After Court Ruling on USF's Unconstitutionality, Congress Should Pass Reforms

On August 26, the U.S. Court of Appeals for the Fifth Circuit issued an order staying the issue of a mandate for its July 24 decision holding that the Universal Service Fund’s (USF) contribution mechanism – or "USF tax" – violated the U.S. Constitution's Article I Legislative Vesting Clause. The stay order anticipates that the FCC will be filing a petition for certiorari with the Supreme Court and that the stay will then be extended until the court final disposition.

The lengthy Fifth Circuit en banc decision in Consumers' Research v. FCC, as well as the concurring and dissenting opinions that were issued, are summarized in my August 5, 2024 Perspectives from FSF Scholars, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause."

 

My August 9 Perspectives from FSF Scholars, "Court Ruling on USF's Unconstitutionality Should Spur Reform in Congress" explained that Congress should not wait for the Supreme Court to act. As I wrote: 

Congress should act promptly to make the USF program fiscally sustainable and constitutionally sound for the broadband era. It should fund the USF via direct appropriations and intelligibly define broadband as a service eligible for support. If needed, Congress should consider requiring major online companies to make USF contributions under principles that limit subsidy amounts. Along with stronger curbs on waste and abuse, such reforms would preserve universal service, eliminate or at least reduce significantly the USF tax on consumers – which now stands at 34.4% – and enable future downsizing of the USF into a primarily voucher-like program supporting low-income consumers.

The Fifth Circuit's stay order avoids any sudden disruption to the USF program. It also provides window of time for Congress to exercise its authority and finally pass reforms that will modernize the USF program. Congress should make the program more efficient in supporting broadband access for those who are most deserving of help and ensure its future financial sustainability.   

ISPs Request High Court Ruling on State-Level Rate Regulation of Broadband

On August 10, a handful of trade associations representing broadband Internet service providers (ISPs) filed a petition for a writ of certiorari with the Supreme Court in New York State Telecommunications Association v. James. The petition presents the question of whether the Communications Act preempts New York's broadband rate-regulation law.

New York's Affordable Broadband Act imposes price ceilings – a form of rate regulation – on broadband ISPs offering service within the state. Under the New York law, ISPs offering service in the state must offer $15-per-month and $20-per-month plans to low-income individuals. 

 

On April 26 of this year, a Second Circuit panel's 2-1 majority rejected broadband ISPs' claims that the New York rate regulation law was subject to field preemption and conflict preemption. My summary of the court's decision in NYTSA v. James is presented in a May 3 Perspectives from FSF Scholars, "Second Circuit Rejects Preemption Challenge to New York's Broadband Rate Regulation."

 

At the time it was released, the Second Circuit's decision in NYSTA v. James was expected to be short-lived because the ruling was based on the FCC's Title I "information services" classification of broadband Internet access services under the Restoring Internet Freedom Order. The court's decision was issued a day after the Commission repealed the RIF Order and made its Title II "telecommunications services" reclassification decision in the Securing and Safeguarding the Open Internet Order. As I observed in a June 20 blog post, the petitioners in NYSTA v. James declined to file a petition for a rehearing en banc at the Second Circuit. They similarly declined to file a motion for reconsideration by the panel in light of the FCC’s new Title II Order. 

 

However, the legal ground shifted dramatically once again following the Supreme Court's decision in Loper Bright Enterprises v. Raimondo overturning the "Chevron doctrine" and especially after the Sixth Circuit's August 1 order staying the new Title II Order pending a decision on the merits in that case. For more, see Free State Foundation President Randolph May's August 23 Perspectives from FSF Scholars, "The Sixth Circuit Stays the FCC's Latest Net Neutrality Flip Flop."

 

On August 2, the petitioners in NYSTA v. James filed an emergency petition with Supreme Court Justice Sotomayor, seeking a stay on the Second Circuit's decision. On August 8, the petitioners filed a letter with an attached stipulated agreement by the parties. Under the stipulation, New York agreed to not enforce its rate regulation law pending the Supreme Court's decision on the ISPs' now-pending petition for a writ of certiorari. In their cert petition, filed on August 10, the ISPs renewed their arguments that New York's rate regulation law is subject to both field preemption and conflict preemption. According to the docket, New York is required to file its response by September 13.

 

For a critique of the Second Circuit's narrow understanding of conflict preemption, check out a May 10 Perspectives from FSF Scholars titled "Second Circuit Preemption Decision Won't Save New York Broadband Rate Regulation Scheme," by Law Professor Daniel Lyons, a member of the Free State Foundation's Board of Academic Advisors.  

Oral Arguments on FCC's New Title II Order Set for End of October

According to news reports, the U.S. Court of Appeals for the Sixth Circuit has scheduled October 31, 2024, as the date for oral arguments on the merits in the pending legal challenge to the FCC's Safeguarding and Securing the Open Internet Order. It is reported that live-streaming audio of the arguments will be available to the public. 

The Commission's order changed the classification of broadband Internet access services from a lightly regulated "information service" under Title I of the Communications Act to a more heavily regulated common carrier "telecommunications service" under Title II. Lawsuits challenging the new Title II order have been consolidated before the Sixth Circuit. 

 

In an August 23 Perspectives from FSF Scholars, "The Sixth Circuit Stays the FCC’s Latest Net Neutrality Flip-Flop," Free State Foundation President Randolph May reviewed the court's per curiam order released August 1. That court order stays the Commission's order, pending a decision by the merits panel assigned to the case. FSF President May briefly analyzes the major questions doctrine (MQD) rationale for the court's stay order and Chief Judge Jeffrey Sutton's concurring opinion that addresses the best reading of the Communications Act. Both issues can be expected to receive more extensive judicial analysis by the Sixth Circuit's merits panel. 

 

For more on the new Title II Order and the MQD, see my April 2024 Perspectives from FSF Scholars, "The FCC's Internet Regulation Plan Fails the Major Questions Doctrine."

Maryland Needs to Improve Its Regulatory Climate

Earlier this month, the Mercatus Center at George Mason University released a report comparing the regulatory restrictions in each state. Maryland is “only” the 21st most regulated state in the United States, but it still has over a hundred thousand state rules in its regulatory code. Perhaps its ranking makes it seem that Maryland is doing all right compared to other states, as it is in the middle of the pack. But a deeper look at the results shows a more troubling picture.

The report was produced by Mercatus Center Senior Research Fellow and Policy Analytics Director Patrick McLaughlin and Professor Dustin Chambers from Maryland’s Salisbury University. They found that the U.S. Code of Federal Regulations and Code of Maryland Regulations place over 1.2 million regulatory restrictions on Marylanders. Furthermore, the report asserted Maryland’s regulatory growth between 1997 and 2015 put over 109,000 Marylanders in poverty, causing the state to lose 2,292 jobs yearly and experience a 7.35% price increase.

The report doesn’t just compare the total number of regulations in each state; it breaks them down by sector. While Maryland’s overall regulatory regimes could be described as mediocre at best, it over-regulates some industries and regulates only a few less than the national average. For example, Maryland has over 5,000 more health service regulations than the average state. Additionally, it has around 2,000 more administrative services regulations and 1,500 more transportation regulations than the average state.

There are also some industries where Maryland has fewer regulations than average, such as Waste Management, Commerce, and Chemical Manufacturing. To some extent, these industries reduce the impact of the above overregulated sectors on Maryland’s score, which is why Maryland is wedged between Maine and Mississippi as the 21st most regulated state. However, Maryland still has more rules than many states that have heavy-handed regulatory systems, such as Hawaii, Connecticut, and Vermont.

The report proposes multiple solutions to address Maryland’s growing regulatory system, focusing on policies that balance regulation creation with regulation elimination. The first suggested reform is to create a “regulatory budget,” which would place a cap on how many regulations the state can have at one time. Requiring some percentage of rules to be cut, or a “one in, X out” rule, would be ways to accomplish this. Another reform would be to adopt regulatory sunsets, which require the legislature to explicitly renew regulations in order for them to continue, forcing periodic legislative reviews of existing rules.

While Maryland’s regulatory scheme is not as overbearing as some states, the negative impacts of its current system are real. Maryland should look at the results of this report and move in the direction many other states are: removing unnecessary red tape for businesses and ordinary citizens. That way, Maryland can come closer to becoming an economic leader.

FCC, Following White House Lead, Again Targets Cable and DBS

On August 12, 2024, the Biden Administration released a Fact Sheet noting a proposed FTC rule that "would require companies to make it as easy to cancel a subscription or service as it was to sign up for one" and announcing that the FCC "is initiating an inquiry into whether to extend similar requirements to companies in the communications industry" (emphasis added).

A News Release issued the same day by FCC Chairwoman Jessica Rosenworcel revealed that she has circulated to her fellow commissioners a draft Notice of Inquiry that "would seek information on ways to ensure that consumers have appropriate and efficient access to customer service resources when working with their phone, cable and broadband providers" (emphasis added).

Source: whitehouse.gov

When it comes to video distribution, of course, there is a wide chasm between "companies in the communications industry" and "cable." The former, broader category includes both unregulated streaming services and traditional Multichannel Video Programming Distributors (MVPDs) that rely upon facilities within their exclusive control. The latter category presumably is limited to the traditional MVPDs uniquely subject to FCC regulation: cable operators and Direct Broadcast Satellite (DBS) providers.

Given this critical distinction, if adopted, this Notice of Inquiry (and the Notice of Proposed Rulemaking sure to follow) first and foremost would result, not in a net benefit to consumers, but in yet another one-sided restraint on the ability of traditional MVPDs to compete effectively with far larger streaming services that grow more popular by the day. Similar instances in just the last year include:

• A pending Notice of Proposed Rulemaking adopted in April 2024 that would interfere with contracts between traditional MVPDs – and traditional MVPDs alone – and independent programmers by banning most favored nation (MFN) provisions and "unreasonable" alternative distribution method (AMD) provisions.
• A requirement adopted in March 2024 that traditional MVPDs – and traditional MVPDs alone – must "specify the 'all-in' price for video programming in their promotional materials that include pricing information and on subscribers' bills."
• A pending Notice of Proposed Rulemaking adopted in January 2024 that would force traditional MVPDs – and traditional MVPDs alone – to provide subscribers with a rebate whenever they are unable to agree on carriage terms with a broadcast station or programmer, a proposal I critiqued in an October 2023 Perspectives from FSF Scholars.
• A pending Notice of Proposed Rulemaking adopted in December 2023, in response to which the Free State Foundation filed comments and reply comments, that would prevent traditional MVPDs – and traditional MVPDs alone – from employing two cross-industry common billing practices: (1) early termination fees (ETFs), which make it possible for distributors to amortize up-front customer costs over an agreed-upon and enforceable term, and (2) whole-month billing.

For more on this topic, I recommend that you read "FCC's Dated View Drives Dramatic Shifts in Video Strategies," a July 2024 post to the FSF Blog, and "The FCC Is Complicit in the Decline of Traditional MVPDs," a May 2024 Perspectives.

FWA and Cable MVNO Services Gains Continue in Mid-2024

Fixed wireless access (FWA) residential broadband services as well as cable wireless mobile virtual network operator (MVNO) services are the faces of cross-platform competition in today's communications marketplace. Second quarter results for 2024 show continued growth of these services.

On July 31, T-Mobile announced that it added 406,000 FWA subscribers during the second quarter of 2024, upping its overall FWA subscriber total to 5.6 million. On July 22, Verizon announced that it added 378,000 FWA subscribers for a total of 3.8 million. On July 24 AT&T announced that it added 139,000 subscribers to its AT&T Internet Air service, reportedly growing its total FWA subscriber count to about 350,000.

News articles – including this June 6 LightReading article, "FWA in the USA: Getting ready for Phase 2," which helpfully summarizes different analyst takes on the future of the service – indicate that FWA continues to pose a particularly strong competitive challenge to cable broadband services. 

However, cable broadband providers continue attracting new subscribers to their MVNO wireless service offerings. According to a July 26 announcement by Charter Communications, its Spectrum Mobile service added 557,000 subscribers during the second quarter of 2024. At the quarter's end, Spectrum Mobile had 8.8 million subscribers. Additionally, Comcast announced on July 23 that it had gained 322,000 subscribers to Xfinity Mobile during the second quarter, increasing its subscriber total to 7.2 million. 

 

As I wrote in a blog post on May 3 of this year, "[t]he proper response by the FCC to the growth of FWA and cable MVNO in the communications market should be to emphasize market competition as a safeguard to consumer welfare rather than stringent government regulation." At that time, I observed that the Commission chose the wrong response on April 25 by re-imposing Title II public utility regulation on wireline and wireless broadband Internet Access services. However, the Sixth Circuit issued an order imposing a stay on the FCC's Safeguarding and Securing the Open Internet that keeps the regulation from going into effect while the legal challenge before the court proceeds to the merits. Free State Foundation President Randolph May responded to the court's stay order in an August 2 press release titled "The FCC Should Turn to Productive Endeavors." 

 

One productive endeavor that the Commission should be pursuing is increased spectrum availability for commercial use. As FSF President May and I wrote in FSF’s July 2024 public comments to the FCC for its forthcoming Communications Marketplace Competition Report:

 

To further promote competition, innovation, and investment in the broadband marketplace, the Commission should work proactively to make more spectrum available for commercial use and by removing regulatory barriers to broadband deployment… There is particularly strong demand for additional mid-band spectrum. The Commission ought to prioritize the lower 3.1-3.45 GHz band for study and prompt repurposing… Although proposals for repurposing different bands are at different stages of development and each faces unique challenges, the Commission should advance every proposal for spectrum that may realistically be suitable for commercial uses – whether on a licensed or unlicensed basis. A larger spectrum supply will enable more competitors to serve more Americans with next-gen services. 

Court Rejects Overstated First Amendment Challenge to Anti-Circumvention Rights

 On August 2, the U.S. Court of Appeals for the D.C. Circuit released a decision upholding the constitutionality of the anti-circumvention rights provisions in Section 1201 of the Digital Millennium Copyright Act (DMCA). At issue before the court in Green v. U.S. Department of Justice was a First Amendment facial challenge to Section 1201. The court's decision is an important vindication of the law that protects copyright owners from unlawful access to their intellectual property.

In the digital age economy, owners of valuable copyrighted media, including movies, TV shows, sound recordings, books, and images must be able to control who has access to their content. Section 1201 furthers that basic purpose, as I described in my February 2022 Perspectives from FSF Scholars, "D.C. Circuit Should Affirm the Constitutionality of Anti-Circumvention Rights":

Similar to how the law of trespass protects property owners against unauthorized access to their land, Section 1201 protects copyright owners against those who intentionally subvert TPMs in order to access their copyrighted content. Sections 1201(a) and 1201(b) prohibit the circumvention as well as the trafficking of services and devices that circumvent TPMs for controlling access to copyrighted content. Both provisions are directed toward technologies that are designed primarily to circumvent TPMs, have only limited commercially significant purposes other than circumventing TMPs, or are marketed or used in concert with a person with knowledge of intended use for circumventing TPMs.

During a prior appeal to the D.C. Circuit in Green, the Appellants raised both as-applied and facial First Amendment challenges to Section 1201. In a blog post titled "D.C. Circuit Affirms the Constitutionality of Anti-Circumvention Rights," I wrote about the court’s December 2022 decision that rejected as-applied challenges raised against Section 1201. In that instance, the court did not reach the merits of the facial challenge and remanded it to the trial court. Subsequently, the District of Columbia upheld the constitutionality of Section 1201. An appeal on the matter of the facial challenge was brought again before the D.C. Circuit, providing the occasion for the decision in Green that was issued on August 2.

 

In essence, the Appellants argued that Section 1201 was overbroad because it censors speech that is fair use of copyrighted works, and fair use is necessarily protected by the First Amendment. That is a thoughtful and clever argument, but as the D.C. Circuit wrote: "we disagree that the First Amendment necessarily shields all fair uses of copyrighted work from regulation." The court explained:  

The First Amendment protects a right to read, but it does not grant unimpeded access to every reading material a reader might wish for. Similarly, the First Amendment does not guarantee potential fair users unfettered or privileged access to copyrighted works they seek to use in their own expression. To hold otherwise would defy the First Amendment's solicitude of speakers' control over their own speech. See Harper & Row, 471 U.S. at 559 (noting that copyright serves the First Amendment value of the "right not to speak"). 

 

If every work that the public might wish to access "could be pirated away" via circumvention, soon nothing worth reading would be published electronically. Id. Plaintiffs' premise that fair users are entitled to make unauthorized use of copyrighted works assumes away the very entitlements copyright law validly protects. Consumers' access to copyrighted work routinely requires consent from the copyright owner- typically obtained by paying for access subject to certain limitations on use. 

As the court recognized, there might conceivably be instances in which Section 1201 or the denial of an exemption from its strictures could give rise to successful as-applied First Amendment challenges. But overwhelmingly that is not likely the effect of the law. The statute is not content-based and it does not favor or disfavor any particular viewpoints. Its purpose is to protect the valuable copyrighted property from unauthorized access. The D.C. Circuit's decision in Green v. U.S. Department of Justice, including its handling of the fair use issue, is thoughtful and reasonable. In upholding the constitutionality of anti-circumvention rights, the court gets it right once again. 

TMT with Mike O'Rielly – Ep 10: History, Present, and Future of the USF

Episode 10 of "TMT with Mike O'Rielly," a videocast featuring former FCC Commissioner and Adjunct Senior Fellow at the Free State Foundation Michael O'Rielly, was released on August 8. In this episode, titled "The History, Present, and Future of the Universal Service Fund," Mr. O'Rielly is joined by guest Dr. Harold Furchtgott-Roth, a former FCC Commissioner and currently Senior Fellow and Director for the Center for the Economics of the Internet at the Hudson Institute. 

Senate Bill Would Ensure Timely Broadband Infrastructure Builds on Federal Land

On July 29, Senators John Thune, Ben Ray Luján, and John Barrasso introduced the Accelerating Broadband Permits Act. The purpose of the bill is to improve executive agencies’ processing of permit applications for the construction of communications facility installations on federal land. Under the MOBILE NOW Act of 2018, executive agencies with supervision over federal lands have 270 days to make decisions on applications for permits to build towers, antennas, cables, or any other infrastructure associated with wireless or wireline services. An April 2024 Government Accountability Office Report found problems with agencies processing those applications within the deadline. The Accelerating Broadband Permits Act is intended to address those problems and help identify instances where the agencies are likely to fail to meet the deadline and ensure timely processing.

The FCC has long recognized that local permitting processes are often a major impediment to timely broadband access. The Accelerating Broadband Permits Act would help alleviate that impediment on federal lands. The Act appears to be worthwhile legislation that could help accelerate network infrastructure deployment to underserved and unserved Americans. Much land in western states is held in trust or owned by the federal government, and federal agencies must fulfill the responsibilities that come with being a trustee or property owner, not to mention comply with the MOBILE NOW Act. 

 

Senators Thune, Luján, and Barrasso deserve credit for bringing forward this bill. Several billion dollars in subsidies are going to be distributed by NTIA to the states under the Broadband Equity, Access, and Deployment (BEAD) Program to fund new buildouts. The effectiveness of BEAD Program subsidy dollars will depend, to a significant extent, on having workable federal siting policies in place. The 118th Congress should give the Accelerating Broadband Permits Act timely consideration.  

States Should Cut Red Tape to Spur Economic Growth

In a recent Discourse article, Patrick McLaughlin analyzed the economic impact of states cutting their regulatory red tape. Economists generally claim that burdensome regulations can reduce overall economic output, but direct evidence of a relationship between the two strengthens these assertions.

Mclaughlin begins by laying out the history of the modern movement for cutting back on regulations, mentioning how, in 2001, British Columbia began deregulating to the degree that it cut back 40% of its province-level regulations in three years. This change caused British Columbia to become an economic leader and increased economic growth by over 1%. Because of this correlation between deregulation and economic growth, several American states quickly followed suit.

 

The first was Kentucky, but five other states also qualify as “reform states” under Mclaughlin’s metrics. He began measuring deregulation policies starting in 2016, using a partially A.I.-fueled “State RegData Project.” His findings show that when reform states began deregulating over a defined “RegData” period, which was most recently updated in mid-2023, they experienced an above-normal economic growth rate. While status quo states only experienced a 1.87% growth rate during this period, reform states’ economic growth was at an average of 2.09%, a difference of about 0.22% economic growth over a seven-year period. Mclaughlin notes that while this may not appear to be a large number, it means a lot for an entire state’s economy, and the economic growth increase would compound to much larger numbers over longer periods of time.

While this research is not dispositive regarding the issue of regulatory reform’s relationship to economic growth, it does show that widespread regulatory reform could significantly increase the productivity of state economies. With this evidence showing a direct correlation, hopefully, many more states will implement deregulatory programs to cut unnecessary red tape before they lose business to more pro-business states.

Press Release: The FCC Should Turn to Productive Endeavors

Regarding the Sixth Circuit’s issuance of an order staying implementing of the FCC decision to regulate Internet service providers as common carriers, Free State Foundation President Randolph May issued the following statement:

“Not since Daniel read the proverbial handwriting on the wall to King Belshazzar have predictions of doom been a safer bet. From the initiation of the FCC’s proceeding to regulate Internet service providers as common carriers, it’s been clear that the FCC’s action likely would be held unlawful as exceeding the agency’s authority. While the Sixth Circuit’s action is not a final determination, here’s today’s prediction. If the FCC pursues this case to the Supreme Court, it will lose because the Court has already telegraphed, in West Virginia v. EPA, that whether the FCC may regulate Internet providers as common carriers is a Major Question —and one that Congress has not clearly authorized the FCC to decide. In other words, the handwriting is on the wall, and you don’t have to be Daniel to read it.

“It would be so much better for America’s consumers if the Commission and the Biden Administration would turn away from the pursuit of fruitless aggressive regulatory endeavors, such as those pursued in the now-stayed Title II proceeding and the Digital Discrimination proceeding, and focus their energies on policies that would speed deployment to those still waiting for the remaining broadband deployment gaps to be filled."