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Federal Lawsuit Threatens E-Rate, Affordable Connectivity Programs

Programs that subsidize Internet service for schools, libraries and low-income households hang in the balance under litigation by the nonprofit Consumers’ Research, which argues the FCC was not authorized to raise fees on phone calls.

Closeup of a piece of paper that says "Lawsuit" at the top with blank lines below that labeled "Plaintiff" and "Defendant." The tip of a pen lying on top of the paper is in the bottom righthand corner of the image.
In 1934, the Federal Communications Commission created the Universal Services Fund (USF) to ensure all Americans had telephone service. The program was revamped 62 years later as a means to provide Internet access to every U.S. community, no matter how remote.

These days, USF also covers discounted Internet service to schools, libraries, and low-income households through the Affordable Connectivity and E-rate programs. That fund is now running out of money, and the FCC is being sued by an organization that maintains only Congress, not federal agencies, have the authority to levy fees. USF’s funding mechanism has remained the same for 89 years — fees on telephone calls. The key question is, will affordable connectivity programs that benefit millions of people continue and, if so, who will pay for them?

The nonprofit Consumers’ Research, which filed lawsuits in three federal courts of appeals in January, maintains that should be up to Congress to decide. Consumers’ Research Executive Director Will Hild said the FCC doesn’t have the authority to set caller fee rates, yet rates increased from 16 percent of assessed service to 33 percent in 10 years, making the USF in its present form unconstitutional in his view.

“The issue isn’t whether the [USF] tax is a good idea,” Hild said Thursday. “The issue is, Congress shouldn’t be delegating this to an agency that can raise the fees carte blanche without accountability. Voters can’t take complaints to their leaders in Congress, so this can’t be voted out.”

According to Hild and federal court documents, the Consumers’ Research case is furthest along in the Fifth Circuit Court of Appeals. In a March proceeding reviewed by three of its judges, that court denied the nonprofit’s petition to remove the FCC as a taxing authority, but it granted a request for a rehearing before all of the judges. The rehearing has not been scheduled yet. Even if Consumers’ Research loses again in the Fifth Circuit or the process is exhausted in the Sixth and 11th circuit courts, the case could make its way to the U.S. Supreme Court.

The Affordable Connectivity Program (ACP) provides $30 monthly subsidies for 50 million people — roughly 16 million households — even though its revenue base has decreased by 63 percent in the last two decades, according to Blair Levin, a senior fellow for the Brookings Institute and a policy analyst for New Street Research, which specializes in equity research in the technology and telecommunications industries. About $14 billion from the USF was earmarked for that program under the Infrastructure and Jobs Act of 2021, but it’s on track for exhaustion by June 2024.

The shift away from funding the ACP, Levin posted on the Brookings Institute website, “would constitute the biggest step any country has ever taken to widen, rather than close, the digital divide.”

In an interview last week, Levin said he believes the Fifth Circuit Court will rule in favor of Consumers’ Research. The commitment to network infrastructure will likely be fulfilled before changes to the USF funding mechanism are made, he said, but the future of E-rate and the ACP still hangs in the balance.

“Universal Service has always been a three-legged stool,” Levin said. “By the end of the decade, we’ll have [broadband] networks everywhere. That’s covered. But, for the other two, it’s a question of who should have to pay for it. Any suggestions out there?”

Levin said the USF “represents a commitment the federal government made to all Americans,” but he has little faith that Congress will keep the programs afloat if the court case is not decided in the FCC’s favor.

“The court decision could eliminate E-rate,” he said. “As for the Affordable Connectivity Program, it is on track to run out of money. I don’t know what will happen.”

Hild said he believes his agency has a strong case because prior federal court cases have set a precedent on the “non-delegation doctrine,” which says Congress can’t delegate its powers to other agencies. As for the digital equity argument, he added, Consumers’ Research is prepared to point out examples where the fund covered the costs to bring broadband to a community of millionaire ranch owners in Montana at the same time low-income households in New York City went without Internet access.

“The net effect of giving money away is a sizable amount of money for consumers,” he said. “This will reshape how digital equity is funded, and it could have a wide-reaching effect.”
Aaron Gifford has several years of professional writing experience, primarily with daily newspapers and specialty publications in upstate New York. He attended the University at Buffalo and is based in Cazenovia, NY.