2025 Regulatory Outlook and the Impact of Tariffs on ICT Services

2025 Regulatory Outlook and the Impact of Tariffs on ICT Services

Tony: Hello, today is Tuesday, March 17, 2025.  I’m Tony Mangino from TC2, and this is Staying Connected.

As our listeners know, laws and regulations related to technology issues can have a direct impact on the cost and delivery of the technology products and services that enterprise customers have to purchase to keep their businesses running.  So today we’re going to do one of our regular round-ups of what’s going on in Washington DC technology policymaking circles. 

I’m joined today by Andrew Brown, the Managing Partner of LB3 and the Chairman of TechCaliber Consulting to discuss what’s going on in the town where he works every day and the impact it has on enterprise customers.  Welcome, Andrew.

Andrew: Hey, Tony.  Thanks for kicking this off.  It’s definitely true that there’s a lot going on in DC right now, and a little bit of it might even make some sense.

Tony:  [Laughing].  Yeah, that’s why you’re here.  Maybe you can shed some light on what’s going and what matters to our listeners.

Andrew:  Well, I’ll definitely try.  So, things are a bit chaotic in DC right now because the standard legislative and regulatory processes everyone’s familiar with just aren’t being followed.  There are just a ton of sweeping policy pronouncements and executive orders coming from the White House, and the implications and legality of those aren’t at all clear yet.  That’s going to take some time for the system to figure out.  But we also know that regulatory agencies in the Executive Branch are operating in a political and legal landscape that changed pretty dramatically last year, not just because of the election but because of a new way that courts in this country are going to consider federal regulations. 

Tony:  Can you explain that a little further?

Andrew:  So last year the Supreme Court changed the rules by which courts review federal regulations.  For over forty years there was a Supreme Court rule in place that said if a regulatory agency adopted a rule, and that agency went through a careful administrative process to adopt or apply the rule, any court considering a challenge to the rule or its application had to defer to the agency’s interpretation of its statutory mandate or application of the rule unless the agency was way off base or–in the legal parlance–was acting “arbitrarily or capriciously”.  This rule was called the Chevron doctrine. But in a recent decision called Loper Bright¸ the Supreme Court overturned the Chevron doctrine that it had previously adopted and said that courts really don’t have to give any deference to agency determinations—they can just look at the statute passed by Congress and make a decision on the issue before them.  So, what this ultimately means is that a lot of power has shifted to the courts and a lot of rules and regulations passed by regulatory agencies—such as those in the ICT space—may not hold up.

Tony:  So, let’s get right to that.  What are some of the big issues that our listeners care about that you think will be affected?

Andrew:  Why don’t we start off with something we talk a lot about—USF.

Tony:  Oh yeah, that’s a big one—huge expense for anyone that buys network services.  What is the current USF surcharge?

Andrew:  For the first quarter of 2025, it’s 36.3%, which is an all time high.  And we expect it will tick up a percent or two next quarter.

Tony:  That’s crazy.  A nearly 40% surcharge?  I remember when people said that 10% was ridiculous, and that was twenty years ago.  The Federal Communications Commission has been looking at this issue forever and never done anything to fix it, and then Congress was looking into it a few years ago, but is there any relief in sight on this? 

Andrew:  Not from the FCC.  They gave up on doing this awhile ago and were never willing to make any decisions or forge any agreement on how to fix the problem.  And Congress keeps complaining about the issue, but they aren’t exactly known for offering solutions to get stuff done right now.  The problem Congress has is that while the surcharge is unpopular, the USF money that flows into every state in this country is very popular, so no one wants to disrupt that.  So, that leaves the courts… 

Tony:  The courts?

Andrew:  Yeah, the courts.  Remember we were just talking about how much power they now have in determining the effect of regulations.  About 18 months ago a group of plaintiffs filed several cases claiming that the USF Contribution Factor was an unconstitutional tax by the FCC.  And it seemed like kind of a long shot claim because the USF funding mechanism has been in place for almost thirty years.

Tony:  Sounds like those cases weren’t going anywhere.

Andrew:  Yeah, you’d think that, and a lot of people did think that.  But the plaintiffs smartly filed essentially the same case in three different federal appeals court circuits hoping they’d get a sympathetic hearing in at least one. And that’s exactly what happened.  Two circuits basically rejected the case and said that the way USF is administered by the FCC is fine.  But the Fifth Circuit based in New Orleans went in the opposite direction and found the USF surcharge to be an “unconstitutional tax”.  The Supreme Court agreed to hear the case to resolve the difference in opinion of the lower courts, and a final decision is expected sometime this summer.  If they find that the USF contribution system is ok, then I think it will just go back to status quo, and Congress or the FCC will try to figure out whether or how to fix the system.  Historically, they haven’t made much progress on that, and you can expect in the short term that the factor will just continue to go up. 

Tony:  What are the chances the Supreme Court agrees the tax is unconstitutional and what happens to USF if that happens?

Andrew:  Great questions.  Well, this Court is very willing to upset precedent and disrupt longstanding programs so the chances are definitely more likely that this Supreme Court finds the tax unconstitutional than earlier courts.  And if they do, it’s not clear at all what happens to USF.  All the money collected so far has been committed and the programs are very popular among consumers.  My guess is that it will force Congress’s hand, and they will have to decide whether to fund USF out of general tax revenues.  But Congress right now really isn’t doing basic stuff or funding existing programs let alone new ones, so it really could get chaotic.  I think that for enterprise customers a decision finding the tax unconstitutional would ultimately be a good thing because there will likely be relief from the surcharge appearing on their bills for assessed services. 

Tony:  Let’s move on to Net Neutrality and what’s going on with those regulations.  When we last did this round up at the beginning of 2024, you said the FCC was on the verge of re-adopting Net Neutrality rules that would prevent internet service providers from exploiting their monopolies over the last mile connection to their customers.  What happened?

Andrew:  Well, they did adopt those rules, or really, re-adopt them, which was a big win for enterprise customers and consumers.   These rules basically prohibited ISPs from throttling or blocking content—from a website or a streaming service or really any business that an ISP customer is trying to reach—or requiring the payment of fees by the business originating that content in order to reach the ISPs customers.  And prohibiting those fees removed a very large potential cost to any business in America that might have to pay fees to an ISP in order to reach its customers.

Tony:  So the back and forth on net neutrality rules has been going on for almost as long as USF!  Is it settled now?

Andrew:  Well, it’s probably settled, but not by the adoption of the rules.  So after these huge political battles for adopting net neutrality rules in 2015, then rescinding them in 2018, then readopting them in 2024, a federal appeals court stepped in.  And using this new authority we were discussing earlier, the Appeals Court basically said in a super blunt fashion that the FCC didn’t read the Communications Act correctly, that broadband internet service is not a telecommunications service that the FCC can regulate with Net Neutrality, and therefore the rules are not valid.

Tony:  Okaaaay.  So, where does that leave the issue?  Does the FCC readopt them or revise them?

Andrew:  Well, not this FCC.  The current chairman is vehemently opposed to the net neutrality rules, so he’s not going to reengage on this issue.  And, frankly, I think everyone is just exhausted by this battle and the back and forth on the rules at the federal level.  Several big states—like California and New York and Virginia and Washington have adopted their own net neutrality rules at the state level.  And when you have states with rules very similar to the federal rules it kind of sets a de facto standard for ISPs.  It would be difficult but not impossible for them to develop state specific traffic and throttling and paid prioritization rules—we’ll see what happens, but it may just not be worth it to them to impose these charges this way.  And if it is worth it to them, we’ll no doubt see a lot more litigation over them.  At least for now, net neutrality at the national level is pretty much dead.

Tony:  Interesting.  Lets talk about the headline stuff.  Lots of tariff talk, and I’m sure people are wondering how it’s going to affect their telecom and IT.  We were discussing this internally and the consensus was that the tariffs don’t really affect services like telecoms, but they could have a potentially big impact on equipment costs, especially if it’s manufactured in and imported from China.

Andrew:  Yeah, I think that’s right.  The reality is that the tariff policy of this administration is very haphazard so on any given day no one really knows what tariffs are in place, what the rate is, whether the rate will change, what countries are subject to them, what they are applied to, whether and when specific exemptions are going to be offered.  It’s almost impossible to plan around.

Tony:  We did universally agree that if any ICT vendor gets hit with increased costs from tariffs they will try to pass those costs through to their customers. 

Andrew:  Oh, for sure.  And customers should really push back on that.  Almost certainly there will be claims that these types of add-ons or pass throughs are permitted under contract clauses that allow for regulatory surcharges or other charges to be passed through, or they might even claim some kind of force majeure based on the acts of the government, but those are all big stretches and should be resisted.  Ultimately, it’s a cost of the vendors’ doing business and they should deal with that when the next contract renewal comes up.

Tony:  I remember when inflation spiked, Verizon implemented an “economic adjustment charge” that they just tried to impose on customers.  A lot of customers complained, but a lot probably didn’t and just paid it.  I think we can expect a similar type of surcharge to appear if tariffs start to raise vendor costs.

Andrew:  No doubt.

Tony:   Ok, thanks Andrew.  This was really informative.  If you are interested in learning more about upcoming regulatory issues that will impact your enterprise, don’t hesitate to reach out to Andrew, or to any of the LB3 or TC2 professionals with whom you regularly work.  And you can always stay up to date on all of the current issues in Information and Communications Technology by subscribing to these podcasts, by checking out our websites, and by following us on LinkedIn.