U.S. appeals court invalidates FCC telecom subsidy fund structure

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FCC telecom subsidy fund ruling

Highlights

The U.S. Court of Appeals for the Fifth Circuit ruled that the FCC lacked legal authority to establish the Universal Service Administrative Co in 1997, violating the Government Corporation Control Act.
The Universal Service Fund, which benefits 7.5 million low-income households and provides $4.2 billion to telecoms for rural internet in 2024, faces structural uncertainty following the court's decision.
The FCC's program, which allocates $7 billion over three years to 118,000 schools and libraries serving 54 million students, risks disruption pending further legal or legislative action.

Court ruling challenges fund administration

As reported by Reuters, the U.S. Court of Appeals for the Fifth Circuit rules that the FCC lacked legal authority in 1997 to establish the Universal Service Administrative Co, the private company used to collect contributions and set rates for the Universal Service Fund.

Judge Edith Brown Clement writes for a three-judge panel that Congress never specifically authorized the FCC to create USAC, and that the agency therefore violated the Government Corporation Control Act. The ruling focuses on how the fund is administered rather than on the broader purpose of expanding access to communications services.

The FCC says it is considering all options available in response to Thursday's decision. A spokesperson says the order would not go into effect until two months from now at the earliest.

Broad impact on consumers and telecom providers

The Universal Service Fund supports basic communications services in rural and low-income areas, and has also been used to expand access on Native American tribal lands and for schools, libraries and rural health care facilities. Telecom carriers contribute to the fund, and most pass those costs on to customers.

U.S. telecom providers receive billions of dollars in payments from the program, while millions of consumers rely on subsidized internet or phone services. In 2024, the FCC program benefits 7.5 million low-income households and provides telecom companies with $4.2 billion to deliver high-speed internet in hard-to-serve rural areas.

The program also gives 118,000 schools and libraries $7 billion over a three-year period for internet service serving 54 million students. The new decision comes after the U.S. Supreme Court in June 2025 endorses the way the FCC funds the multibillion-dollar program and overturns an earlier Fifth Circuit finding that the contribution mechanism amounted to a "misbegotten tax" on consumers.

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