Supreme Court Appears Reluctant to Eliminate Monthly Phone Fee

The Supreme Court on Wednesday heard arguments concerning the legitimacy of the Universal Service Fund (USF), a program allocating over $8 billion annually to aid Americans with lower incomes and those in rural areas in securing access to telephone and internet services, as well as supporting schools, libraries, and hospitals. This legal challenge arrives amidst ongoing national discussions about broadband access and affordability.

Consumers’ Research, a conservative nonprofit, initially launched its case against the Federal Communications Commission (FCC) in 2022, but the matter has gained heightened relevance recently. Coinciding with the current administration’s pursuit of substantial modifications to a $42 billion investment in rural broadband infrastructure, the Supreme Court’s verdict in the USF case carries the potential to significantly alter broadband subsidy programs that have been in place for three decades.

The Supreme Court’s three liberal justices, joined by Amy Coney Barrett and Brett Kavanaugh, appeared unpersuaded by the claim that the Universal Service Fund program operates illegally or without adequate Congressional oversight.

“I thought this went much better for the government than I anticipated at the beginning of this morning,” remarked Adam Crews, a law professor at Rutgers who previously represented the FCC in related proceedings, in a statement to FASTNET.

The USF has been a target for conservative groups for some time. Within Project 2025, a conservative policy framework aggressively pursued by the current administration, FCC Commissioner Brendan Carr, appointed subsequently, advocated for a revised funding approach that would involve contributions from Big Tech companies instead of solely relying on telecommunications providers.

“The FCC’s present strategy is akin to imposing taxes on horseshoes to fund highway construction,” Carr stated in 2023.

Nevertheless, lawyers representing the current administration have defended the FCC in this legal challenge, asserting that the Consumers’ Research argument “attacks a strawman.”

Supreme Court Appears Hesitant to Dismantle USF Program

The legal brief submitted by Consumers’ Research depicts a scenario of unchecked bureaucracy, where unelected officials impose taxes arbitrarily.

“Congress delegated its taxing authority to the FCC without explicit or meaningful limits on the tax amount,” their legal representatives argued. “The FCC is guided by its own ‘aspirations,’ and Congress additionally authorized the agency to broaden its own jurisdictional boundaries freely.”

However, the justices largely seemed unmoved by this line of reasoning and questioned the assertion that the program lacked built-in limitations.

“The FCC’s actions under this program must fundamentally aim to grant individuals in highly rural areas or those with low incomes access to services enjoyed by the majority,” Justice Elena Kagan clarified.

Towards the conclusion of the arguments, conservative Justice Samuel Alito voiced concern regarding the practical consequences of ruling against the USF.

“What would be the effect on people in rural areas if this is held to be unconstitutional and Congress does not act?” Alito inquired.

Alito was initially considered among the justices most likely to rule against the FCC, but his questioning cast doubt on this assumption.

“I found that to be quite significant, suggesting that even if he sympathizes with the viewpoint, he might be reluctant to take decisive action against it,” Crews noted.

Perhaps even more telling than the questions posed were those left unasked.

“The chief justice remained exceptionally quiet,” Crews observed. “His silence leads me to believe he is likely inclined to maintain the status quo.”

Understanding the Universal Service Fund

Review your monthly phone bill and search for “Universal Service.” You will likely find a charge of a few dollars associated with the program. The Federal Communications Commission collects these funds from telecommunications companies—not directly from consumers—but it is standard practice for these companies to pass the cost to their customers.

This practice constitutes the core of Consumers’ Research’s argument: the USF fee operates as a tax, a power constitutionally reserved for Congress.

“Petitioners contend that dismissing the scale of a multi-billion-dollar social welfare program as a minor detail to be determined by agency officials is incorrect,” Consumers’ Research stated in its brief.

The central issue in the USF case revolves around the principle known as “universal service.” The Communications Act of 1934 established the goal that “all individuals within the United States should have access to rapid, efficient, nationwide communications service with adequate facilities at reasonable prices.”

A 1996 update to the Communications Act formalized the USF, an independent program under FCC oversight, extending the concept of universal service to include broadband internet alongside traditional telephone services.

The USF delivers funding to four distinct programs aimed at addressing various facets of the digital divide: the Connect America Fund (targeting rural regions), Lifeline (supporting low-income individuals), E-Rate (benefiting schools and libraries), and the Rural Health Care Program. The Universal Service Administrative Company, a private nonprofit, manages the program’s operations.

“Do you genuinely want to overturn a 30-year-old program for the sake of an abstract theoretical argument?” questioned Blair Levin, former chief of staff at the FCC and telecom industry analyst at New Street Research. “This program enjoys significant popularity, notably because it benefits numerous Republican constituents.”

Looking Ahead: Potential Outcomes for the Universal Service Fund

Further developments concerning the USF case are unlikely until the Supreme Court issues its ruling, anticipated around the end of June. Should the court’s decision align with the apparent current trajectory, the USF program will likely continue to be funded through telecommunications bill fees in the immediate future. However, relying on phone bill surcharges to fund internet subsidies may prove unsustainable in the long run.

“The economic challenge—escalating funding demands met by a declining revenue base—has been a well-recognized issue for at least the past two administrations, yet no concrete action, aside from congressional discussions, has been taken to resolve it,” Levin pointed out in a note to investors.

In the event the Supreme Court determines the USF’s funding mechanism to be unlawful, a range of possibilities would emerge. Would the court grant Congress and the FCC time to revise the program or identify alternative funding sources?

“I believe they would,” Levin speculated. “An immediate cessation of funding, in my view, could result in bankruptcies for a number of rural telephone companies.”