OKLAHOMA CITY – A recent appellate court ruling that the federal Universal Service Fund is a “misbegotten tax” and therefore unconstitutional prompted a dire warning from Corporation Commissioner Bob Anthony about the state’s Universal Service Fund.
The potential reverberation was brought up July 31 during discussion of whether to close out two dated Oklahoma Universal Service Fund cases.
Matt Skinner, the commission’s public information manager, noted that the OUSF is administered by the Oklahoma Corporation Commission, while the USF is administered by the Federal Communications Commission.
Pursuant to a grant of authority from Congress, the FCC collects “contributions” from telecommunication carriers that are deposited in a Universal Service Fund, “and it distributes the monies raised to people, entities, and projects to expand and advance telecommunications services,” the 5th Circuit Court of Appeals wrote.
Federal law provides that telecom services should be available at “just, reasonable, and affordable” rates; accessible in “all regions of the nation”; and available to “low-income consumers and those in rural, insular, and highcost areas” at rates “reasonably comparable to rates charged for similar services in urban areas.”
On July 31 the Corporation Commission was considering OUSF cases that were filed in 2013 and 2018 to “identify and resolve issues related to” the Oklahoma Universal Service Fund, Lifeline service, resellers, the public utility fee assessment, the Oklahoma High Cost Fund, broadband support, Voice Over Internet Protocol service, “and other telecommunications matters.”
The OCC’s Public Utility Division serves as the “statutory administrator” for the OUSF. The state’s Universal Service Fund provides revenue, “in coordination with federal programs,” that finances broadband service to schools, libraries, and telemedicine, and reimburses rural telephone providers for upgrades to basic telephone service. Lifeline provides discounted wireline and wireless services for low-income consumers, which helps them connect to the nation’s communications networks, find jobs, access health care services, connect with family, and call for help in an emergency.
The 5th Circuit Court of Appeals, based in New Orleans, issued an opinion July 24 that “could change things dramatically,” Anthony said.
The 5th Circuit contended the universal service fee on telephone bills is a tax. Consequently, the USF is unconstitutional because Congress “delegated its taxing power to the Federal Communications Commission” and the FCC “then subdelegated the taxing power to a private corporation” known as the Universal Service Administrative Company, the 5th Circuit declared in a 9-7 ruling.
Mark Argenbright, administrator of the state Universal Service Fund, told Anthony that Oklahoma receives “a huge amount” of money from the Federal USF. Argenbright said later that the federal USF provided $172,769,588 of “high-cost support” to Oklahoma-based telephone companies.
So, “If the federal money stops, Oklahoma will have to make up” the difference, Anthony asserted.
A review of USAC reports “indicates approximately 68 entities operating in Oklahoma receive High Cost support from the federal USF from one or more of nine different high-cost programs,” Corporation Commission Public Information Officer Jack Money told Southwest Ledger. “Not all 68 are eligible for, and do not receive, OUSF primary universal service support,” he added.
The federal USF E-rate (schools and libraries) and Rural Health Care programs “also provided funding to Oklahoma providers (which also may or may not be receiving High Cost Support),” Money said. For Fiscal Year 2024, $56 million was approved for Oklahoma schools and libraries (E-rate), and $4.9 million was approved in FY 2023 for Oklahoma Rural Health Care programs, Argenbright said. Commission votes 2-1 to close 2013, 2018 cases “I share the same concern as Commissioner Anthony about the make-whole provision,” Commission Chairman Todd Hiett said. Nevertheless, the 2013 and 2018 state cases are “antiquated,” he said. “Should the need present itself, we can open a new inquiry. These cases are long in the past.”
“My office also is aware of” the 5th Circuit ruling, Commissioner Kim David said. But if the U.S. Supreme Court were to uphold that opinion, “We would need a legislative change to deal with that issue,” said David, a former state senator.
Hiett and David endorsed the motion to close out the two OUSF cases, but Anthony dissented.
If the 5th Circuit opinion is not overturned by the U.S. Supreme Court, it might upend a system that spends billions of dollars each year to expand telecommunication networks and make access more affordable through programs such as Lifeline discounts and grants for internet service providers. USAC reported its projection of USF revenue for the third quarter of 2024: $8 billion.
However, according to Argenbright, the 5th Circuit ruling did not vacate the FCC’s rules, “so the status quo remains in place.”
Almost certainly the 5th Circuit’s split ruling is destined for Supreme Court review, because both the 6th and 11th Circuit courts of appeal rejected arguments that the Universal Service Fund is unconstitutional.
The FCC will appeal because the 5th Circuit decision “upends decades of bipartisan support for FCC programs that help communications reach the most-rural and least-connected households in our country, as well as hospitals, schools and libraries nationwide,” agency Chairwoman Jessica Rosenworcel said. The opinion “reflects a lack of understanding of the statutory scheme that helped create the world’s best and most far-reaching communications network.”
Anthony complaint: OUSF has no limit During the Corporation Commission’s consideration June 25 of an adjustment to lower the connections-based “assessment factor” for the Oklahoma Universal Service Fund, Anthony objected to the open-ended nature of the fund.
“Twenty years ago the OUSF collected annual revenues” of $7 million to $7.5 million, he wrote. Now, though, “the net calculated funding requirement for FY 2024 [which ended June 30] is approximately $93 million.” That is “more than 12 times higher than 20 years ago,” Anthony noted, “and the statute still provides no cap.”
A little over $673 million has been disbursed via the OUSF over the last 27 years, records reflect.
Anthony also complained that “a few dozen Oklahoma independent phone companies, on average, receive subsidy payments of a million dollars annually” from the OUSF “without having to publicly disclose the most basic fundamentals of their business.”
The OUSF funding requirement for FY24 was calculated to be $105.4 million. However, after a surplus balance and other revenue was subtracted, the net funding requirement was reduced to $74,398,455. Divided by 45.76 million projected annual connections, that reduced the monthly assessment factor from $2.02 per connection to $1.63. In 2022 the assessment factor was $1.14 per connection.
Oklahoma City attorney Ron Comingdeer told Southwest Ledger three years ago that by law, all “contributing providers” must pay into the OUSF.
Oklahoma law defines “contributing providers” as including but not limited to providers of intrastate telecommunications, providers of intrastate telecommunications for a fee on a non-common-carrier basis, providers of wireless telephone service and providers of interconnected Voice over Internet Protocol (VoIP).
Telecom providers in SW Oklahoma Medicine Park Telephone Co. has common ownership with Hilliary Media Group, publisher of Southwest Ledger, is among the numerous independent phone companies that are subsidized via the OUSF to serve rural areas of Oklahoma in the absence of major telecommunication providers such as AT&T and Verizon.
Other such telcos include Terral Telephone Co. in southern Jefferson County; Carnegie Telephone Co., which provides internet service to Carnegie, Alfalfa, Fort Cobb, Mountain View, and Fort Cobb Lake communities; and Pioneer Telephone Cooperative headquartered in Kingfisher, which serves 75 communities, including Apache, Comanche, Loco, and Davidson.
Hilliary Media Group shares common ownership with Southwest Oklahoma Telephone Co., which provides internet service throughout a 750-square-mile area that includes Altus, Olustee, Frederick, Grandfield, Hobart, Mangum, Hollis, Granite, Snyder, and Tipton.