Court Says FCC Lacked Authority to Create Universal Service Fund Administrator

A federal appeals court has vacated the Federal Communications Commission’s (FCC’s) Universal Service Fund contribution rate for the fourth quarter of 2025, ruling that the agency lacked specific congressional authorization to establish the fund’s administrator

The FCC exceeded its authority in setting up the Universal Service Administrative Company (USAC) in 1997 to widen access to communications for millions of Americans, a U.S. Court of Appeals for the Fifth Circuit panel said in an Oct. 15 decision.

The FCC created a private organization, USAC, to collect payments from telecommunications providers and use the money to subsidize phone lines and other services for people in “certain underserved communities,” such as rural and low-income areas.

“Because Congress never specifically authorized the FCC to establish USAC, we hold that the agency violated the Government Corporation Control Act … by creating the corporation,” Circuit Judge Edith Brown Clement wrote in the 20-page opinion.

That means that the money the companies were required to pay in the fourth quarter of 2025 was also beyond the agency’s authority, according to the panel.

The judges vacated the 38.1 percent contribution factor, or set rate, for the fourth quarter of 2025 and remanded the matter to the FCC for correction.

The Government Corporation Control Act governs corporations established by federal agencies.

Groups and individuals had challenged the USAC and the late 2025 rate, arguing that various aspects of the fund were unlawful.

In 2025, the U.S. Supreme Court said the FCC had not violated the U.S. Constitution in its operation of the fund, but it did not address certain factors, such as whether the FCC lacked authority to appoint the USAC as the fund’s administrator.

Congress did authorize the USAC to administer two temporary, emergency measures, but those ended in mid-2024, the appeals court said in the new ruling.

“That does not amount to specific authorization for USAC to fulfill its ‘sole purpose’ of ‘assist[ing] the FCС in the administration of the [universal-service] programs,’” Clement wrote.

The Supreme Court ruling overturned an earlier Fifth Circuit decision holding that the FCC’s funding mechanism, which required mandatory contributions from telecom companies, had effectively levied a “misbegotten tax” on consumers.

The FCC was considering all available options, a spokesperson said.

“While the court takes issue today with an FCC decision made almost 30 years ago, the court’s order would not go into effect until two months from now, at the earliest,” the spokesperson said in a statement.

The fund draws about $9 billion a year, with the vast majority of telecom companies passing the cost on to customers.

In addition to low-income and rural areas, the fund has been used to expand services to Native American tribal lands and to enable schools, libraries, and rural healthcare facilities to obtain essential communications services. Millions of consumers rely on these government-subsidized services for internet or phone access.

In 2024, the FCC program benefited 7.5 million low-income households. Carriers received about $4.26 billion through the High-Cost program in 2023 to deliver high-speed internet service to hard-to-serve rural areas.

It also provided 118,000 schools and libraries with $7 billion over a three-year period to provide internet service to 54 million students.

The FCC, overseen by Congress, was set up as an independent federal agency in 1934.

Reuters contributed to this report.