Key Takeaways
- The U.S. Supreme Court upheld the FCC's Universal Service Fund (USF) scheme, ensuring its continued operation.
- The Court rejected nondelegation doctrine challenges, finding Congress provided sufficient guidance for the FCC's USF administration.
- The decision clarifies agency delegation limits and has implications for other federal regulatory schemes.
The Supreme Court of the United States recently issued its decision inFederal Communications Commission v. Consumers' Research et al.—resolving a circuit split and endinguncertainty over the survival of the Federal Communications Commission's (FCC) Universal Service Fund (USF). The Court upheld the constitutionality of the USF's statutory and structural foundations, including the FCC's use of the Universal Service Administrative Company (USAC) to collect and dole out subsidies for telecom and internet services in underserved areas. The Court's decision in Consumers' Research ensures the continued operation of the USF, which for decades has supported affordable phone and broadband access for low-income individuals, rural residents, schools, libraries, Native American tribal lands, underserved individuals, and healthcare providers through a range of programs. The ruling also helps clarify the limits of the nondelegation doctrine and the permissible scope of agency delegation, with potential implications and guidance for other similar federal regulatory schemes.
Background
The USF was established by the Telecommunications Act of 1996 (1996 Act) to promote universal access to affordable telecommunications services to underserved areas in the United States. The 1996 Act set out various guiding principles for the USF, including: (1) promoting the availability of nationwide access to reasonably comparable telecom services, particularly to low-income, rural, insular, and high-cost areas, as well as schools, libraries, and healthcare facilities at just, reasonable, and affordable rates; and (2) providing equitable and nondiscriminatory contributions from telecom providers sufficient to preserve and advance the USF. Additionally, following the passage of the 1996 Act, the FCC directed an association of telecom carriers to create USAC, an independent nonprofit corporation, which the FCC then designated to administer the USF by managing the collection of telecom providers' contributions and disbursing funds to USF programs. USAC operates under the direction of the FCC and administers USF programs in accordance with the FCC's rules, orders, and directives. Presently, USAC assesses and collects approximately $8.6 to $9 billion in funds annually from telecom providers. Telecom providers, in turn, typically pass through the costs of their mandatory contributions to consumers as line-item surcharges on phone bills by which the telecoms reimburse themselves for their payments to USAC. The carrier's surcharge is typically displayed on consumer bills as a carrier's "USF Fee" and not as a governmental tax.
Consumers' Research arose from a legal challenge filed by a nonprofit that argued that Congress had unconstitutionally delegated its legislative and taxing powers to the FCC by allowing the agency to set the "contribution factor"—the rate at which telecom providers must pay to USAC—under the theory that the payment to USAC constituted a tax. The nonprofit further contended that the FCC's sub-delegation of administrative responsibilities to USAC, a private nonprofit entity, was also unconstitutional. Specifically, the nonprofit relied on the "nondelegation doctrine," a legal principle which states that the Constitution prohibits Congress from sub-delegating authority granted to it by Congress to other branches of government, government agencies, or private entities. The U.S. Court of Appeals for the Fifth Circuit found both the congressional delegation to the FCC and the FCC's sub-delegation to USAC unconstitutional. However, the U.S. Court of Appeals for the Sixth and Eleventh Circuits had previously upheld the FCC's sub-delegation authority, creating a split among the federal appellate courts.
In Consumers' Research, the Court rejected arguments that the carrier payments to USAC constituted an unconstitutional tax and that the FCC's delegation to USAC amounted to an impermissible sub-delegation. The Court emphasized that Congress's guidance and the FCC's oversight were adequate to satisfy constitutional requirements because:
- Congress provided "intelligible principles" in the 1996 Act to guide the FCC's administration of the USF, including clear policy goals and boundaries for the agency's authority to set and collect "sufficient" contributions through USAC to support the USF.
- The relationship between the FCC and USAC is constitutionally permissible because USAC operates under the FCC's supervision, and its actions are subject to FCC review and approval.
- USAC's role is limited to administrative functions, with all substantive decision-making authority remaining with the FCC.
Takeaways and Next Steps
The Supreme Court's decision upheld the status quo by affirming the legality of the FCC's USF program and, more broadly, provided greater clarity for what constitutes a constitutional sub-delegation of authority by any federal agency to another entity. The Court's decision was surprising to some observers in light of the Court's recent decisions that chipped away at federal agencies' authority and the deference owed to them by federal courts, such as in the Loper Bright Enterprises (2024), SEC v. Jarkesy (2024), and McLaughlin (2025) decisions. While the decision in Consumer's Research has secured the legality of the USF program, there are signs that Congress may seek to reform the USF program's structure and reach. For example, U.S. Senator Ted Cruz (R-TX), chairman of the Senate Commerce Committee, has expressed support for legislative reforms of the USF program. Some industry stakeholders argue the parties subject to the contribution requirements should be expanded to include key players in the internet ecosystem, such as broadband internet access services and edge providers. Others argue that financial changes are necessary to ensure USF's long-term sustainability. Stakeholders should closely monitor these efforts to reform the USF program.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
