The Federal Communications Commission issued its Connect America Fund Order to ensure ubiquitous broadband Internet access services on Friday.
When Congress debated the Telecommunications Act of 1996, the section concerning Universal Service (Section 254) was somewhat controversial. Broadly speaking, there seemed to be considerable support in the House of Representatives for limiting Universal Service, and there were some influential senators who wanted to expand it (the House is somewhat more representative of urban areas that contribute subsidies, and the Senate is somewhat more representative of rural areas that receive subsidies). The result was a compromise in which Universal Service is defined (in Sec. 254(c)(1)) as “an evolving level of telecommunications services that the Commission shall establish periodically … taking into account advances in telecommunications and information technologies and services.” Notice how information services are missing in the first half of that sentence. Although the FCC is allowed to take notice of information services, Universal Service has to support telecommunications services only.
This is relevant because the FCC subsequently ruled that broadband Internet access is an information, not a telecommunications service (Order at paragraph 71). The commission also subsequently ruled that a service has to be one or the other, and that it cannot be both (“hybrid services are information services, and are not telecommunications services,” ruled the FCC in a 1998 Report to Congress at paragraph #57).

Was Congress careless when it drafted Section 254(c)(1)? I do not believe so. Including information services at that point in the statute would have been viewed as a potentially enormous expansion of Universal Service by critics of the program (and there were more than a few). Also, consider that Universal Service is funded by telecommunications providers, not information service providers. Sec. 254(b)(4), which provides that “[a]ll providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service,” illustrates this fact. An agency like the FCC only has the power to levy user fees, because Congress cannot delegate its taxing power. Generally speaking, a user fee is collected from those who benefit directly from a governmental service; a user fee is not supposed to be collected from one class of people to benefit another (that would be a tax).
Congress deliberately omitted information services from Section 254(c)(1), I believe. Admittedly, broadband did not exist at the time. If Congress wants to amend the statute, it is free to do so, of course. Agencies such as the FCC are not supposed to legislate, however.
What does the FCC have to say on this point? According to footnote #5 of the Order,

Some contend that the definition of universal service under section 254(c)(1) muddies the water because it does not include “information service.” Instead, that provision states that “[u]niversal service is an evolving level of telecommunications services . . . taking into account advances in telecommunications and information technologies and services.” But, it is also relevant that the term “telecommunications service” is qualified by the adjective “evolving.” Even if section 254 were viewed as ambiguous, pursuant to the well established principle of Chevron deference, the courts would likely uphold the FCC’s interpretation as a reasonable and permissible one. See Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

Chevron deals with reasonable agency interpretations of ambiguous statutes. Here, the statute may be obsolete, but it is not ambiguous. With all due respect to the FCC, I suspect it would require a highly sympathetic panel of randomly-assigned appellate judges to buy this argument.
Next, at paragraph #66 of the Order, the FCC claims that Section 706 of the 1996 Act confers “independent” authority for the FCC to subsidize broadband. We have been down this path before.
“On its face, section 706 appears to give the Commission plenary authority,” according to the second edition of Federal Telecommunications Law (Aspen Law & Business, 1999) at page #1043. “Despite this broad language, the Commission concluded that section 706 did not ‘constitute an independent grant of forbearance authority,’ but merely directed the Commission to use the authority granted in other provisions [of the Communications Act of 1934, as amended by the 1996 Act].” This ruling, by the way, was handed down in 1999, when Democrats were in the majority at the FCC. Democrats cannot have it both ways.
Why does any of this matter? The power to subsidize is the power to regulate. The FCC discreetly acknowledges this point in paragraph #61 of the Order, when it observes that “[t]he principle that all Americans should have access to communications services has been at the core of the Commission’s mandate since its founding … Congress created this Commission in 1934 for [that] purpose.” That resulted in a “morass of regulation,” in the words of former FCC Chairman William E. Kennard (appointed by President Clinton).
The FCC never achieved ubiquitous telephone service after more than three-quarters of a century of effort (it reached 94% in 2005, whereupon it altered definitions to include new, unregulated technologies).
FCC Commissioner Robert M. McDowell recently noted that “broadband deployment skyrocketed from reaching only 15 percent of Americans in 2003, to 95 percent by the end of 2009.” And that was with minimal government involvement. “The private sector continues to invest tens of billions of dollars in broadband
infrastructure each year – more than $60 billion in capital expenditures in 2010 alone,” concedes FCC Chairman Julius Genachowski (at p. 90).
As long as government does not impose confiscatory taxes and onerous regulation, private investors will fund broadband expansion. Creating a new subsidy program is a step in the wrong direction. And since there is a statute governing Universal Service that imposes relevant limits on the FCC, this is a decision that ought to be made by Congress, in any event.