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Verizon and AT&T Argue the FCC’s Fines Are Unconstitutional as the Supreme Court Prepares to Intervene

A Constitutional Clash Between Telecommunications Giants and the Federal Government

We are witnessing a monumental legal battle that could fundamentally reshape the regulatory landscape of the United States telecommunications industry. The nation’s two largest wireless carriers, Verizon and AT&T, have launched a coordinated and aggressive legal offensive against the Federal Communications Commission (FCC), asserting that the fines levied against them are not merely disputable but are fundamentally unconstitutional. This high-stakes confrontation has escalated to the highest court in the land, with the Supreme Court of the United States poised to deliver a landmark decision by the summer, a ruling that will have far-reaching implications for federal regulatory power, corporate accountability, and the future of consumer protection in the digital age.

The core of this dispute lies in a series of substantial fines imposed by the FCC, which total in the millions of dollars. These penalties were issued for violations related to the FCC’s “data cap exemption rules,” often referred to by critics and proponents alike as the “zero-rating” rules. The FCC, under the previous administration, alleged that Verizon and AT&T engaged in anti-competitive practices by exempting their own video streaming services from their customers’ monthly data caps while data from competing services consumed the same allotment. This, the FCC argued, created an unfair marketplace, stifled innovation, and harmed consumers by distorting their choice of video services.

However, Verizon and AT&T contend that the FCC’s enforcement action was unlawful from its inception. Their legal arguments are not limited to the specifics of the data rules themselves. Instead, they are mounting a multi-pronged assault on the very constitutionality of the FCC’s enforcement structure, challenging the mechanisms by which the agency investigates, prosecutes, and penalizes corporations. At the heart of their case are three critical constitutional pillars: the Appointments Clause of Article II, the separation of powers doctrine, and the principle of nondelegation. The Supreme Court’s impending ruling will serve as a crucial referendum on the scope and limits of administrative agency power in the 21st century.

The Genesis of the Conflict: Understanding the FCC’s Zero-Rating Investigation

To fully grasp the gravity of this legal showdown, it is essential to understand the context of the technology at the center of the dispute. Zero-rating is a practice where a mobile service provider does not count the data usage of a particular application or service against a consumer’s monthly data allowance. In an era where streaming video is a primary driver of mobile data consumption, this practice can be a powerful market differentiator.

The FCC’s investigation, initiated in 2016, focused on how AT&T, Verizon, and other carriers implemented zero-rating for their own affiliated video services. For instance, AT&T offered “Data Free TV” for its DirecTV Now and U-verse apps, while Verizon offered “FreeBee Data 360” for its go90 service. The FCC’s Enforcement Bureau, under then-Chairman Tom Wheeler, concluded that these programs were likely to harm competition and consumers. The agency argued that by giving their own services a data advantage, the carriers could disadvantage independent streaming platforms like Netflix, YouTube, or Amazon Prime Video, effectively forcing consumers to choose services that did not incur data charges.

The FCC issued a formal ruling in 2017, just before the change in presidential administrations, stating that these zero-rating practices violated the general conduct rule of the 2015 Open Internet Order (commonly known as “Net Neutrality”). The FCC ordered the carriers to cease and desist these practices and to pay fines. Verizon was fined $125 million and AT&T was fined $100 million for their violations. These carriers immediately appealed the fines, arguing that the FCC had overstepped its authority and that the enforcement process itself was illegitimate. This legal challenge has now culminated in a Supreme Court case that could set a critical precedent for how similar disputes are handled in the future.

The Core Constitutional Arguments: Why Verizon and AT&T Believe the FCC Overstepped

Verizon and AT&T have framed their legal challenge around a sophisticated constitutional argument that questions the very structure of the FCC’s enforcement authority. We can break down their primary arguments into three distinct, yet interconnected, claims that directly challenge the legitimacy of the fines imposed upon them.

The Appointments Clause Challenge: Who Is a “Principal Officer”?

One of the most potent arguments raised by the telecommunications behemoths centers on the Appointments Clause of the U.S. Constitution (Article II, Section 2, Clause 2). This clause stipulates that “Officers of the United States,” who exercise significant governmental authority, must be appointed by the President with the advice and consent of the Senate. The purpose of this clause is to ensure that individuals wielding substantial federal power are accountable to the elected branches of government.

The carriers argue that the FCC official who authorized and issued the fines—an official within the FCC’s Enforcement Bureau—was not a “principal officer” properly appointed under the Appointments Clause. They contend that the individual was an “inferior officer” who was improperly exercising the significant power to levy multi-million dollar penalties without the required presidential nomination and Senate confirmation. The FCC’s practice has been for the Enforcement Bureau’s Chief, an appointed position, to issue such fines. However, Verizon and AT&T argue that the power to assess such massive penalties on behalf of the federal government is so significant that it can only be wielded by a principal officer, or at the very least, an inferior officer whose appointment complies with specific congressional statutes. The Supreme Court’s interpretation of what constitutes an “inferior officer” and what powers they can legally exercise will be a critical factor in this case.

Separation of Powers: The Judiciary’s Role in Reviewing Agency Fines

A second major pillar of the challenge is the violation of the Separation of Powers. The carriers assert that the FCC’s enforcement process illegally usurps the power of the judicial branch. The Constitution vests the judicial power of the United States exclusively in the courts. The argument here is that the FCC, an executive branch agency, is acting as a prosecutor, judge, and jury in its own enforcement actions.

Here is the procedural breakdown at the heart of the argument:

  1. Investigation: The FCC’s Enforcement Bureau investigates the alleged violation.
  2. Prosecution: The same Bureau acts as the prosecutor, bringing charges against the company.
  3. Adjudication: The Bureau then adjudicates the matter internally, issuing a ruling and a fine.

Verizon and AT&T argue that this internal process is constitutionally deficient. While companies can eventually appeal the FCC’s decision to a U.S. Court of Appeals, the carriers contend that the initial imposition of the fine by the agency itself is an unconstitutional exercise of judicial power. They argue that the fines should be imposed through a formal lawsuit filed by the Department of Justice in a federal court, where the company would have the full protections of the federal rules of civil procedure and the opportunity for adjudication by an Article III judge. The Supreme Court will have to decide whether the FCC’s internal adjudication process for civil monetary penalties provides sufficient due process and respects the constitutional separation of powers.

The Nondelegation Doctrine: An Agency Without Clear Congressional Guidance

The third, and perhaps most broadly impactful, argument invokes the Nondelegation Doctrine. This principle holds that Congress cannot delegate its legislative powers to administrative agencies. While Congress has long delegated authority to agencies like the FCC, it must provide an “intelligible principle” to guide the agency’s actions, ensuring it is creating rules, not arbitrarily inventing them.

Verizon and AT&T argue that in the case of zero-rating, the FCC lacked a clear directive from Congress. The 2015 Open Internet Order, under which the fines were issued, was itself a policy creation of the FCC, not a law passed by Congress. The carriers argue that the FCC invented the specific rules against zero-rating and then applied them retroactively to punish behavior that was not clearly illegal under federal statute. They claim that the “general conduct rule” is so vague and amorphous that it gives the FCC limitless discretion to pick winners and losers in the marketplace without clear guidance from Congress. A ruling favorable to the carriers on this point could severely curtail the ability of all federal agencies (like the EPA, SEC, or FTC) to regulate complex modern industries without explicit and detailed legislation from Congress for every specific action.

The FCC’s Defense: Upholding Regulatory Authority and the Public Interest

The Federal Communications Commission, now under a different political leadership but still defending the action initiated by its predecessor, is vigorously fighting back to preserve its enforcement authority. The agency’s arguments rest on a long history of administrative law precedent that grants agencies significant deference in interpreting and enforcing the laws Congress has charged them with administering.

The FCC contends that its actions were entirely lawful and necessary to protect the public interest. They argue that the Appointments Clause challenge is meritless because the official who issued the fine was the Chief of the Enforcement Bureau, a position that is Senate-confirmed and therefore satisfies the constitutional requirements. They further maintain that the nondelegation doctrine argument is an extreme and outdated position that, if accepted, would cripple the modern administrative state. Congress, the FCC argues, provided ample authority under the Communications Act of 1934, as amended, to regulate practices that are unjust and unreasonable, and the zero-rating practices in question fell squarely within that mandate.

Regarding the separation of powers claim, the FCC points to the detailed procedural safeguards within its own system, including the right to a hearing and the opportunity for a full appeal to the D.C. Circuit Court. The agency argues that this process provides all the due process required by the Constitution and that the carriers’ demand for a federal court lawsuit for every administrative fine is impractical and contrary to long-standing regulatory practice. The FCC’s stance is that preserving its ability to act swiftly and decisively against anti-competitive practices is vital for a functioning and fair communications market.

What a Supreme Court Ruling Means for the Future of the FCC and All Federal Agencies

The decision the Supreme Court makes in this case will extend far beyond the telecommunications industry. We are facing a potential ruling that could redefine the balance of power between Congress, the Presidency, the Judiciary, and the vast network of federal agencies that govern American life. The implications are staggering.

Potential Outcomes and Their Broader Impact

There are several potential outcomes from the Supreme Court’s deliberation:

Impact on the Telecommunications Industry and Consumers

Regardless of the constitutional arguments, the outcome will have a direct impact on the market. The FCC’s 2017 repeal of the broader Net Neutrality rules has already created a complex environment for carriers. A Supreme Court ruling that limits the FCC’s ability to regulate zero-rating could open the door for carriers to more aggressively offer data-advantaged services for their own content. Proponents would argue this fosters innovative pricing plans and partnerships. Opponents would warn of a future where the “internet fast lanes” that Net Neutrality rules were designed to prevent become a reality, potentially raising costs for competing services and limiting consumer choice. The decision will set the tone for the next decade of competition in the streaming and mobile data markets.

The Supreme Court’s Imminent Decision and Its Lasting Legacy

As the nation awaits the Supreme Court’s decision, which is expected by the end of its term in June, we recognize that this case is about more than just a dispute over fines. It is a fundamental test of the American system of government in an age dominated by technology and complex regulation. The legal battle between Verizon, AT&T, and the FCC is a proxy for a larger debate over who has the authority to set the rules of our digital world.

The nine justices must navigate a complex landscape of constitutional text, historical precedent, and the practical realities of modern governance. Their ruling will either reaffirm the power of the expert agencies created to manage our increasingly complex society or it will impose significant new constraints on that power, shifting authority back toward Congress and the federal courts. This is not just a case about data caps and video streams. It is a case about accountability, due process, and the separation of powers that lies at the very foundation of American democracy. The summer decision from the Supreme Court will not be the end of this conversation, but it will undoubtedly write a new, and perhaps definitive, chapter in the ongoing story of administrative law in the United States.

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