The fate of some of the largest broadband subsidy programs, key to bridging the digital divide for all consumers, including startups and their users, depends on the outcome of the Federal Communication Commission (FCC) v. Consumers’ Research case before the Supreme Court. On Wednesday, the Court heard arguments on the constitutionality of the Universal Service Fund (USF), a critical broadband affordability framework. The $8 billion fund supports digital equity programs that expand access to affordable high-speed Internet for all consumers. However, USF’s future is now uncertain as the Court considers the legality of the FCC’s delegation of the fund’s administration to the Universal Service Administrative Company (USAC).
What Is the USF?
The USF is built on fees collected from consumers’ phone bills, which telecommunication companies are required to contribute to the FCC. USAC oversees both the collection and distribution of the fund across four major broadband subsidy programs: the Connect America Fund, Lifeline, E-Rate, and Rural Health Care. Programs like E-Rate help eligible schools and libraries obtain subsidized Internet access, while the Connect America Fund program expands affordable broadband to underserved areas. For startups, especially those located in rural or disadvantaged communities, the USF has been crucial in leveling the playing field by expanding access to reliable, affordable Internet, a key driver of innovation.
The Case Before the Court
The case is based on a rare administrative law issue regarding the nondelegation doctrine, which prevents Congress from delegating legislative authorities to agencies without setting clear standards. The FCC appealed the case to the Supreme Court following a Fifth Circuit Court of Appeals decision declaring the USF unconstitutional.
The Fifth Circuit ruled that the USF fee, collected as a line-item charge on phone bills, qualifies as a tax, and only Congress possesses the legislative power to tax. Therefore, the court held that the funding mechanism violated the nondelegation doctrine since Congress did not provide the FCC with a clear standard to guide its collection of the “tax.” Additionally, the agency did not have congressional authority to sub-delegate control of the fund to USAC, an independent corporation. Meanwhile, the FCC has defended USF as constitutional due to intelligible standards Congress did provide to the FCC and only limited administrative authority given to USAC in accordance with the nondelegation doctrine.
This ruling challenges the structure of the USF framework in an already divided legal landscape. Both the Sixth and Eleventh Circuits have upheld the USF as a constitutional fee imposed on telecommunications providers against similar legal arguments. The Supreme Court’s ruling will resolve this circuit split and set the precedent for the future of the broadband subsidy programs and federal funding mechanisms in the U.S.
What’s at Stake for Startups?
The current lack of accessible and affordable high-speed Internet across the country, especially in rural areas and disadvantaged communities, excludes many startups, founders, and users from the innovation ecosystem. If the Supreme Court upholds the Fifth Circuit’s ruling, the likely elimination or drastic overhaul of USF will widen the digital divide. Without the subsidy programs supported by the USF, aspiring founders will be unable to build an Internet-driven business, and startups will struggle to reach their users and face a shrinking market. As a result, startup innovation and economic growth will stall in areas already facing significant connectivity challenges.
If broadband subsidies disappear, Internet costs will rise for both startups and the users who rely on affordable connectivity. Many founders who already operate with limited resources will struggle to afford reliable Internet access. The entire innovation ecosystem benefits when broadband access is equitable. As the Supreme Court considers the future of USF, policymakers must prioritize bridging the digital divide, so startups can continue to innovate and compete.
The Future of Broadband Programs
As the USF case proceeds, other critical broadband programs are also facing potential overhauls. The Broadband Equity, Access, and Deployment (BEAD) Program, a $42.5 billion plan aimed at ensuring equal access to broadband, is under scrutiny for its rollout and requirements. Also, the Affordable Connectivity Program, which provided broadband subsidies for over 23 million low-income households, ran out of funding last year.
The potential rollback of broadband affordability programs has long-term implications for founders and future innovators. Policymakers should prioritize access to affordable, high-quality broadband to keep the innovation ecosystem accessible to all.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.
