this month—litigation challenging the fund’s legitimacy could ultimately require lawmakers to end internet subsidies or find a different way to pay for them.

Washington-based nonprofit Consumers’ Research has pending lawsuits against the FCC calling for the elimination of the USF.

The complaints, filed in the U.S. Fifth, Sixth, and 11th Circuit of Appeals courts in January 2023, state the surcharge is illegal and should not be allowed because Congress delegated taxing power to the FCC.

According to court papers, on April 15, the Fifth Circuit court granted the FCC’s request to delay proceedings on the matter until a decision is made in the other two courts.

Will Hild, Consumers’ Research executive director, said a coalition of attorney generals representing states with Republican voter majorities recently filed with the Fifth Circuit court a brief in support of CRG, which seeks to have the matter decided on by the Supreme Court of the United States.

“It’s an accountability issue,” Mr. Hild told The Epoch Times on May 15. “Power has to lie with the people who can be replaced.”

Mr. Hild said USF rates, which are only collected through phone service even though the revenue goes to internet programs, increased astronomically in recent years.

However, he did not have exact figures.

“It started as a telephone buildout 90 years ago, but it’s not that anymore,” he said. “And it’s never been challenged.”

The Congressional Research Service, a public policy institution that serves the federal legislature, outlined the future of the USF and related broadband programs in a March 1 report.

It notes that the Telecommunications Act of 1996 expanded USF to cover “advanced telecommunications and information services” to include high-speed internet service to homes, schools, and businesses, particularly for low-income individuals in rural or high-cost areas.

Today, USF covers discounted internet service for low-income families and public schools and libraries (E-Rate program).

It is also used to complete the buildout of broadband networks in remote areas.

USF subsidizes internet services for health care providers in rural areas if the rates are higher than those in urban communities, according to the Congressional Research Service report.

USF money for low-income families, which was established as the Affordable Connectivity Program in 2021, began with $14.2 billion and will be exhausted by May 31, according to the FCC website.

It provided $30 monthly subsidies for about 50 million people.

USF proponents maintain that ending the program will widen the “digital divide” for under-represented communities that have less access to technology.

Several ed-tech advocacy organizations met with members of Congress and representatives from the U.S. Department of Education and the FCC on May 1 and May 2 to lobby for E-Rate’s continuation.

Consumers’ Research and state officials from across the nation that support the lawsuits don’t have a problem with the intent of the program, but they do take issue with the way it’s funded and the lack of transparency, Mr. Hild said.

“It’s an unconstitutional delegation,” he said, “because Congress has to set the rates.”

According to the Congressional Research Service report, USF contributions from phone service customers increased from 16.7 percent in early 2017 to 34.5 percent in late 2023.

Disbursement levels from the fund were relatively stable in the past decade, from $8.71 billion in 2012 to $7.44 billion in 2022.

Still, the telecommunications revenue base that was counted on to replenish the coffer is declining.

“These figures indicate that the declining contribution base may be the primary driver of the increased contribution factor, rather than increased demand from consumers,” the report said.

With the future of USF uncertain under the current arrangement and legal challenges, the Congressional Research Service suggests some alternatives: Collections could be shifted to technology companies with a solid online presence, like Google, Amazon, Meta, and Netflix, with rates based on digital advertising or service revenues.

The FCC can also ask Congress to fund the USF as a direct appropriation, as recommended by the U.S. Chamber of Commerce, AT&T, and a number of trade industry organizations.

“Such a decision would provide the broadest possible base for funding USF programs while reducing burdens on consumers,” the report said.

“On the other hand, appropriated funding is in high demand for a wide range of other federal programs and may be limited by government-wide fiscal constraints.”