Fifth Circuit Strikes Down FCC’s $9 Billion Telecom Fund
Fifth Circuit rules the FCC illegally created a private company to administer its $9 billion telecom subsidy fund without congressional approval.
The FCC has spent nearly three decades using a private nonprofit to collect and distribute billions in telecommunications subsidies. On Thursday, a federal appeals court found a rather basic problem with that arrangement: Congress never authorized the agency to create the company.
The U.S. Court of Appeals for the Fifth Circuit ruled unanimously in Consumers’ Research v. FCC that Congress never authorized the FCC to establish the Universal Service Administrative Company (USAC), which has managed the Universal Service Fund since the late 1990s. The three-judge panel vacated the contribution rate for the fourth quarter of 2025 and sent the matter back to the agency
Judge Edith Brown Clement didn’t have to look far to find the problem. The FCC created a corporation to carry out federal responsibilities without Congress’s permission.
Her opinion states:
“Because Congress never specifically authorized the FCC to establish USAC, we hold that the agency violated the Government Corporation Control Act (“GCCA”) by creating the corporation.”
Back in 1997, the FCC directed the National Exchange Carrier Association to set up USAC in Delaware. It was a temporary administrator initially. The following year, the FCC made the arrangement permanent.
The fund itself pays for telecommunications service in rural communities, schools, libraries, and low-income households. Congress gave the FCC responsibility for the program under the 1996 Telecommunications Act. USAC handles collections and payments.
Telecom carriers pay into the fund. Customers frequently pay for those contributions through charges on their monthly bills. For the fourth quarter of 2025, the contribution factor was 38.1 percent. The fourth-quarter 2026 rate is 42 percent of carriers’ assessable revenues, not 42 percent of each customer’s bill.
Congress passed the Government Corporation Control Act in 1945. Washington had spent years creating government corporations, some without much oversight, and Congress decided to rein that in. Agencies need specific legal authority to establish corporations performing government functions. General permission to administer a program won’t do. The FCC spent nearly three decades finding that out the hard way.
The FCC had argued that Congress effectively blessed USAC by naming it in legislation for two pandemic-era internet programs. Neither was part of the Universal Service Fund. Clement wasn’t persuaded that permission for two temporary programs covered the entire operation.
There was another complication for the FCC. Its own October 2024 agreement with USAC called the company an agent and instrumentality of the commission. The judges cited that language in finding that USAC was performing government functions.
The court put the congressional authorization issue this way:
“Authorization for one private entity to administer a single universal-service program does not amount to specific authorization for another private entity to administer the entirety of the multi-billion-dollar Universal Service Fund.”
Consumers’ Research had lost an earlier challenge at the Supreme Court in June 2025. In that 6-3 decision, the justices upheld Congress’s delegation of authority over the fund. The question of whether the FCC could lawfully establish USAC was still open.
The money involved is substantial. In 2024, some 7.5 million low-income households received assistance. Rural providers received $4.2 billion that year, while schools and libraries received $7 billion over three years.
An FCC spokesperson said the agency was considering its options. The court’s order would not take effect for at least two months, giving the commission time to seek further review. The ruling vacates the fourth-quarter 2025 contribution factor, not the entire subsidy program.
The funding program survived its Supreme Court challenge. Its longtime administrator now faces a different problem, one Congress could have addressed years ago by specifically authorizing the arrangement. It didn’t. That’s not the court’s problem to fix
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Comments
I obviously approve of reigning in ANY government function that goes rogue and especially any which have a de facto slush fund. As to how the money was used, I have somewhat mixed feelings but I don’t yet have enough information to fall off the fence on either side.
Schools and libraries getting help with internet costs? Assuming there’s no fraud, I would like to see that continued. Rural internet subsidized? Again, I think that is a good thing. Obama phones? I could be persuaded perhaps but I am not truly convinced about the benefit.
Can someone educate me more?
It goes to smaller rural providers (admittedly less important in cell phone era v landline telecom era) and to subsidize cost of ISP in the same areas and in particular schools and libraries. Think of the rationale as the same for Federal LEO/Security grants to big city airports/seaports. Both rural and large metros have unique problems in different issues for different reasons. For rural areas its sparse population, geography and distance while for big metros it’s tempting terrorism targets. Not a perfect analogy but …
I am also for the Universal Service Fund, but I am knowledgeable about rural broadband and it has been a joke in many places. Two “rural broadband initiatives,” one under Obama and the other under Biden, have been both corrupt and incompetent.
As a retired rural broadband provider, I agree. Unless I registered and subjected myself to the FCC’s micromanagement of my customer base, I risked having my territory declared “unserved,” and a random competitor being awarded federal grants to “serve” it.
However, I’m not clear why there was an uproar about this arrangement. The FCC had the authority and the responsibility to handle collections, so instead of hiring a whole new department of federal employees to do the job, they contracted with a commercial entity to whom they delegated the entire job, and the process became a black box. For all I know, that might have been worth it just to have the job done by menials who weren’t in the public employees’ union and graced with civil service unfireability.
Magiically appearing subsidized “competitors?” What, this was in NYState?
Never just do something that works. What’s the point of running a patronage system if people can succed without you?
A glimmer of hope in rolling back the bloated administrative state, a great deal of which lacks statutory much less constitutional authority to operate. Gut the ‘private/independent’ boards/commissions and the NGOs and we’ll be on a good path to restoring liberty and fiscal restraint.
This is the part I don’t understand. The job was authorized and was going to get done, either by federal workers or by private workers. If you want to reduce the administrative state, maybe the latter is actually preferable.
Not exactly b/c it isn’t the ‘private sector’ at work rather it is a govt created/selected entity doing the bidding of the govt. This creates problems in having a button to push as far as accountability. Congress can say ‘hey, blame the Executive’, the Executive can say ‘hey, that’s an independent commission/entity’. Some NGO handed a fat contract to do shady things that helps hide the activity from public scrutiny, reduces accountability/oversight of Congress, confuses who can be sued by private Citizens to challenge the actions isn’t desirable. In general private sector works more effectively and efficiently than govt but there’s plenty of bad actors in private sector see Enron and Bernie Madoff as but two examples. Heck look at the lack of oversight in the MN fraud epidemic with govt shoveling $ out to private sector fraudsters in govt programs.
Govt should not be outsourcing tasks to the private sector. Obviously that doesn’t apply for purchases of battleships but it definitely applies for bureaucratic functions. I would also apply it to contractors for nearly every function. Either the govt has the authority and ability to do X in house or it shouldn’t even be attempting to do X.
Obama and Biden did not want Musk to provide the service at a much lower cost than a wired internet connection.
If you have 5G cellular service, T-Mobile and other carriers will rent you a modem that provides high-speed internet (100- 400 Mbps).
Plus Starlink and, soon, Amazon’s Project Kuiper and others will provide competition for high speed internet anywhere you can see the sky.
5G in rural America? You know nothing.
To be fair there is SOME 5G in ‘rural’ areas but the definition of ‘rural’ is getting stretched for that claim, at least in Alabama. Bigger metros like Birmingham, Mobile, Montgomery, Huntsville sure along with a few smaller cities. So if we define the entire State of Alabama as ‘rural’ at least compared to more populous States like NY then …I guess there’s rural 5G. What we won’t see is 5G out in the REAL rural areas down the County back road and dirt roads. Heck I am in a cell dead zone and I’m just about equidistant from two towns both County Seats and largest towns in those Counties. No cable or fiber options out here in the sticks. I use ViaSat b/c it was the best option available when I moved in. Probably shift to Starlink at some point when I can find time to dig up the post/dish just on price.
Seems like 30 years ago someone at the FCC was unaware of the existence of this law, and innocently decided that the simplest way to fulfill Congress’s mandate was to set up a corporation to handle it. Had they known, they would have asked Congress for permission. But you know, that’s what lawyers are for. And had a provider or broadcaster made a similar innocent mistake you know the FCC would have had no mercy.
Pay for your own damn phone and internet. Stop asking me to pay for yours, If it is such a high priority for you move to get better connectivity,
The same can be said for school and library connectivity. Let the local town pay for it and not the federal government ie- all of us,
I share your opposition to making national taxpayers pay for connectivity to local schools and libraries. I don’t believe connection to the Internet is essential to ensure the delivery of good education to students in primary and secondary schools. In fact, it may be a hindrance. I believe a locality should make a decision regarding whether to spend its money to provide an Internet connection at its library. Regarding federal support of broadband users in rural areas, I think there’s some complexity. The nation has supported provision of telephone and electric service to farmers for many decades, because we need the food they produce and they typically couldn’t afford to pay for the deployment of electrical and telephone networks to their farms. I think that consideration remains relevant. On the other hand, people who simply choose to live in the country for its peace and quiet do not deserve to have their broadband services paid for by taxpayers. Regarding universal service for poor people, I think there should be limits. In my opinion, no taxpayer money should be spent to support any service beyond voice, text, and email.
That’s a fair point about cross subsidies. Though the same could be said for additional LEO/anti terrorism and security grants handed to large Metropolitan areas by Federal taxpayers. City folk choose to live NYC, LA or wherever based on their lifestyle choices as well so if the same cultural draw creates a target rich environment for terrorism with a better publicity angle in attacking NYC rather than Bug Tussle, Alabama that’s for the residents NYC to pay for. FWIW the total national cost of ‘anti terrorism’ grants to urban areas is over $1 billion.
As long we’re consist in applying the logic across the board I’m fine with gutting ALL the subsidies, leaving them alone as is, or even looking to reform them based on modern realities. Minus rural health/hospitals which I don’t see any way to avoid subsidizing in current environment post O care.
Better yet, tap an entrepreneur who can bring internet into your unserved community. That is what “job creation” is really about in America.
I could get Starlink cheaper than Cable Internet if my neighbors didn’t have 80 foot trees blocking the signal. Rural Internet is available everywhere at a reasonable cost thanks to Elon Musk, but Democrats oppose subsidizing him, which is OK, because he doesn’t need their subsidies. He thrives when the Government stays out of the way.
Now if my absentee neighbors would use those trees to build log cabins, I could pay Elon Musk instead of Spectrum.
Granted …but we simultaneously do away with SALT State/Local Income Tax deduction from Federal.Incime Taxes for the same reasons. As you correctly observe folks choose to live in a particular place and that choice may have negative consequences. Might be low bandwidth in rural areas in middle America or it might be super high State and local taxes in Blue States/Cities. As you again correctly point out whichever it is folks can move somewhere else if they find the negative consequences too burdensome and the Federal Govt probably shouldn’t subsidize either directly or indirectly.
In practice w “access” I’ve seen a lot of “awarding”, some “building”, thin “connecting”, and less service.
Not quite the performance of light rail to nowhere: other stuff disrupted, no rail, n infinitely expanding.costs.
Neither does quite as well — ?badly? — as “homeless” programs making more homeless. Hey, gives the other programs something to aspire to.
So, what’s the legal cover for doing this in first place?
Why are they in that business? Federally, great swaths of shenanigans pour through “commerce” and “general.welfare” clauses. States n smaller tilt hard toward being their own Ministries of Production. With pref zoning, tax breaks, reg waivers, n direct n indirect subsidies.
Meanwhile, depts love declaring their own problems they must be funded to solve.
How about “Everything not compulsory is forbidden.” for the overlords n overseers, not just us chattel?