On Friday, the Supreme Court ruled that the FCC has the authority to operate and fund the Universal Service Fund.

The case that prompted the Supreme Court Decision was FCC v. Consumers’ Research.  Consumers’ Research is a nonprofit activist group that originally filed cases in multiple courts alleging that the method used to fund the USF is an illegal tax since it did not arise from specific direction or approval from Congress. Consumers’ Research also argued that Congress neglected its legislative responsibility allowing the FCC to establish the size of the Universal Service Fund and to decide the method for collecting revenues to fund it.

The case made it the Supreme Court when the U.S. Court of Appeals for the Fifth Circuit agreed with Consumers’ Research and said that the USF is unconstitutional. That ruling conflicted with rulings from the Sixth and Eleventh Circuits that largely blessed the FCC and the USF.

Consumers’ Research had argued that fees to fund the Universal Service Fund are a tax, and, as such, must fit a special nondelegation rule such that Congress must set a numeric fixed cap, a tax rate, or the equivalent. The Court rejected this argument. The Court points out that Section 254 directs the FCC to collect contributions that are “sufficient” to support universal service programs. The Court said the word “sufficient” acts as a cap on the amount of revenue that the FCC can collect since it can only collect money for purposes to benefit those “in rural areas and other high-cost areas (with a special nod to rural hospitals), low-income consumers, and schools and libraries.”

Consumers’ Research had argued that the Act gives the FCC boundless authority, but the Court disagreed and said that the FCC is free to periodically redefine its programs as long as those programs are aimed at accomplishing universal service goals.

Consumers’ Research also took exception to the FCC’s delegation of the USF to USAC (Universal Service Administrative Company). The Court rejected this assertion because USAC is broadly subordinate to the FCC. The FCC appoints the Board of Directors, approves the budget, and requires USAC to act consistently with FCC rules and directives.

Finally, the Court rejected the argument that the combination of Congress’s grant of authority to the FCC and the FCC’s reliance on USAC together violate the Constitution, although neither one does so alone.

Overall, the Supreme Court ruling is a total repudiation of the ruling of the Fifth Circuit. This ought to put attacks on the existence of the Universal Service Fund to rest for a while. Just as an aside, if you’ve never read a Supreme Court ruling, they are not easy reading, but worthwhile for those interested in the topic.

However, this doesn’t take the Universal Service Fund out of the news or off the hot seat. The funding mechanism for the USF is clearly broken and the fund can’t continue with fees assessed only on interstate telecom services. There are bills pending in both the House and Senate that would spread funding to broadband customers and to the biggest companies that use the web (referred as edge providers in the legislation).