The US Court of Appeals for the Fifth Circuit has vacated the Federal Communications Commission's 38.1% telecom contribution rate for the fourth quarter of 2025, ruling that the agency exceeded its statutory authority by relying on a corporation it had established without the specific congressional authorisation required by federal law. The decision concerns the Universal Service Fund, which finances telecommunications services for rural and low-income communities, schools, libraries and healthcare facilities.
The October 15, 2026 ruling addresses a funding programme that collects billions of dollars annually from telecommunications providers. However, the court's order is directed at one quarterly contribution factor rather than the abolition of the fund itself.
The three-judge panel found that the FCC's establishment of the Universal Service Administrative Company (USAC) violated the Government Corporation Control Act. The decision turns on the agency's authority to create the fund's administrator, not on whether the federal government may collect universal service contributions generally.
Telecommunications carriers contribute to the Universal Service Fund according to a quarterly percentage applied to relevant revenues. The FCC calculates that percentage using projected programme costs and projected revenues from contributing carriers, while federal rules permit carriers to pass contribution costs to customers.
For the fourth quarter of 2025, USAC projected approximately $2.25 billion in programme expenses and demand. The FCC directed the administrator to apply $100 million in unused Schools and Libraries programme funding against those projected costs, reducing the amount used in the contribution-factor calculation.
The resulting figures were approximately $2.153 billion in adjusted projected expenses and $5.660 billion in projected assessable carrier revenues. Using the underlying figures, the FCC announced a contribution factor of 38.1%, rounded to one decimal place.
Consumers' Research, telecommunications reseller Cause Based Commerce and several individual petitioners challenged the rate. Their arguments included claims that the FCC had relied on an administrator it was not legally authorised to establish.
The appeals court did not find an arithmetic error in the 38.1% calculation. Instead, it concluded that the FCC lacked the necessary statutory authority to establish the corporation whose projections underpinned the rate.
The Government Corporation Control Act requires specific congressional authorisation before a federal agency may establish or acquire a corporation to act as an agency. The central issue was whether USAC fell within that statutory restriction.
USAC was incorporated under Delaware law in 1997 by the National Exchange Carrier Association at the FCC's direction. The following year, the commission appointed it permanent administrator of the federal universal service support mechanisms.
The FCC maintained that USAC operated in an advisory capacity when preparing the financial projections used to calculate quarterly contribution factors. It also emphasised that the commission retained final decision-making authority over the rates.
The Fifth Circuit found that those distinctions did not resolve the statutory issue. USAC's private corporate form did not prevent it from functioning as an agency or instrumentality for purposes of the Government Corporation Control Act.
The court examined USAC's role in collecting contributions, distributing support payments and preparing quarterly financial projections. It also cited a 2024 memorandum of understanding describing USAC as an agent and instrumentality assisting the FCC in administering universal service programmes.
Because the FCC established USAC to perform those functions, the court concluded that the agency needed specific congressional authorisation under 31 U.S.C. § 9102. The FCC had not identified a provision satisfying that requirement.
The FCC and an intervening telecommunications association advanced several arguments for congressional authorisation, including the commission's general powers under the Communications Act. The court rejected the argument that broad authority to implement telecommunications policy satisfied the Government Corporation Control Act's requirement for specific authorisation.
The panel also considered the history of the National Exchange Carrier Association, which had administered certain universal service functions before USAC was created. It found that Congress's treatment of those earlier arrangements did not amount to specific authorisation for USAC to administer the entire fund.
A further argument concerned later legislation permitting USAC to help administer the Affordable Connectivity Program and Emergency Connectivity Fund. Both were temporary programmes outside the Universal Service Fund, and the court found that those authorisations did not ratify USAC's permanent appointment as administrator of the broader funding system.
Congress had acknowledged USAC's existence and authorised its participation in particular programmes, but had not specifically authorised the FCC to establish it for its permanent universal service role. That distinction was central to the court's conclusion that the agency had exceeded its statutory authority.
The litigation also raised a significant procedural question because USAC was established in 1997, nearly three decades before the challenged contribution factor was adopted. Under the Hobbs Act, petitions seeking review of certain final FCC orders generally must be filed within 60 days.
An intervening telecommunications association argued that the challenge to USAC's establishment was therefore outside the statutory deadline. The Fifth Circuit rejected that objection because the FCC continued to rely on USAC when approving new quarterly contribution factors.
The court reasoned that each new approval effectively reapplied the earlier agency decision, providing a fresh opportunity for judicial review. Because the petitioners filed within two days of the fourth-quarter 2025 factor being deemed approved, their petition was timely.
The panel also rejected the argument that the case had become moot because the contributions for that quarter had already been paid. It found that the recurring nature of the quarterly rate-setting process allowed the dispute to remain subject to judicial review.
Having found that the FCC lacked the required authorisation to establish USAC, the court considered the appropriate remedy. The FCC had relied on USAC's financial projections when calculating the fourth-quarter 2025 factor, making only one adjustment to the submitted figures.
The panel concluded that this reliance created a serious procedural defect that could not be corrected on remand merely by revising the calculation. Applying Fifth Circuit precedent on remedies for unlawful agency action, it determined that vacatur was appropriate.
The court granted the petition for review, vacated the fourth-quarter 2025 contribution factor and remanded the matter to the FCC for further proceedings. It did not decide the petitioners' alternative constitutional and administrative-law arguments because the Government Corporation Control Act issue was sufficient to resolve the case.
The decision follows a June 2025 Supreme Court judgment rejecting a constitutional challenge to the Universal Service Fund's statutory financing framework. The latest ruling addresses a different legal question concerning the FCC's authority to establish the corporation administering the programme.
The ruling invalidates the contribution factor adopted for October through December 2025. It does not establish a replacement rate, calculate refunds or order the FCC to reimburse telecommunications providers or consumers.
Nor does the judgment expressly vacate rates for subsequent quarters. USAC's published contribution-factor schedule separately lists a rate of 42.0% for the fourth quarter of 2026, which was not the rate under review in this case.
The immediate consequence is therefore narrower than the invalidation of the entire Universal Service Fund. The FCC must address the remand, while any further action concerning USAC's administrative role, other contribution factors or possible financial adjustments remains unresolved.
The decision nevertheless establishes a significant statutory limitation on the FCC's use of USAC. The court found that the commission could not establish a corporation to act as an agency without the specific congressional authorisation required by the Government Corporation Control Act.
