On October 15, a three-judge panel of the Fifth Circuit ruled that the Federal Communications Commission broke the law when it created the Universal Service Administrative Company, the nonprofit that has run the federal Universal Service Fund since the late 1990s. The court held that the FCC violated the Government Corporation Control Act, which requires Congress to specifically authorize any corporation an agency sets up, and it vacated the 38.1 percent contribution factor for the fourth quarter of 2025, according to an advisory from CommLaw Group.
The contribution factor is the share of interstate and international telecom revenue that carriers pay into the fund. Carriers can recover it from customers, but no more than the factor itself as a share of interstate charges. The money pays for four programs: High Cost support for rural networks, Lifeline for low-income households, E-Rate for schools and libraries, and Rural Health Care, as the Benton Institute summarized.
The ruling will be read as a story about who administers the fund. I think the more important number is not the one the court threw out. It is the one in effect right now: the factor for October through December 2026 is a record 42.0 percent, according to telecom consultancy JSI. Whoever ends up running the fund, it is collecting money from a base that keeps getting smaller.
What the court actually did
Judge Edith Brown Clement wrote the unanimous opinion, joined by Chief Judge Jennifer Walker Elrod and Judge Andrew Oldham, Funds For Learning reported. The court decided only the corporation question and did not reach the challengers’ other claims.
The practical reach is narrower than some headlines suggested. The decision does not strike down the universal service law, end carriers’ duty to contribute, or let them stop paying, CommLaw Group noted. It ordered no refunds, and other quarters, including the current 42 percent factor, were not directly decided. Funds For Learning added that the opinion does not tell USAC to stop processing E-Rate applications or paying invoices, and an FCC spokesperson told Broadband Breakfast the order would not take effect for at least two months while the agency considers its options.
Those options include asking the full Fifth Circuit to rehear the case, petitioning the Supreme Court, or asking Congress to authorize USAC directly, according to Benton’s analysis. Lawyers at Womble Bond Dickinson wrote that they expect the FCC to seek a stay and eventually file for Supreme Court review. If the ruling does take effect, they wrote, the FCC would have to begin moving USAC’s work in house, something the agency has never done.
Same program, smaller base
This is not the first time the challenger, Consumers’ Research, has taken on the fund. Its earlier case reached the Supreme Court, which upheld the fund 6–3 in June 2025 in FCC v. Consumers’ Research, Benton recounted. The new case left that holding intact and found a different defect.
Meanwhile, the factor keeps climbing. It was a record 38.8 percent in the third quarter of 2026, Broadband Breakfast reported, before rising to 42 percent. The same report described the roughly $8 billion-a-year fund as financed by fees on interstate and international voice revenue, a shrinking pool that Congress is working to expand. At oral argument, the FCC’s lawyer said spending had been roughly flat from year to year.
That is the core of the problem. The assessment applies to a category of telecom revenue defined decades ago, and broadband internet access is not part of it, as one explainer from FRNHQ puts it. As customers shift from traditional voice service to data, roughly the same program costs get divided by less revenue, and the percentage rises. My take: no court ruling on USAC changes that math, and a fund charging 42 percent on a shrinking slice of the phone bill is the real thing Congress has to fix.
The case for the challengers
The strongest argument for the ruling is about accountability, not arithmetic. USAC is a private nonprofit that bills carriers, collects the money and administers payments, and its annual operating budget exceeds $250 million, according to the Womble Bond Dickinson analysis. Congress wrote a specific law about agencies creating corporations, and the panel concluded the FCC simply never got that permission.
At oral argument in August, Judge Oldham asked whether the FCC had ever changed a contribution factor USAC proposed, and the agency’s lawyer said that happened only infrequently, Broadband Breakfast reported. The FCC’s counter was that it reviews USAC’s work and clears each factor before it is proposed. But for anyone worried about a quasi-tax set mostly outside the formal government, the exchange made the challengers’ point. Oldham also pushed back on the FCC’s argument that a 2021 law implied Congress accepted USAC, saying the court’s job is to read what Congress did.
Supporters of the fund have a counterpoint to that. The SHLB Coalition, which intervened on the FCC’s side, stressed that the decision addresses only USAC’s authority, not the programs themselves.
What to watch
The near-term question is procedural: whether the FCC seeks rehearing or a stay before the mandate issues, and whether it files at the Supreme Court. Benton notes a cert petition would be due around January 13, 2027, unless a rehearing petition resets the clock. Consumers’ Research has also challenged later quarterly factors in separate Fifth Circuit cases, several of which are on hold.
What I’ll be watching more closely is Congress. Fixing USAC’s legal status could be a one-line authorization. Fixing the funding base means deciding whether broadband providers, or someone else, should pay in. I’d argue that harder question is where this case ultimately leads, because a fee that has gone from 38.8 to 42 percent in a single quarter will keep forcing it.
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