To the Editor:
I’ve watched with more than passing interest the growing outcry against the federal government’s universal service program. Each day brings another news release from a member of Congress, a consumer group or some media pundit, denouncing this program as an unfair tax on consumers. What is curious is the fact that this program has been in place for close to a year now, telecommunications carriers have been billed twice by the [Federal Communications Commission], and have been required to pay hundreds of millions of dollars into this program. Yet, only now that these fees have wended their inevitable way onto consumer bills has there been open criticism of the program. Indeed, only recently have several notable scholars publicly stated that this program may be an unconstitutional tax.
The fact is that few members of the telecommunications industry have been keen to publicly call this program what is only now apparent to some: it is a general welfare program, funded by taxes on telecommunications carriers. The reasons for the previously muted criticism of this program reveal much about the curious relationship between the highly regulated telecommunications industry and the people who regulate it.
The vast majority of telephone customers are unaware of the fact that the universal service program has existed for decades, albeit in a different form, and that it was quietly subsidized by local and long-distance telephone companies. That implicit subsidy program could not be sustained once Congress determined that monopoly local telephone companies must face competition at the local level. Incumbent telephone companies would not be expected to solely shoulder the costs of serving high-cost residential customers, while their competitors were free to go after high-margin business accounts.
Consequently, local telephone companies were reasonably pleased that under the “new” Universal Service program all telecommunications carriers, including some such as paging carriers that do not provide basic telephone services, would be required to contribute to a central fund that will subsidize high-cost residential customers. Certainly, there are many aspects of this new program that rankle incumbent local telephone companies, including the fact that providing a variety of Internet services to schools, libraries and hospitals is far broader than the original concept of providing basic telephone service to everyone in the nation. On the whole, however, they are financially better off with this new program than they would be without it.
Long-distance telephone companies would seem to have reason to oppose this program. Previously, they did not pay explicit universal service fees; they did implicitly subsidize universal service through access fees paid to local telephone companies. But, the FCC has promised these carriers that their access charges will be reduced, now that “implicit” universal service subsidies have been eliminated from these charges. And, as recent news reports make clear, long-distance carriers can pass through their “explicit” universal service charges to their customers. The results may be a financial net gain for this class of carriers.
Then there is a vast panoply of “other” telecommunications carriers. These include cellular telephone carriers, paging carriers, and perhaps even Internet service providers (who might be required to pay universal services fees in the near future), who did not previously pay access charges, but were required to pay interconnection fees to local telephone companies, which, in part, subsidized universal service. For these carriers this new universal service contribution is a direct, additional cost. But many of these carriers assumed that the telecom act and the FCC’s interconnection rules provided them with offsetting cost savings. They understood the new laws to spare them from paying interconnection charges to the local telephone network. Unfortunately, a number of local telephone companies have disagreed with the FCC’s interconnection rules, and have tied up the agency and wireless carriers in expensive litigation concerning the interpretation of those rules.
Finally, there is the rather long shadow of former FCC Chairman Reed Hundt that has been cast over the new universal service program. Although the FCC claims it is just doing what Congress required it to do, it is no secret that Hundt was keen on defining “universal service” as broadly as possible. Moreover, early versions of the FCC’s universal service rules would have prohibited telecommunications carriers from adding that charge as a line item to customer bills, until attorneys pointed out rather obvious First Amendment and due process violations such a prohibition would entail. Current FCC Chairman Kennard’s support of the program, in the face of blistering criticism from many members of Congress, suggests that he shares Hundt’s fondness for it. Which simply means that anyone who criticizes this program does so at the risk of alienating the FCC and the many state utility commissions who supports it.
Despite the relative quiescence of the telecommunications industry, the FCC’s universal service rules are indeed the object of pending appeals in the U.S. Court of Appeals for the Fifth Circuit. Twenty different parties, consisting of a diverse cross-section of telecommunications carriers, consumer groups and state utility commissions have appealed various aspects of the FCC’s universal service rules. Yet, only one company, Celpage, a relatively small paging company based in Puerto Rico, has challenged the entire universal service program on the grounds that it is unconstitutional. Celpage did not disagree with the merits of providing basic phone and Internet service to every home, school, hospital and library in the United states. Rather, it simply contends that if Congress wants to promote such a broad, general welfare program, it should pay for it the old-fashioned and Constitutional way-from general tax revenues.
More than 200 years ago, a little-known printer by the name of Thomas Payne published a pamphlet called Common Sense. He helped inspire the founding principal of “no taxation without representation,” which ignited a revolution and was incorporated into our U.S. Constitution. It is no exaggeration to say that this principal is at the very core of Celpage’s appeal.
The FCC is a fine agency; but none of its members were elected to that office by the U.S. citizenry. Before the recent consumer outcry against universal service fees, Congress was perfectly content to let this agency take the heat for a dirty job that happens to be Constitutionally vested to Congress: the power to raise and collect taxes. A court of appeals will soon decide whether congress has unconstitutionally delegated these powers to the FCC. A victory for Celpage will not be a defeat for universal service; rather, it will be a profound reaffirmation of our basic constitutional rights.
Frederick M. Joyce, partner,
Joyce & Jacobs, Attorneys at Law, L.L.P.
Washington, D.C.,
Representing Celpage in its appeal of the FCC’s universal service decisions.
