Appeals Court Invalidates FCC’s $9 Billion Universal Service Fund
A Fifth Circuit panel ruled the FCC lacked authority to set up the private company that has collected the fund's money since 1997, putting at risk a program that subsidizes phone and internet service for rural and low-income Americans.
A federal appeals court ruled Thursday that the Federal Communications Commission lacked the authority to set up the private company at the heart of a $9 billion-a-year telecom subsidy program, a decision that could upend how the United States funds phone and internet service for rural and low-income Americans.
The three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that the FCC violated the Government Corporation Control Act when it established the Universal Service Administrative Co., or USAC, in 1997 to collect money from telecom carriers and set contribution rates for the Universal Service Fund. Writing for the panel, Judge Edith Brown Clement said Congress never specifically authorized the agency to create the company, according to Reuters’ report on the decision.
The Universal Service Fund draws about $9 billion a year, and nearly all of that cost is passed on to phone and broadband customers through a surcharge on their bills. The money subsidizes basic communications service for people in rural and low-income areas, and the program has also paid for service on Native American tribal lands and internet connections for schools, libraries and rural health clinics.
What the ruling changes
For now, nothing changes for consumers. The court’s order does not take effect for at least two months, and an FCC spokesperson said the agency was considering all of its options in response to the decision.
The numbers behind the program are large. In 2024, the fund benefited 7.5 million low-income households, gave telecom companies $4.2 billion to provide high-speed internet in hard-to-serve rural areas, and delivered $7 billion to 118,000 schools and libraries over three years for internet service reaching 54 million students, according to figures cited by Reuters.
The ruling also overturns an earlier Fifth Circuit decision that had upheld the funding structure. That earlier panel rejected claims that the mandatory carrier contributions amounted to what critics called a “misbegotten tax” on consumers. And in June 2025, the U.S. Supreme Court endorsed the way the FCC finances the program, adding a layer of legal uncertainty over how the new decision will hold up on further appeal.
Reporting based on coverage by Reuters.
