WASHINGTON — A federal appeals court said on Thursday that the Federal Communications Commission exceeded its authority when it set up the private company that administers the roughly $9 billion-a-year Universal Service Fund, according to Reuters.
A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that Congress never specifically authorized the FCC to establish the Universal Service Administrative Company in 1997, and that creating it violated the Government Corporation Control Act, according to Reuters. The opinion was written by Judge Edith Brown Clement for the panel, according to Reuters.
The fund collects contributions from telecommunications carriers, most of which pass the cost on to customers, and pays for programs that widen access to phone and internet service. Its beneficiaries include people in rural and low-income households, Native American tribal lands, schools, libraries and rural health-care facilities, according to Reuters.
An FCC spokesperson said the agency was considering all options, according to Reuters. The spokesperson also noted that the court’s order would not take effect for at least two months, meaning the ruling does not immediately halt collections or payments while the agency decides whether to seek further review.
Thursday’s decision is the latest turn in a long legal fight over how the fund is financed and run. In June 2025, the U.S. Supreme Court upheld the way the FCC funds the program, reversing an earlier Fifth Circuit ruling that had treated the mandatory carrier contributions as an improper tax on consumers, according to Reuters. This week’s ruling attacks a different point: not the money itself, but the legal basis for the company that collects it and sets contribution rates.
That distinction matters for what happens in practice. Telecom providers receive billions of dollars in payments from the fund, and millions of consumers rely on subsidized service for phone or internet access, according to Reuters. If the administering structure were ultimately struck down without a replacement, Congress or the agency would need a new lawful vehicle to keep long-running programs operating.
Why it matters: the Universal Service Fund underpins connectivity in places where commercial service is hardest to sustain. A ruling about a 1997 administrative decision could, if it survives appeal, force a redesign of a system that schools, clinics and rural households have depended on for nearly three decades.
What happens next includes a possible FCC appeal or request for rehearing, and potential congressional attention if the two-month window begins to run. For now, according to Reuters, the fund continues to operate while the agency weighs its options, and no immediate change to consumer bills or program payments was announced.
