A United States appeals court has vacated one quarter’s funding charge for the Universal Service Fund, the roughly $9 billion-a-year programme that subsidises phone and internet service. The Fifth Circuit held on 15 October 2026 that the Federal Communications Commission lacked authority to create the fund’s administrator. Collections have not stopped.
The decision applies in the United States only, and much of the coverage has described it as striking down the fund itself. What the court actually vacated was narrower: a single contribution factor, the quarterly percentage carriers pay in, set for the fourth quarter of 2025. The charge now being collected is a different one, set under a separate notice the ruling did not touch.
What the Fifth Circuit Decided in Consumers’ Research v. FCC
The case is Consumers’ Research v. FCC, No. 25-60535, in the United States Court of Appeals for the Fifth Circuit. Judge Edith Brown Clement wrote for a three-judge panel. No dissent has been reported.
The court held that the FCC had established the Universal Service Administrative Company — the private non-profit, known as USAC, that collects the money and projects what the programmes need — without the specific congressional authorisation that the Government Corporation Control Act requires. The FCC set USAC up in 1997. The court found that neither the general statutory provisions the Commission pointed to, nor anything Congress did afterwards, supplied that authorisation.
From that, the court concluded that the FCC exceeded its statutory authority when it relied on USAC’s projections to set the charge. The disposition had three parts:
- It granted the petition for review.
- It vacated the fourth-quarter 2025 contribution factor, which the FCC had set at 38.1%.
- It remanded the matter to the FCC for further proceedings.
The petitioners had raised several statutory and constitutional arguments. The court reached only one of them, whether the FCC had statutory authority to create USAC, and did not decide the rest. Nothing in the ruling declares the Universal Service Fund unconstitutional, and the court did not order any programme to stop.
Why the Fund Has Not Stopped Collecting
The charge in force now was set in a separate FCC public notice, DA 26-946, released on 14 September 2026 under CC Docket No. 96-45. That notice put the proposed contribution factor for the fourth quarter of 2026 at 0.42, or 42.0 percent. Under the FCC’s rules, if the Commission takes no action on the projections and the proposed factor within the 14 days after release, they are deemed approved.
The notice also states that carriers may not, during the fourth quarter of 2026, recover through a federal universal service line item an amount exceeding 42.0 percent of a customer’s interstate and international end-user telecommunications revenues. That is the cap on what appears on a bill, not a charge on a total bill.
So two different numbers are in play, and they are a year apart:
- 38.1%: the fourth-quarter 2025 factor, which the court vacated on 15 October 2026.
- 42.0%: the proposed fourth-quarter 2026 factor, set by DA 26-946 on 14 September 2026 and not addressed by the ruling.
An FCC spokesperson said the order would not take effect “until two months from now, at the earliest”, and that the Commission was considering all of its available options. Law360 reported that the agency was exploring all options for managing the fund. The spokesperson also noted that the court had taken issue with an FCC decision made almost 30 years ago.
Where the Money Goes
The fund runs four programmes. The figures below are USAC’s projections for the fourth quarter of 2026 as published in the FCC’s notice, in millions of United States dollars.
| Programme | Programme demand | Administrative expenses | Prior period adjustment | Contribution requirement |
|---|---|---|---|---|
| High Cost (rural and tribal areas) | $1,099.40 | $19.22 | −$39.85 | $1,078.77 |
| Schools and Libraries (E-Rate) | $597.25 | $20.96 | $9.64 | $627.85 |
| Lifeline (low-income subscribers) | $263.06 | $20.56 | −$96.83 | $186.79 |
| Rural Health Care | $122.72 | $7.32 | $2.74 | $132.78 |
| Total | $2,082.43 | $68.06 | −$124.30 | $2,026.19 |
A quarterly requirement of about $2.03 billion annualises to roughly $8 billion, which is why the fund is usually described as costing about $9 billion a year; the exact total varies each quarter. For a longer view, the Congressional Research Service recorded 2024 disbursements of about $4.51 billion for High Cost, $2.61 billion for E-Rate, $943 million for Lifeline and $532 million for Rural Health Care.
The same notice records that the Wireline Competition Bureau instructed USAC to apply $69 million of unused funds against Schools and Libraries demand and $56 million against Rural Health Care demand, which held the quarter’s factor below the level USAC’s own filings implied.
For schools and libraries, the immediate practical effect appears limited. The Association of Educational Service Agencies noted on 16 October 2026 that E-Rate funding for programme year 2026 has largely been committed already, and that funding decisions for programme year 2027 are not expected until May.
The Road From the Supreme Court’s 2025 Decision
This is the second time the Fifth Circuit has ruled against the fund’s financing, and the first ruling did not survive.
- 1997: the FCC creates USAC to administer the Universal Service Fund.
- 2024: the Fifth Circuit, sitting en banc, sides with Consumers’ Research and characterises the mandatory contributions as a tax.
- June 2025: in FCC v. Consumers’ Research, the Supreme Court endorses the FCC’s method of funding the programme and overturns that Fifth Circuit decision.
- 15 October 2026: the Fifth Circuit rules for Consumers’ Research again, this time on the separate question of whether the FCC could lawfully create USAC at all.
The two cases are not the same argument. The Supreme Court’s 2025 decision concerned how the fund is financed and whether the contributions amount to an unconstitutional tax. The October 2026 ruling turns on an administrative-law question about the creation of USAC under the Government Corporation Control Act. Citizens Against Government Waste, which supports the challenge, notes that the tax question was not part of the October 2026 arguments.
What Happens on Remand
Remand means the matter returns to the FCC, which must now address the defect the court identified. What that requires is not yet settled, and the Commission has not said which route it will take.
Several things remain open as of 18 October 2026.
- The FCC’s response: the agency has said only that it is weighing all options. It has not announced whether it will seek rehearing, petition the Supreme Court, or restructure how the factor is calculated.
- Effect on past quarters: the ruling vacates one quarter’s factor. Whether anything is refunded, and to whom, has not been determined.
- Future factors: no decision has been announced on the first-quarter 2027 factor or on how it would be set without relying on USAC’s projections in their current form.
- The unreached arguments: the constitutional claims the court declined to decide have not been resolved either way.
Congress could also act. The Information Technology and Innovation Foundation, a technology policy think tank, argued on 16 October 2026 that any legislative response should go beyond the fund’s administrative design. No bill has been enacted.
Frequently Asked Questions
Did the Court Shut Down the Universal Service Fund?
No. The Fifth Circuit vacated the fourth-quarter 2025 contribution factor of 38.1% and remanded the matter to the Federal Communications Commission. It did not order the fund or any of its four programmes to stop, and it did not rule the fund unconstitutional.
What Is the Universal Service Fund Charge Now?
The FCC’s public notice DA 26-946, released on 14 September 2026, set the proposed contribution factor for the fourth quarter of 2026 at 42.0 percent of a customer’s interstate and international end-user telecommunications revenues. That figure applies in the United States and was not addressed by the ruling.
When Does the Ruling Take Effect?
An FCC spokesperson said the order would not take effect until at least two months after the 15 October 2026 decision. No exact date has been published.
What Did the Court Actually Hold?
It held that the FCC created USAC, the fund’s administrator, in 1997 without the specific authorisation the Government Corporation Control Act requires, and so exceeded its statutory authority when it used USAC’s projections to set the quarterly charge. The court decided only that question.
How Does This Differ From the 2025 Supreme Court Case?
In June 2025 the Supreme Court upheld the way the fund is financed against the argument that the contributions are an unconstitutional tax. The October 2026 Fifth Circuit ruling concerns a different question, whether the FCC had statutory authority to establish USAC in the first place.
