A small line on many phone bills helps pay for internet in rural schools and phone service for families with low incomes. A federal court has now thrown part of that system into doubt.
A federal appeals court on Oct. 15, 2026, vacated the Federal Communications Commission’s Universal Service Fund contribution rate for the fourth quarter of 2025.
What did the court decide about the Universal Service Fund?
A panel of the U.S. Court of Appeals for the Fifth Circuit ruled that the FCC exceeded its authority when it created the fund’s administrator, the Universal Service Administrative Company, in 1997.
The panel said Congress never specifically authorized the FCC to establish the company. Because of that, the court held that the agency violated the Government Corporation Control Act, a federal law that limits how agencies can create corporations.
The judges concluded that the payments telecommunications companies were required to make for the fourth quarter of 2025 were also beyond the agency’s authority. They threw out the 38.1% contribution rate for that quarter and sent the matter back to the FCC.
The opinion, which runs 20 pages, was written by Judge Edith Brown Clement.
What is the Universal Service Fund?
The Universal Service Fund is a federal program meant to make phone and internet service affordable for people who might otherwise go without. It supports service in rural areas and for households with low incomes.
It also helps schools, libraries and rural health care providers pay for connectivity. Programs funded through it include Lifeline, which helps households with low incomes pay for phone or internet service.
Telecommunications companies pay into the fund based on a percentage of certain revenues, known as the contribution factor. Many companies pass that cost on to customers through a fee listed on monthly phone bills. The fund distributes several billion dollars a year.
The administrative company collects those payments and distributes the money to eligible programs. It is a nonprofit organization that operates under FCC oversight.
Why does the contribution rate matter?
The rate determines how much providers must pay. At 38.1%, the rate for the fourth quarter of 2025 was one of the highest on record.
As fewer people pay for landlines and traditional calling plans, the revenue base used to fund the program has shrunk, pushing the rate higher. Policymakers have debated for years whether to expand the fund’s revenue base to include broadband or online platforms.
Has the Universal Service Fund faced legal challenges before?
Yes. In 2025, the Supreme Court upheld the program’s structure against a separate challenge, ruling that Congress had not unconstitutionally handed its taxing power to the FCC. That 6 to 3 decision reversed an earlier ruling by the full Fifth Circuit, which had found the program unconstitutional.
That earlier case focused on how much authority Congress gave the agency. The new ruling targets a different issue, whether the FCC had permission to create the private company that runs the program. Critics of the program argue it functions like a tax set by an agency rather than Congress, while supporters say it is essential to closing the digital divide.
What happens next for the Universal Service Fund?
The case now returns to the FCC. The agency could ask the full Fifth Circuit to rehear the case or appeal to the Supreme Court. It was not immediately clear how the FCC would respond.
The ruling applies to one quarter’s rate, and its broader effect on the Universal Service Fund remains unclear.
Rural communities, schools and families who depend on subsidized service will be watching closely. Any disruption to the Universal Service Fund could affect access for millions of Americans.
