If At First You Don’t Succeed: Fifth Circuit Deals Another Blow To Universal Service Administration

On October 15, 2026, the U.S. Court of Appeals for the Fifth Circuit dealt a fresh blow to the Federal Communications Commission’s (FCC) Universal Service Fund (USF), renewing uncertainty over the program’s future after the U.S. Supreme Court upheld its funding mechanism last year. In Consumers Research v. FCC, the latest ruling in a new round of challenges, the Fifth Circuit held that the FCC exceeded its statutory authority in creating the Fund’s administrator, the Universal Service Administrative Company (USAC). The Fifth Circuit also vacated the Fourth Quarter 2025 contribution factor and remanded the case to the FCC for further proceedings.

The U.S. Supreme Court’s 2025 ruling overturned a Fifth Circuit en banc decision that purported to invalidate the USF administration mechanism on the basis that Section 254 of the Communications Act, as amended, impermissibly delegated legislative power to the FCC, and may have impermissibly delegated taxing power to USAC as a private entity. The Supreme Court disagreed, finding no violation of the U.S. Constitution’s nondelegation doctrine and further opining that the FCC’s use of USAC for administering the Fund was constitutionally valid because the FCC retained ultimate decision-making authority over the Fund, while USAC performed administrative and advisory functions subject to the Commission’s control. The 6-3 decision resolved a circuit split and included a dissent that may have provided a roadmap for petitioners to take another bite at the apple.

This latest Fifth Circuit decision comes at a critical moment, as the FCC, Congress, and the industry are grappling with a persistently high contribution factor and seeking ways to preserve the Fund while bringing administrative and support costs down to sustainable levels. It further creates more uncertainty for USAC and its role in administering USF programs, once again posing an existential threat to both USAC and the Fund itself.

The Decision

Following the Supreme Court’s 2025 decision preserving the USF in its current form, the petitioners almost immediately brought a challenge in response to the FCC’s approval of the Fourth Quarter 2025 contribution factor, which determines the amount telecommunications companies pay into the Fund. The petitioners raised several constitutional and statutory arguments, but the court addressed only whether the FCC had statutory authority to establish and rely on USAC to set the contribution factor under the Government Corporation Control Act (GCCA), which provides that “an agency may establish or acquire a corporation to act as an agency only by or under a law of the United States specifically authorizing the action.” 31 U.S.C. § 9102.

The Fifth Circuit found that the FCC violated the GCCA by establishing USAC to “act as an agency” in furtherance of governmental objectives within the meaning of the statute, without the specific congressional authorization required by the statute, and thus exceeded its statutory authority by relying on USAC to set the Fourth Quarter 2025 contribution factor. The court further reasoned that neither Section 254’s “necessary and proper provision,” Congress’ implicit approval of USAC’s predecessor to administer a single USF program, nor Congress’ authorization of USAC to administer two temporary COVID-era broadband subsidy programs through the USF were enough to authorize or ratify the FCC’s creation of USAC. Importantly, the court’s decision rested on the FCC’s creation of USAC to act as an agency, rather than on any deficiency in the calculation of the contribution factor.

Ironically, although the FCC’s oversight of USAC helped sustain the constitutional validity of the USF funding mechanism at the Supreme Court, the relationship proved fatal under the GCCA, as the Fifth Circuit concluded that USAC was acting as an instrumentality of the FCC despite the agency’s lack of specific congressional authorization to establish a corporation to act as an agency for any purpose. The court’s remedy for its finding that the FCC exceeded its statutory authority was to vacate the Fourth Quarter 2025 contribution factor and remand the case to the FCC for further proceedings.

USF Reform Efforts Already Underway

The Supreme Court’s 2025 decision upholding the constitutionality of the USF funding mechanism appeared to instill some confidence among stakeholders that USF programs would continue, but this latest Fifth Circuit decision again calls that into question. Sensing the precarious nature of the Fund itself and the sustainability of its funding mechanism, industry and advocates such as the Schools, Health & Libraries Broadband Coalition (SHLB) continue to push for reform of the funding mechanism and administration of the Fund. A bipartisan coalition in Congress is also considering USF reform through its Congressional USF Working Group, and a Hill staffer recently suggested at an industry gathering that the group is getting closer to providing draft legislation to implement reforms.

The FCC is likewise considering USF reform, recently adopting a Notice of Proposed Rulemaking seeking comment on USF administration, including USAC’s appropriate role in administering the Fund going forward. The Fifth Circuit’s ruling raises the stakes for this proceeding by calling into question whether efforts by the FCC to maintain some or all of USAC’s administrative functions would be valid under the ruling, given the court’s invalidation of USAC’s creation for that purpose. That is, changes to USAC’s responsibilities or the FCC’s oversight of the company may not, by themselves, resolve the statutory defect identified by the court. Whether the Commission can restructure USF administration to include any role for USAC without additional congressional authorization is now a particularly consequential question.

Looking Ahead

The FCC has not announced next steps following the Fifth Circuit’s decision; its options include seeking a stay of the court’s mandate, requesting rehearing en banc before the Fifth Circuit, or petitioning the Supreme Court for review. Congress could also step in to expressly ratify the FCC’s establishment of USAC as the USF administrator, or otherwise provide the specific statutory authorization necessary for USAC to continue serving as the Fund’s administrator.

Should the FCC decide to address the court’s findings on remand in an open or new proceeding, one potential approach would be to remove certain functions from USAC that would require agency-like action and perform those functions in-house. Arguably, USAC could continue to perform some basic administrative functions without running afoul of the GCCA and the court’s findings, but opponents could argue that merely reallocating responsibilities would not cure the underlying statutory defect because the court concluded that the FCC lacked authority to establish USAC to act as an agency in the first place. The Commission therefore faces a difficult question: whether USAC can be restructured to operate in a non-agency capacity within the limits of the GCCA, or whether a more fundamental change to the Fund’s administrative structure – which may require congressional intervention – will be necessary.

Petitioner Consumers’ Research continues to oppose the FCC’s administration of the USF by filing comments challenging each quarterly contribution factor in 2026, followed by a corresponding petition for review in the Fifth Circuit after Commission approval of the factor. Given Consumers’ Research’s pattern, subsequent contribution factors could face challenges based on the same statutory defect identified in the most recent Fifth Circuit decision. Additional challenges in other circuits could also produce conflicting rulings, increasing the likelihood that the Supreme Court will again be called upon to address the legality of the USF’s administration.

Ultimately, the Fifth Circuit’s recent decision may accelerate the need for Congress to address not only the statutory framework under which the Fund is administered but also how universal service is funded, potentially jeopardizing the FCC’s ability to collect the contributions necessary to sustain the Fund’s operations.

Francesca Burke, a Law Clerk at Wiley Rein LLP, contributed to this alert.