This $8 billion federal internet-access program is in peril

Initially, it looked like the suits were destined to fail. The FCC, which argues that it’s operating the fund as Congress intended, scored preliminary victories in recent months, when three-judge panels of the 5th and 6th U.S. Circuit Courts of Appeals shot down the arguments from Consumers’ Research in rulings that sided with the commission’s lawyers.

But in late June, the conservative-leaning 5th Circuit agreed to rehear the case before the full court, with new arguments set for Sept. 19 — which could put the fund back in legal peril. The 5th Circuit, based in New Orleans, is a conservative-leaning court that last year dealt a blow to the Consumer Financial Protection Bureau in a similarly argued case, saying that the agency’s funding mechanism is unconstitutional. An appeal in that case is pending before the U.S. Supreme Court.

Other similar cases filed by Consumers’ Research are pending before the 11th Circuit, which held oral arguments in June, and before the D.C. Circuit, which has not yet heard arguments.

The cases could ultimately end up at the U.S. Supreme Court, especially if the lower courts come to different conclusions.

Even the Universal Service Fund’s supporters acknowledge that it is due for an overhaul. It was set up in a time when “service” meant landlines, and the phone companies were the entire backbone of America’s communications infrastructure.

The fund was established as part of the landmark 1996 Telecommunications Act, and originally, its benefits were limited to phone lines. Carriers like BellSouth and MCI paid quarterly fees into the fund, which were then used to expand phone services throughout the nation.

As the internet has grown in importance, and telecom companies started prioritizing broadband service over their traditional phone lines, the fund’s mission evolved. FCC leaders decided to make broadband connectivity a central part of its work.

This planted the seeds for the first big conflict over the fund. Traditional telecom companies are still on the hook for supplying the USF’s funding, but they argue the benefits of broadband largely go elsewhere — specifically to tech behemoths like Google, Meta and Netflix that depend heavily on broadband for their billions of dollars in profits, but which don’t contribute to the fund.

That has led to a bitter argument in Washington over who should pay going forward. Telecom companies, one of Washington’s most powerful lobbies, say it’s unfair for them to subsidize Amazon and Google. The tech giants, for their part — whose lobbying clout rivals the telecom industry — say they already pay plenty for infrastructure like content delivery networks and data centers. In Washington, their lobbyists describe the idea of contributing as a “tax on the internet.”

This argument has now been running for nearly 20 years, with no sign of resolution. Internet startups would like to “use my pipes free, but I ain’t going to let them do that, because we have spent this capital and we have to have a return on it,” telecom executive Ed Whitacre, who led AT&T for years, told a reporter in 2005. “So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using.”

Politicians have another consideration: Their constituents with phone services, who end up paying for the fund. The telecom industry passes the fee directly to customers as a line item on their monthly landline or cellphone bill, so Americans with voice phone service end up paying usually at least a couple of dollars per month to support the programs.

That now puts Congress in the middle of a thorny and active debate over whether to shift the funding burden to providers of tech or broadband internet services — and likely new swathes of consumers — or directly appropriate taxpayer money.

“Nobody’s going to say, ‘Here’s a check, let me write it,’” Mignon Clyburn, a former Democratic FCC leader who helped expand the fund’s goals to broadband, told POLITICO. “There’s a lot of arm wrestling when it comes to how far those tentacles could reach.”

In the Senate, Luján, who has spent years in both chambers of the Capitol leading efforts to ensure broadband reaches remote communities in his rural home state, recently formed a bipartisan working group devoted to the fund’s future.

The Senate group holds discussions around potentially reshaping the fund and finding legislative consensus, according to the senators involved. Luján has voiced concerns about the fund’s long-term financial stability, as well as alarm about the legal challenges facing it.

He and nine other lawmakers from both parties submitted a court brief last year defending the fund’s current setup and warned of “catastrophic effects” for their constituents if it were thrown out.

No lawmaker, however, has proposed specifics for any greater reimagining of the quarter-century-old system, or outlined potential rescue plans if the fund falters.

Any legislative fix will also depend on the House, where the USF faces skepticism. The fund falls under the jurisdiction of the House Energy and Commerce Committee, whose Republican leaders told POLITICO last fall they are wary of taxpayer money going to waste.

They don’t want the USF to duplicate other federal efforts, and pledged to take stock of how much aid is really necessary, pointing out that Congress recently appropriated $65 billion in broadband aid in the 2021 infrastructure law, on top of billions of dollars flowing to broadband in pandemic relief packages.

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