I wrote a little bit about Universal Service Fund and USAC early in the summer; I’m going to borrow heavily from Doug Dawson to give the update and his astute perspective…

The Fifth Circuit Court of Appeals ruled last week that the FCC had exceeded its statutory authority  years ago when it established the Universal Service Administrative Company (USAC) to administer the Universal Service Fund.

The case in front of the court involved Consumers’ Research, which challenged the latest FCC calculation of the contribution factor used to establish the fee that telcos pay into the fund. Consumers’ Research had also challenged the FCC’s authority to establish USAC to administer the fund.

Doug gives a great explanation of the role of USAC in his article, I’m going to shortcut it and say, they manage the funds for the FCC But the FCC makes the calls. Which leads to some questions…

What does this ruling mean? The FCC has to first decide how it wants to respond to the court ruling. It’s been reported in the press that the FCC says the ruling goes into effect in two months if the agency doesn’t  appeal the ruling. If the FCC appeals the ruling, the most routine outcome would be a court ordering business as usual until that appeal can be heard. It’s not certain that the FCC will appeal the case, and if it doesn’t, things get messy very quickly.

The FCC would have to somehow try to take over USAC functions. The agency is not staffed to do so, which would likely result in chaos. It probably wouldn’t be easy, or even possible, for the FCC to somehow absorb USAC staff.

The companies that pay into the USF would be in limbo because the collection process would be disrupted. I picture legal challenges and confusion and possibly lawsuits related to whether telcos owe fees to the FCC, the federal Treasury, or to nobody. Disbursements from the fund would quickly be disrupted. That would be a major problem for the many entities that draw payments from the $9 billion annual fund. It’s hard to picture what happens when schools can no longer pay their broadband bill or ISPs suddenly stop receiving RDOF or other subsidies. Millions of people would likely lose their monthly billing discounts from Lifeline. USAC also has extensive audit powers, and it’s not clear that the FCC could insert itself into existing audits.

The only alternative to the above chaos would be if Congress quickly stepped in to provide some way to keep the USAC functions going. That sounds like a huge challenge in a lame duck session during the holidays. Stay tuned, because this could turn into something extremely messy.