Broadband financing: US Supreme Court upholds constitutionality of Universal Service Fund; fees are not a tax
Modern democracies engage in policy to promote broadband including legislation for universal service, the principle that everyone has access to essential services, no matter where they live or how much they earn. The concept originated in the USA in 1907 and has been administered by the Federal Communications Commission from inception in 1934.
Strand Consult has followed the development of universal service policy in USA and other regions. Its Global Project on Business Models for Broadband Cost Recovery has produced reports and analyses investigating different avenues of financial reform. In the United States, a court case has been unfolding over the past several years challenging whether the FCC’s model for administering the Universal Service Fund is constitutional. At the center of the dispute is a nearly $9 billion-a-year fund that supports broadband deployment, rural telecommunications, schools and libraries, rural healthcare connectivity, and discounted service for low-income Americans. The case, FCC v. Consumers’ Research, culminated in a June 2025 Supreme Court decision affirming the legality of the program and rejecting arguments that it violated the nondelegation doctrine or improperly imposed a tax without congressional limits.
The recent US Supreme Court ruling Federal Communications Commission v. Consumers’ Research (No. 24‑354) on June 27, 2025, marks an important milestone in broadband cost recovery. The US Supreme Court ruled 6–3 that the Universal Service Fund (USF) is constitutional. The Court held that Congress’s delegation of authority met the “intelligible principle” standard, and that the fees are regulatory, not taxes, thus preserving funding for essential services. This note summarizes the case with important points on broadband cost recovery for the USA and rest of the world.
Importantly, the decision confirms the stability and continuity of an $9 billion per year program funding broadband, rural telecom, schools, libraries, healthcare, and service for low-income Americans.
The decision also provides regulatory certainty about the FCC’s authority to manage the fund going forward. The case provides an important contrast to so-called “net neutrality” or “open internet” rules. Earlier this year a lower court found that Congress never delegated to the FCC the task of imposing such rules on broadband. However, the court affirms in FCC v. Consumers Research that Congress was explicit in telling the FCC to administer the USF.
Key Legal Arguments
The US Supreme Court consists of 9 justices. The majority in this case included 6 Justices: Kagan, Roberts, Sotomayor, Kagan, Barrett, and Kavanaugh. They emphasized:
- Delegation doctrine: This constitutional principle in US law that limits how much legislative power Congress can transfer—or “delegate”—to another branch of government. Congress makes the laws, but it often delegates authority to federal agencies, like the FCC, to fill in the details, such as writing rules, enforcing policies, or administering programs. The universal service concept dates to 1907 in USA and it was enshrined in the 1934 Communications Act, when rate regulation of telephony accounted for funds to cover service in rural areas. Congress updated universal service in the1996 Telecom Act to provide clear guidance for the FCC to administer the fund, the so-called“intelligible principle.” Congress made it clear that it wants the FCC to administer the program and how to do it.
The case featured the expert argumentation of Paul Clement for the FCC, one of USA’s foremost appellate advocates and a former U.S. Solicitor General, widely recognized for his expertise in constitutional law. If anyone knows the cases involving the separation of powers, nondelegation doctrine, and challenges to perceived government overreach, it is he. Clement has argued over 100 cases before the U.S. Supreme Court, often representing conservative or limited-government interests in disputes over administrative authority, gun rights, religious liberty, and federalism. Knowing the law well, Clement could argue from the FCC’s point of view. - FCC authority: In conducting the USF program, the FCC relies on the Universal Service Administrative Company (USAC) to prepare the analysis of the proposed rate of contribution to cover the fund. Consumers’ Research sought to discredit this relationship, but the court upheld it. Private administration via USAC is constitutional since FCC retains oversight and final decision-making.
- Nature of fees: USF contributions are regulatory—not taxes—and comply with appropriations and separation‑of‑powers requirements. Consumers’ Research argued that because the USF collects money, that it is a de facto tax, and hence Congress must set a clear numeric limit on how much money the agency can raise—like a fixed tax rate or maximum amount. They said without that kind of limit, the law is unconstitutional.
The Supreme Court disagreed, citing past decisions that there is no special rule for tax laws that requires such numeric limits. Many federal laws let agencies collect fees or money without setting a fixed cap, and those laws have been allowed. Also, whether the money collected is called a “tax” or a “fee” doesn’t matter for this rule.
The Court pointed out that if Consumers’ Research were right, any law that lets an agency raise money based on broad standards instead of exact numbers would always be unconstitutional. But a law with a fixed number limit would be okay—even if it gave the agency a lot of power. That doesn’t make sense and wouldn’t protect the separation of powers.
More largely, USF detractors have claimed that USF fees are taxes, as if they act like a levy from the Treasury on the American people. However, the USF in that category of the Self-Funded Agencies / Self-Financing Institutions which are government or quasi-government bodies that fund their operations through assessments collected from the industry they regulate or serve—not through general taxpayer revenue. Other examples include FDIC (funded by premiums from insured banks); 911 services (via fees on phone bills), Air Traffic Control (partially funded via ticket taxes, fuel excise taxes, and airline fees) and FINRA (funded by member firms). The USF ensures connectivity for rural areas, low-income users, and anchor institutions, hence strengthening network effects for digital industries.
See Strand Consult’s Fact Check: How Cloud Evades the USF to Profit Without Paying In rebutting the view of an Amazon-funded report claiming that assessing cloud services for USF would be a tax.
Dissent and Rebuttal
Of the 9 Justices, 3 dissented: Justices Gorsuch, Thomas and Alito. They concluded that the use of USAC amounted to a de facto tax improperly delegated to a semi‑private entity without direct congressional control. They also expressed warned of a slippery slope if quasi‑taxation is managed outside full legislative accountability.
The court rebutted this by addressing the issue of FCC oversight and accountability, emphasizing that the FCC—not USAC—retains ultimate control. This means the FCC can adjust contributions and spending levels, responding to concerns about costs.
The Court also found that Congress gave the FCC clear instructions to manage the fund responsibly to promote “universal service,” which implies balancing costs and benefits. While the dissent worried about unchecked cost increases, the majority said that because the FCC must operate under statutory mandates and is subject to judicial review, it has sufficient incentives and tools to prevent excessive costs.
Importantly the bipartisan US Senate USF Working Group, re-launched in this Congress can create legislation to clarify this authority. Senators from both parties, including Fischer (R-NE) and Lujan (D-NM) filed a key amicus brief supporting the FCC in the case. Moreover, bipartisan Senate and House (H.R. 4032) bills have already been proposed in this Congress. See Strand Consult’s note on Lowering Broadband Costs for Consumers Act of 2025.
Moreover, the majority emphasized that USF is not a tax but a regulatory fee. The Court clarified the USF fees are regulatory charges designed to fund specific telecommunications goals—not a general tax—so the normal tax limits don’t apply.
Many have observed that the USF fees can burden consumers, particularly of low-income. However, the court affirms that the FCC has power to adjust the fees and the services assessed so that they are more equitable. In that way, the court decision could affirm FCC Chairman Carr’s view that so-called Big Tech firms get a free ride on the USF and should thus contribute, as he argued in Newsweek in 2021. Carr cited Strand Consult’s data that most US internet traffic and associated broadband network cost comes from a handful of firms. Strand Consult calculated that for every USF-connected household in 2024, the 8 largest internet firms enjoy some $2500 per year in revenue.
What It Means for the Rest of the World
Not all nations have the same legal setup as USA, with a credible established telecom regulator with universal service assessment authority. Some like the European Union, have no pan-European ability to collect revenue. However, the case it still relevant and informative.
The ruling suggests that fees and assessments, when grounded in legislation and appropriate oversight, can withstand legal scrutiny. This is an important conclusion for democracies which balance delegation and autonomy.
The ruling also shows that nations and regulatory authorities can engage with private entities to administer the calculation, collection, and distribution of universal service fund assessments, provided appropriate delegation and oversight.
Not all nations can and should choose a USF model to recover broadband network cost. However, the US Supreme Court decision affirms that such problems of broadband network shortfalls exist and that the policy to address them is lawful and established. Moreover, the decision suggests that policymakers can update the standards for universal service and the relevant parties which are obligated to participate. To learn more about USF and broadband cost recovery, check out Strand Consult’s reports and research notes in the Global Project on Business Models for Broadband Cost Recovery.
