A federal appeals court ruled Thursday that the Federal Communications Commission exceeded its authority when it created the nonprofit that runs the Universal Service Fund, a program that raises about $9 billion a year to subsidize phone and internet service for rural areas, low-income households, schools, libraries and tribal lands. The U.S. Court of Appeals for the Fifth Circuit panel held that the FCC violated the Government Corporation Control Act by establishing the Universal Service Administrative Company, known as USAC, back in 1997.
The ruling strikes at the financial engine behind a subsidy system that millions of Americans rely on for government-subsidized internet or phone service, without most ever knowing it exists. As reported by Reuters, the FCC collects money from telecom carriers through USAC, the private company that both sets contribution rates and collects the contributions that fund the program. Judge Edith Brown Clement wrote for the panel that Congress never specifically authorized the FCC to hand that authority over to USAC, according to the Reuters report.
The case echoes arguments laid out before the Fifth Circuit, where petitioners contended that Congress never authorized the FCC to transfer control of the fund to the Universal Service Administrative Company, according to Courthouse News Service. The FCC had countered that USAC performs only ministerial tasks under continuous agency oversight, arguing that USAC has no decisionmaking authority in this context, per the same outlet. The panel sided against the agency.
A Fund Built to Wire Rural America
The telecom subsidy program was established in the late 1990s to expand communications access for millions of Americans, according to Reuters. The Universal Service Fund today subsidizes basic communications services for consumers in rural and low-income areas, and also supports communications services for schools, libraries and rural health care facilities, as well as communications services in Native American tribal lands.
Broadbandbreakfast.com reported that the program supports rural broadband networks and discounts for low income households, rural health care centers, and schools and libraries, in coverage of Thursday's decision. U.S. telecom providers receive billions of dollars in Universal Service Fund payments each year, and telecom companies typically pass on most of the fund's cost to customers through fees on their bills, per Reuters.
The scale of the program shows up in the FCC's own numbers. In 2024, the FCC program benefited 7.5 million low-income households and gave telecom companies $4.2 billion to provide high-speed internet service in hard-to-serve rural areas, according to figures cited by Reuters. Separately, the FCC program has provided $7 billion to 118,000 schools and libraries over three years for internet service covering 54 million students, per Reuters.
Dueling Dollar Figures and a 1945 Law
Reuters pegged the fund's annual size at about $9 billion, while broadbandbreakfast.com described it as a federal broadband subsidy program that spends about $8.5 billion a year in its own account of the ruling. A document from the U.S. Court of Appeals for the Fifth Circuit states that USAC ballooned the USF to over $9 billion, though the underlying reason for the differing figures is not clear from the available records.
Carriers pay into the fund through quarterly contributions calculated against a contribution factor applied to their revenues, a mechanism the Congressional Research Service describes as requiring telecommunications carriers to make quarterly contributions based on an applicable contribution factor applied to projected revenues. Courthouse News Service similarly reported that carriers pay a percentage of certain revenues into the fund, with the rate calculated quarterly. The agency's own filings show that rate climbing: the proposed fourth-quarter 2026 contribution factor sits at 42.0 percent, according to the Federal Communications Commission, up from 17.9 percent a decade ago, per the Congressional Research Service.
How This Follows a Supreme Court Win for the FCC
Thursday's decision lands just months after the U.S. Supreme Court endorsed the FCC's method of funding the program, in a June 2025 ruling that overturned an earlier Fifth Circuit decision holding that the funding mechanism effectively imposed a tax on consumers. That case, argued March 26, 2025, and decided June 27, 2025, found an intelligible principle in Section 254 of the law and held that the universal service contribution scheme did not violate the nondelegation doctrine, according to Courthouse News Service.
Thursday's ruling is a different legal theory entirely, targeting not the contribution scheme itself but the FCC's 1997 decision to delegate administration of the fund to USAC under the Government Corporation Control Act. The Universal Service Fund also backs two high-cost programs that support gigabit-speed broadband networks, the Connect America Fund Phase II and the Rural Digital Opportunity Fund, per Courthouse News Service.
What Happens Next
An FCC spokesperson said the agency was considering all options available in response to the ruling, according to Reuters, and separately told the outlet that the court order would not take effect until two months later at the earliest. The FCC was established as an independent federal agency overseen by Congress in 1934, and now faces the question of how to keep billions of dollars flowing to rural carriers, schools, libraries and low-income households while it weighs its legal options.
