Supreme Court Agrees to Hear Challenge to USF's Unconstitutionality

On November 22, the Supreme Court granted a writ of certiorari in Consumers' Research v. FCC. The case involves a constitutional challenge to the Universal Service Fund's (USF) contribution mechanism – or "USF Tax." The grant of certiorari is welcome news because it means that the court will resolve a circuit split between the Fifth Circuit. It also provides occasions for the court to clarify the doctrinal status and contours of the non-delegation doctrine. 

The roughly $8 billion annual USF subsidy program is funded by USF surcharges included as line items on the long-distance portion of voice consumers' monthly bills. Due to the increasing size of subsidy distributions and the shrinking size of the contributor base, the quarterly-adjusted surcharge rate has risen to 35.8% -- a much, much higher rate than just a few years ago. 

 

The Supreme Court will be reviewing the July 24 en banc decision by the U.S. Court of Appeals for the Fifth Circuit that determined the universal service contribution mechanism violates the Legislative Vesting Clause of Article I of the U.S. Constitution. The Fifth Circuit held that Congress's broad delegation of tax authority to the FCC under Section 254 of the Communications Act, combined with the agency's delegation of tax authority to a private entity to collect surcharges from voice carriers and administer the USF, constituted a constitutional violation. Fifth Circuit's en banc decision in Consumers' Research v. FCC, as well as the concurring and dissenting opinions, are summarized in my August 5, 2024 Perspectives from FSF Scholars, "Fifth Circuit Rules USF Contribution Scheme Violates Legislative Vesting Clause." 

 

The Sixth and Eleventh Circuits previously upheld the USF's contribution mechanism from identical challenges. The Supreme Court will resolve the split between the lower courts. And the court will have occasion to revisit the non-delegation doctrine, which is implicated by the case.  

 

In 2025, expect Free State Foundations scholars to have more to say about a future Supreme Court decision in Consumers' Research v. FCC and the need for Congress to modernize the USF for the broadband era. 

MEDIA ADVISORY: FSF's Randolph May Congratulates Brendan Carr as the Next FCC Chairman

Free State Foundation President Randolph May issued the following statement regarding President-elect Trump's intention to appoint Brendan Carr as FCC Chairman:

I congratulate Brendan Carr as President-elect Trump's choice to be the FCC's next chairman. Given his long experience at the FCC, first as a staffer and then as a commissioner, and his acknowledged expertise regarding communications law and policy, Commissioner Carr is very well-qualified to undertake his new responsibilities leading the agency come January 20.

 

There is much work that still needs to be done to reform communications policies so that they reflect digital age technological and marketplace realities. Enhancing consumer welfare and increasing consumer choice, along with closing remaining digital divides, can be accomplished in free market-oriented ways that minimize unnecessary costs, reduce regulatory burdens, and avoid wasteful spending. And restoring a culture of free speech consistent with the First Amendment is an important objective.

 

I look forward to Brendan Carr getting to work as FCC Chairman. 

FWA Make Further Strides, More Spectrum and Cell Sites Needed

In today's communications market, cross-platform competition is exemplified by fixed wireless access (FWA) broadband services. In the third quarter of 2024, consumer adoption of both FWA continued strong. 

According to a report in Light Reading, in the third quarter of 2024, Verizon had 2.67 million FWA subscribers – 1.64 million residences and 1.03 million for businesses. And a report at SDxCentral indicates that AT&T Air gained about 135,000 subscribers to its Internet Air FWA service, for a total of about 500,000. T-Mobile reported gaining 541,000 subscribers to its Home 5G FWA service during the quarter, bringing its reported total to over 6 million.  

 

Further growth is expected. It is reported in Fierce Network that Verizon plans to expand its C-band spectrum to 70% of its planned footprint by the end of this year and to double its FWA footprint to 90 million homes and businesses by 2028. Also, it's reported in Light Reading that New Street Research has predicted T-Mobile will add 1.45 million FWA subscribers next year, Verizon will add 1.3 million, and AT&T will add about 550,000. SDxCentral reported that T-Mobile has a goal of serving 12 million FWA subscribers by the end of 2028, and Verizon has a goal of serving 9 million by 2028. 

 

For the FCC, particularly under its prospective new membership in the second Trump Administration, increasing access to spectrum and ensuring streamlined permitting processes for constructing wireless infrastructure will be keys to realizing the future potential of FWA as a high-quality service and competitive choice for residential broadband subscribers in America. 

 

In July 2024 public comments to the FCC for its forthcoming Communications Marketplace Competition Report, Free State Foundation President May and I wrote:

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. 

For now, there is no spectrum in the pipeline for commercial services. A priority for the incoming Trump Administration will be to replenish that authority and restore the FCC's authority to conduct spectrum license auctions. Meanwhile, as indicated by an article in Fierce Networks, network densification – including constructing additional cell towers and other infrastructure – may be one way to expand network capacity while mid-band spectrum remains scarce. 

Governor Moore Fails to Improve Maryland’s Tax Competitiveness

On October 31st, the Tax Foundation released the 2025 State Tax Competitiveness Index, which ranked states’ overall tax systems and certain individual taxation categories. The index considered several criteria for ranking states, including tax system complexity, aggressiveness, and structure. Additionally, the index considers corporate income, individual income, sales, property, and unemployment insurance taxes in the overall rankings.

In August 2023, Governor Wes Moore said, “Maryland has some of the best talent and assets in the world. But our economy is not reaching its full potential [...] The time for discipline is now.” Throughout his tenure as governor, Moore has continued claiming the state needs to make “difficult fiscal decisions.” Still, while he has continued to tout the need for budgetary discipline, Maryland’s government continues to fail to have enough discipline to create a competitive tax environment. This is why it is the fifth worst state in the nation in terms of “tax competitiveness.”

Maryland’s poor ranking is not entirely new, as it has been considered one of the ten least competitive state tax environments since 2020. However, according to the Tax Foundation's new analysis, Maryland’s score has worsened since then, so that it is now ranked 46th in the nation. For some states, being uncompetitive on taxation may be acceptable. For example, Hawaii is also poorly ranked, but few states compete for people and businesses with Hawaii. Maryland, however, has four states bordering it, as well as the capital. Except for DC, every state bordering Maryland is ranked at least 12 spots higher for tax competitiveness.

Virginia, in particular, is a competitor for businesses and people looking to live in the extended DC area. Its overall state taxation competitiveness ranking is 28th, 18 places better than Maryland's. Unlike some states with few or no bordering states to compete with, Maryland’s competitiveness with other states will heavily impact how many people and businesses vote with their feet.

Examining the index, it is clear that Governor Moore must do more than he has thus far if he wants to improve Maryland’s very poor tax competitiveness ranking.

Because the index considers so many taxes, Maryland’s overall scoring is poor for a multitude of reasons. Firstly, Maryland’s income tax is very progressive, with a high maximum tax rate of 5.75%, meaning higher income earners will want to live elsewhere. Additionally, standard deductions and personal exemptions are relatively small in Maryland, and there are no tax adjustments for inflation. Thus, as the U.S. dollar’s value declines due to inflation and wages are adjusted to match that, even working-class Marylanders will slowly move into higher tax brackets.

Maryland’s corporate tax rate is 8.25 percent, significantly higher than Virginia, West Virginia, or North Carolina’s. Maryland’s inclusion of a global intangible low-taxed income in its corporate tax base makes it rare among the states. This means that even profits from non-U.S. companies owned by Marylanders are taxed at the state corporate tax rate, which many other states do not require, including Virginia and Pennsylvania.

Lastly, Maryland’s tax complexity is much higher than other states. It is the only state in the country to impose digital advertising taxes, which are difficult to navigate and comply with. Although this tax only went into effect in 2022, multiple lawsuits have already been filed contesting the law behind it. Maryland is also the only state in the country with both estate and inheritance taxes, with high maximums, further incentivizing wealthy taxpayers to leave the state.

While many of these tax policies existed before Gov. Moore entered office, a governor showing proper fiscal “discipline” should fight to reduce these taxes. Moore should pursue the fiscal discipline he advocated for at the start of his administration and increase Maryland’s tax competitiveness. Otherwise, the state will continue to lag behind its neighbors economically.

Court Hears Arguments on Challenge to School Wi-Fi Bus Subsidies

 On November 4, oral arguments were held before the U.S. Court of Appeals for the Fifth Circuit in the case of Molak v. FCC. The case involves a legal challenge to the Commission's October 2023 School Bus Wi-Fi Order. The Petitioners, represented by David A. Suska during oral arguments, claim that the agency lacks authority under Section 254 of the Communications Act to use E-Rate funds to subsidize Wi-Fi on school buses. 

By a declaratory ruling passed on a 3-2 vote of the Commission's members, the agency is interpreting the law to effectively extend the Emergency Connectivity Fund (ECF) beyond its sunset date of June 2024. The ECF was a $58.2 billion subsidy program for subsidizing Wi-Fi hotspots and broadband services for school buses and off-campus connectivity. The program was authorized under the American Rescue Plan Act of 2021 (ARPA) as a lockdown-era emergency measure. Section 7402 of the ARPA expressly authorized subsidies for supporting "eligible equipment" and advanced telecommunications and information services for use by students, school staff, and library goers "at locations that include locations other than the school" and "other than the library."

 

In our February 2024 Perspectives from FSF Scholars, "FCC's School Bus Wi-Fi Subsidy Lacks Statutory Support," Free State Foundation President Randolph May and I addressed legal problems with the School Bus Wi-Fi Order. Section 254 of the Communications Act is more limited than Section 7402 of the ARPA. Section 254(h)(1)(B) authorizes the Commission to provide subsidy support to telecommunications carriers for "services to elementary schools, secondary schools, and libraries for educational purposes." And Section 254(h)(2)(A) directs the Commission to adopt competitively neutral rules to enhance "access to advanced telecommunications and information services for all public nonprofit elementary and secondary school classrooms, health care providers, and libraries." In short, we concluded that the FCC overreached in subsidizing school bus Wi-Fi subsidies under Section 254 because buses are notschools, classrooms, or libraries – and schools are not telecommunications carriers. 

 

Before the Fifth Circuit, Mr. Suska ably argued that the School Bus Wi-Fi Order exceeded the law in four ways: (1) by making subsidies available to anyone, not just telecommunications carriers; (2) by making subsidies available for any kind of service, not just telecommunications services; (3) by making subsidies available for equipment, which is not in the statute; and (4) by providing subsidies to schools instead of telecommunications carriers.  

 

On behalf of the FCC, Ms. Rachel Proctor May argued: "The word 'classroom' is best interpreted to include buses that have been outfitted with Wi-Fi so they can serve as rolling study halls." That type of elastic interpretation might have sufficed under the old "Chevron doctrine." But that is a decidedly strained and result-driven interpretation by the FCC, and one the agency cannot rely on for its authority now that the Supreme Court's decision in Loper-Bright v. Raimondo has overruled Chevron. Moreover, it goes against human experience to think that anything but the tiniest amount of homework will take place on Wi-Fi-connected school buses. No claimed agency technical expertise about imagined homework on school buses ought to rescue the FCC from the overreach of its School Bus Wi-Fi Order. 

 

A significant portion of the oral arguments before the court addressed threshold procedural issues regarding exhaustion of administrative remedies and standing. Yet if the Fifth Circuit rules on the merits, there is a strong likelihood that the court will vacate the FCC's School Bus Wi-Fi Order. 

CSIS Reiterates Importance of Spectrum to National Security

Recently published commentary from the Center for Strategic & International Studies (CSIS) makes familiar points regarding America's pressing need for additional, globally harmonized commercial spectrum – but also places the continuing spectrum-allocation impasse in a broader, geopolitical context characterized by serious national security and intelligence implications.

"Spectrum Allocations and Twenty-First-Century National Security," by James Andrew Lewis, echoes arguments raised by another CSIS scholar, Clete Johnson, that I summarized in an October 2024 post to the FSF Blog. Namely, that Congress must act quickly to renew the FCC's spectrum auction authority and work with the Department of Defense and other federal agencies to ensure that the same bands used in other parts of the world are made available for commercial use in the U.S.

The concern, according to Mr. Lewis, is China:

The United States is in a global competition with China over markets, rule setting, and technological leadership…. To remain competitive, the United States will need to adjust how it has allocated radio spectrum to emphasize commercial innovation. The government-centric spectrum allocations of the last century will need to change if we are not to fall behind. 

Specifically, U.S. policymakers must appreciate that, going forward, technological innovation by the commercial, rather than the government, sector is the key to national security in the twenty-first century: "[c]ommercial technologies underpin modern military strength." And that to facilitate that technological innovation, domestic commercial interests must have access to the same spectrum bands used in the rest of the world:

If the United States does not use a harmonized spectrum, it shrinks the economies of scale that trusted vendors need to compete with Huawei…. In simple terms, people will build devices to use specific spectrum bands for commercial purposes designated by the WRC. Essentially, if the United States does not use spectrum allocated everywhere else for commercial purposes, it will be handicapped in any competition.

In other words, U.S. policymakers must move beyond the antiquated notion that government control of certain bands, in and of itself, enhances our national security – and instead recognize that military might today hinges in large part upon America's ability to dictate the technological standards for mobile networks used worldwide. Commercial access to globally harmonized spectrum bands is critical to achieving that objective.

Mr. Lewis concludes with a warning: "[t]he timing for action is short, perhaps a year or two since a failure to act puts the United States at the cusp of a great strategic blunder that will let an ambitious China build the network that forms the backbone of the global economy."

Court Hears Arguments on Challenges to FCC's New Title II Order

On October 31, the U.S. Court of Appeals for the Sixth Circuit heard oral arguments in case MPC No. 185 Open Internet Rule. The case consolidates several legal challenges against the FCC's April 2024 Securing and Safeguarding the Open Internet Order. The Commission's order turned broadband Internet access services into a public utility and subjected broadband Internet service providers (ISPs) to rate regulation.

By an August 1, 2024, order, a three-judge panel of the Sixth Circuit stayed the Commission's order pending resolution of legal merits of challenges to that order. The court's decision to stay the agency's order was discussed in an August 23 Perspectives from FSF Scholars by FSF President Randolph May, "The Sixth Circuit Stays the FCC's Latest Net Neutrality Flip-Flop." A different panel was designated to decide the legal merits.

 

Oral arguments before the three-judge merits panel lasted approximately one hour. Judge Raymond M. Kethledge pressed legal counsel on the meaning of statutory terms – such as "information services" under Title I of the Communications and "telecommunications services" under Title II. Other judges expressed greater interest in the "major questions doctrine." They pointedly asked if the "major questions doctrine" is still operative following the Supreme Court's decision in Loper-Bright v. Raimondo and whether reclassifying broadband Internet access services under Title II and subjecting it to public utility regulation and rate controls amounts to a matter of economic and political significance under the "major questions doctrine." 

 

The Free State Foundation's 2017 initial comments and reply comments in the FCC's Restoring Internet Freedom proceeding emphasized the statutory definitional case for why broadband Internet access services are Title I "information services." 

 

Moreover, FSF's 2023 initial comments and reply comments in the Safeguarding and Securing the Open Internet proceeding explained why reclassifying broadband Internet access services under Title II and thereby subjecting those services to a public utility regime with rate regulation triggers the "major questions doctrine." That is, turning broadband ISPs into public utilities and asserting control over their rates is a politically and economically significant matter. Congress nowhere provided the FCC clear authority to make such a momentous decision. 

 

The Sixth Circuit panel that issued the August 2024 stay decision in the MPC No. 185 Open Internet Rule concluded that the FCC's order likely violated the "major questions doctrine." But the Sixth Circuit's merits panel that just held oral arguments will offer its view in due time. The judges will more comprehensively answer the disputed questions about the Commission’s authority.

The Rate Regulation Difference: A Biden FCC v. A Trump FCC

 I’ve been asked many times in the last days and weeks about the likely differences in communications law and policy between a Harris FCC or a Trump FCC. As Yogi Berra declared, “It’s tough to make predictions, especially about the future!” 

True enough, and a reason to be cautious.

 

Nevertheless, while I hope I'm wrong, I’m comfortable hazarding this prediction: A Harris FCC will likely move to regulate the rates charged by broadband Internet service providers, while a Trump FCC would not. And to my mind, this is a big deal, because rate regulation of ISPs almost certainly will stifle investment and innovation and lead to less consumer choice.

 

“Price controls” – explicitly favored by Vice President Kamala Harris in various market segments – is just another way of saying “rate regulation.” Remember, price controls always lead to a curtailment of supply. In the context of broadband, that means less network infrastructure deployment, less new services made available, and less variety of service offerings from which consumers may choose.

 

The rate regulation may be implemented in connection with innocuous-sounding programs, such as elimination of “data caps” and elimination of “free data” plans, or mandates for “affordable” service options.

Rate regulation, of course, all the same.