Buckle up, we’re heading to the Wild Wild West of policy land.
By Susan Gentz
The Federal Communications Commission (FCC) is being put to the test on a major fund connecting schools and libraries. In order to understand the full context, we must first take a look at how the fund started and why.
How did the FCC and E-Rate start?
This whole conversation started back in the Communications Act of 1934. Where, according the the Federal Communications Commission, “Universal service was one of the core mandates of that legislation, the purpose of which included making “available…to all the people of the United States…a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges."
In 1934, telephone service was considered to be a “natural monopoly,” a service best delivered by one company rather than two or more competitors. The U.S. government allowed AT&T, then the monopoly provider, to operate in a non-competitive environment in most areas of the country in exchange for the federal and state government regulation of price and service quality. In areas that AT&T did not provide service, small companies, including cooperatives owned by residents of the local community, provided phone service. The concept of universal service evolved over the decades to mean the development of an infrastructure that provides telephone service to all consumers at a reasonable price. Funding for universal service came from a series of access charges that long distance carriers paid as intercarrier compensation (ICC) to local exchange companies for originating and terminating the long distance calls. Even after the breakup of AT&T in 1982, only interstate long distance companies were required to contribute funds towards universal service.”
What Programs make up the USF?
In a later reauthorized version, “the Telecommunications Act of 1996 led to the creation of the Universal Service Administrative Company, or USAC, an independent, not-for-profit corporation designated as the administrator of the federal Universal Service Fund by the FCC.” The update created the Universal Service Fund which is paid for by contributions from providers of telecommunications based on an assessment on their interstate and international end-user revenues. The rewrite also significantly opened up the market for more providers to enter the space.
The Universal Service Fund provides support through four programs:
High-Cost Support (now known as the Connect America Fund) provides support to certain qualifying telephone companies that serve high-cost areas, thereby ensuring that the residents of these regions have access to reasonably comparable service at rates reasonably comparable to urban areas
Low-Income Support, also called the Lifeline program, assists low-income customers by helping to pay for monthly telephone charges so that telephone service is more affordable
Schools and Libraries Support, also known as the "E-Rate," provides telecommunication services (e.g., local and long-distance calling, both fixed and mobile, high-speed data transmission lines), Internet access, and internal connections (the equipment that delivers these services to particular locations) to eligible schools and libraries
Rural Health Care Support allows rural health care providers to pay rates for telecommunications services similar to those of their urban counterparts, making telehealth services affordable, and also subsidizes Internet access
Okay, So What’s Happening?
Well, let’s take it back to Chevron. Do you all remember hearing about this case? Well, it didn’t take long for a challenge to take place. In June 2024, the Supreme Court ruled that courts no longer have to defer to agencies’ interpretations of ambiguous statutes. Prior to the Looper Bright Enterprises v. Ramondo case, the Chevron doctrine (established in 1984 in Chevron U.S.A.,Inc v. Natural Resources Defence Council, Inc) directed courts to “defer to an agency’s reasonable interpretation of an ambiguous statute that it administers.” The overturning of the Chevron decision has now allowed the challenging of agency programs and fees. This is now showing up in the FCC and the USF. (Consumers’ Research v. FCC) The real question that will be decided is, is the USF a tax or a fee? If it is a tax, then that power belongs to Congress. If it is a fee, the FCC does have jurisdiction. The argument that the USF is a fee is that a person is not required to do business in the telecommunications industry and the USF comes from a voluntary action.
The Fifth Circuit (Texas, Louisiana, and Mississippi) is the only circuit so far to rule this fund unconstitutional, while the Sixth and Eleventh held up the constitutionality of the fund. Because there are circuits ruling in opposition, it is likely that the supreme court will take up this case.
What does this specifically mean for the cybersecurity pilot just starting with the FCC?
“The FCC will appeal and also ask the Supreme Court for a stay until their arguments can be heard. Given the split with the other circuit courts, there's a good chance the Supreme Court will stay the order and take up the case. As I understand it, if the FCC doesn't receive a stay, the agency won't be able to implement the program for anyone. I would also note that the Fifth Circuit remanded the case to the Commission for further proceedings without expressly vacating the quarterly contribution factor at issue in the appeal, so there also may be an administrative pathway (slim) to addressing the issue.”
"As a general rule, the court of appeals' decision is effective when the court issues its mandate. But the FCC may ask the Fifth Circuit to stay its mandate pending a petition for certiorari to the Supreme Court, and the Fifth Circuit may do so. And even if the court doesn't stay its mandate, the opinion remands to the FCC for further proceedings consistent with the Fifth Circuit's opinion, so it remains to be seen how the FCC will respond. At the end of the day, I think some time will pass before businesses and consumers know for sure what they're facing."
FCC plans to “pursue all available avenues for review”.
We will be keeping a close eye on this as things develop, but given the current makeup on the Supreme Court, advocates better hit it hard with Congress to ensure funding continues to be available to connect schools and libraries.
Reach out to me at susan@k20connect.co if there is anything I can help with when it comes to E-rate and advocacy.
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