How Challenges to the FCC’s Universal Service Fund Could Impact Your Company

Few people have heard of the Federal Universal Service Fund (FUSF), a program that supports telecommunications access for low-income Americans, those residing in isolated rural areas where connectivity costs are especially high. The FUSF is administered by the Federal Communications Commission (FCC), which distributes more than $7 billion dollars every year through four FUSF programs: the High-Cost Program, the Lifeline Program, the Schools Program, and the Libraries Program.

Although Americans largely ignorant of the FUSF, nearly everyone supports it, albeit indirectly. This is because telecommunications companies are required to contribute to the FUSF based on a percentage of their interstate and international revenues, an expense they typically pass on to their customers in the form of a surcharge that appears on their monthly phone bill. The amount of a telecom provider’s annual contribution to the fund (known as the “contribution factor”) is determined by a private company called the Universal Service Administrative Company (USAC).

The FUSF is now facing legal challenges in cases filed in the Fifth and D.C. circuit courts that question the fund’s constitutionality. If these challenges are successful, they could create a ripple effect in the telecommunications industry and beyond.

Legal Challenges to the FUSF

An organization called Consumers' Research, a prominent organization has filed lawsuits challenging the constitutionality of the FUSF’s governing statute, 47 U.S.C. § 254. Specifically, Consumer’s Research argues that the law violates the Constitution’s nondelegation doctrine, which states that Congress cannot delegate its legislative powers to other entities, because it gives the FCC unfettered discretion to implement the FUSF with no guiding principles. In addition, these cases argue that the FCC cannot further delegate its authority to administer the FUSF to the USAC.

So far, courts in the Sixth and Eleventh Circuits have ruled in favor of the FCC, while courts in the Fifth and D.C. Circuits are still deciding the matter. However, given the Fifth Circuit’s disdain for regulatory oversight, its eventual ruling is fairly predictable. In the event of a circuit court split, the matter may be eventually decided by the Supreme Court.

What Happens if the FUSF is Held to be Unconstitutional?

If the final result of these challenges leads to the unravelling of the FUSF, the immediate beneficiaries of the fund’s largesse (rural and low-income telecommunications customers) would likely lose their affordable internet and phone services, and the trickle-down effects will affect the digital marketing industry in the following ways:

1. Diminishing Engagement: If the FUSF is changed or dismantled, it will make it much more difficult for digital marketers to reach and engage with low-income consumers, a key demographic in many marketing campaigns. Millions of phones utilized by these consumers are provided courtesy of the FUSF (the so-called “Obama Phones”).
2. Fewer Potential Leads: Affordable internet and phone services are crucial for maintaining a large pool of potential leads in the key low-income demographic. If access in rural and low-income areas declines, the number of viable leads will shrink, impacting the ability of companies to grow and generate revenue.
3. Market Instability: Many key industry stakeholders have taken the position that overturning the FUSF would create chaos and confusion for the FCC and the telecommunications industry, leading to fluctuating service prices and availability. Companies participating in digital marketing might need to constantly adjust their strategies to keep up with these changes, which could be resource intensive.

Hope for the Best, Plan for the Worst.

The legal challenges to the FUSF will not only affect the immediate beneficiaries of the program, but also any company that relies upon the Internet and VoIP networks to reach them.

Reduced access to affordable telecommunications, increased costs, and market instability are just a few potential challenges.

In the event the FUSF is discontinued, digital marketers will need to innovate in order to reach less connected populations. This might involve a pivot to more traditional marketing methods or developing new technologies to bridge the connectivity gap. While innovation can lead to progress, it also requires investment and experimentation, which could strain resources.

As the legal battles continue, digital marketers and lead generators will need to stay flexible and prepared for changes in the landscape.