Appeals Court Strikes Down the FCC's Late-2025 Universal Service Fee Rate
A federal appeals court on October 15 set aside the 38.1% rate the Federal Communications Commission used to collect universal-service charges from carriers for the last three months of 2025, holding that the agency broke a federal law when it created the private company whose projections it relied on.
A federal appeals court on Thursday, October 15, set aside the rate the Federal Communications Commission used to collect universal-service charges for the last three months of 2025. The three-judge panel of the U.S. Court of Appeals for the Fifth Circuit vacated that quarter's 38.1% contribution factor and sent the matter back to the agency. Judge Edith Brown Clement wrote the opinion; Chief Judge Jennifer Walker Elrod and Judge Andrew Oldham joined.
The court held that the commission broke the Government Corporation Control Act by creating the Universal Service Administrative Company, a private nonprofit that projects the Fund's costs and carriers' revenues, without a law specifically allowing it. Because the commission relied on those projections, the court said, it exceeded its authority.
Why it matters: the Universal Service Fund pays for discounted phone service for low-income customers, rural carriers, schools, libraries and rural clinics. Carriers pay in at the quarterly rate and may pass the cost on to customers. The ruling sets aside one past quarter's rate; it does not by itself change today's bills.
The hopeful detail: the court did not strike down the programs themselves.
New Orleans — A federal appeals court on Thursday struck down the rate the Federal Communications Commission set for its universal service fee for the last three months of 2025, ruling that the agency relied on a private company Congress never specifically authorized it to create.
Judge Edith Brown Clement wrote for a unanimous panel that also included Chief Judge Jennifer Walker Elrod and Judge Andrew Oldham. The case is *Consumers' Research v. FCC*, No. 25-60535. The court granted the petition for review, vacated the 38.1% factor, and remanded for further proceedings.
What the Fund does
Congress created the modern universal-service system in the Telecommunications Act of 1996. Section 254 directs the FCC to keep "specific, predictable and sufficient" mechanisms so that basic communications service reaches rural and low-income areas and so that schools, libraries and rural health providers can get support for advanced services. Four programs run under that umbrella: Lifeline (a monthly discount, often $9.25, on phone bills for low-income customers); High Cost (help for carriers serving expensive rural areas); E-Rate (discounts for schools and libraries); and Rural Health (support for rural clinics and telemedicine).
Every interstate telecommunications carrier must contribute. The FCC sets a quarterly "contribution factor" — a percentage — by dividing the Fund's projected expenses for the coming quarter by carriers' projected revenues. A carrier multiplies its own projected revenue by that percentage and pays the result. It may pass the charge to customers on their bills.
The private administrator
Since the late 1990s the Universal Service Administrative Company, or USAC — a private, not-for-profit corporation owned by an association of carriers — has estimated those expenses and revenues and administered day-to-day billing and payments. In August 2025, USAC told the FCC that Fund demand for the fourth quarter of 2025 would be $2.25 billion. The commission then issued a notice proposing a 38.1% contribution factor, which was deemed approved 14 days later. The challengers — Consumers' Research, a nonprofit consumer group; Cause Based Commerce, a reseller that pays directly into the Fund; and individual consumers including Edward J. Blum — had asked the commission to set the factor at zero or reduce it.
What the court held
The Supreme Court rejected the same challengers' broader attack on the Fund's statute in 2025. This time the panel reached only one of their arguments. The Government Corporation Control Act, at 31 U.S.C. § 9102, forbids an agency to "establish or acquire a corporation to act as an agency" unless a law of the United States "specifically authoriz[es] the action." The court held that the FCC established USAC to act as an agency in administering the Universal Service Fund and that Congress never specifically authorized that step. Temporary statutes that let the FCC use USAC for two emergency broadband programs that ended in June 2024 did not, the court said, ratify USAC as permanent administrator of the whole Fund.
Because the FCC adopted USAC's projections — with only one adjustment — when it set the 38.1% factor, relying on USAC meant the agency exceeded its statutory authority. Under the Administrative Procedure Act, that action must be set aside. The court said vacatur was the proper remedy because the reliance on USAC was a serious procedural defect the FCC would not be able to correct on remand.
What it means in practice
Carriers may pass the cost of their contributions on to customers. The ruling sets aside the rate for one past quarter, the last three months of 2025; it does not by itself change what customers pay now. The opinion does not end the Fund or cancel Lifeline, E-Rate or the other programs. It does not say what happens to money already collected for that quarter, or how the FCC must set later rates; those are questions for the remand. Because USAC's projections are used to set every quarter's rate, the holding bears on how the Fund is run, not only on that one quarter.
What happens next
The case returns to the FCC. The agency may seek rehearing before the full Fifth Circuit or ask the Supreme Court to review the decision. Congress could also pass a statute that specifically authorizes a corporation to administer the Fund.