On March 26, 2025, the U.S. Supreme Court (“SCOTUS”) will hear oral arguments on whether the Universal Service Fund is unconstitutional. SCOTUS granted a Petition for Discretionary Review on November 22, 2024, following a decision by the U.S. Fifth Circuit Court of Appeals (“Fifth Circuit”).
On July 24, 2024, the full Fifth Circuit ruled in a 9-7 decision that the Universal Service Fund (USF) is unconstitutional. This decision, in the case of Consumer’s Research v. FCC, reversed a prior ruling by a three-judge panel from the Fifth Circuit and has introduced significant uncertainty regarding the future of the USF and connectivity programs across the country.
The USF, which was established under the Telecommunications Act of 1996, has played a critical role in expanding broadband access, supporting rural infrastructure, providing affordable internet to low-income households, and subsidizing connectivity for schools, libraries, and healthcare facilities. The fund is currently sustained by contributions from telecommunications providers. However, critics have long argued that the current contribution system is outdated, because it does not require all broadband providers to contribute.
In its ruling, the Fifth Circuit determined that Congress had improperly delegated its taxing authority to the Federal Communications Commission (FCC) without sufficient guidance and that the FCC had, in turn, further delegated that authority to the Universal Service Administrative Company (USAC) and Telecommunications Service Providers (TSPs). The majority viewed the USF fees as an unconstitutional tax, while the seven dissenting judges noted that the majority blurred the distinction between fees and taxes and broke with precedent. The dissenters also noted that TSPs are voluntary members of the industry and are permitted, although not required, to recover their costs from customers. The dissenters viewed the USF as a fee, which does not require the power to tax.
The Fifth Circuit’s ruling directly conflicts with prior decisions from the Sixth and Eleventh Circuit Courts, which upheld the constitutionality of the USF. While the case advances through the courts, the USF will continue to operate, but its long-term future remains uncertain.
If the Supreme Court upholds the Fifth Circuit’s decision, immediate action from Congress will be necessary to establish a new funding mechanism for the USF. Even if the Supreme Court overturns the ruling, legislative efforts to modernize the USF must continue to ensure its long-term sustainability in today's broadband world and provide greater operational clarity.
The potential loss or restructuring of the USF would have major implications for rural communities in North Carolina and throughout the country, which rely on these funds to bridge the digital divide. Programs such as the E-Rate program, the Rural Health Care program, the Lifeline program, and the High-Cost Program all depend on USF support to maintain affordable access to essential broadband services. Without the USF, the ability to provide broadband services to rural areas on the same basis as that provided to more urban areas, will be seriously jeopardize.
Learn more about how the USF directly impacts North Carolina.