Fifth Circuit Rules FCC Lacked Authority to Create USAC

The Fifth Circuit Court of Appeals ruled on October 15, 2026, that the Federal Communications Commission (FCC) exceeded its authority by creating the Universal Service Administrative Company (USAC). This decision affects telecommunications companies and consumers who rely on the Universal Service Fund for subsidized communication services, particularly in underserved areas.

The case, Consumers' Research v. FCC (Docket No. 25-60535), arose when Consumers' Research, a nonprofit organization, along with other petitioners, challenged the FCC's calculation of the contribution factor for the Universal Service Fund for the fourth quarter of 2025. The petitioners argued that the FCC lacked the statutory authority to establish USAC, which manages the Fund's contributions and disbursements.

The FCC was created by Congress in 1934 to ensure that all Americans have access to efficient communication services. Over the years, the FCC has implemented various programs to support universal service, especially in rural and low-income areas. In 1996, Congress overhauled the telecommunications sector, requiring the FCC to establish mechanisms for universal service funding.

USAC, established in 1997, was tasked with administering the Universal Service Fund, collecting contributions from telecommunications companies and distributing funds to support services like the Lifeline program, which provides discounts to low-income consumers, and the E-Rate program, which subsidizes internet access for schools and libraries.

The dispute began when USAC proposed a contribution factor of 38.1% for the fourth quarter of 2025, which the FCC approved without addressing the petitioners' concerns. The petitioners argued that the FCC's reliance on USAC was unlawful because the agency did not have specific congressional authorization to create USAC, violating the Government Corporation Control Act (GCCA).

In its ruling, the court stated, "Because Congress never specifically authorized the FCC to establish USAC, we hold that the agency violated the Government Corporation Control Act by creating the corporation." The court granted the petition for review, vacated the contribution factor for the fourth quarter of 2025, and remanded the case for further proceedings.

The ruling signifies a significant setback for the FCC's ability to manage the Universal Service Fund through USAC. The court emphasized that the FCC's actions were not in accordance with the law, stating that the agency exceeded its statutory authority by relying on USAC to set the contribution factor.

This decision impacts telecommunications companies that contribute to the Universal Service Fund, as well as consumers who benefit from subsidized services. It raises questions about the future of the Universal Service Fund and how it will be managed without USAC's involvement.

The ruling may set a precedent for similar challenges against federal agencies that create corporations without explicit congressional authorization. It highlights the importance of adhering to statutory requirements when establishing entities that manage public funds.

Looking ahead, it remains unclear whether the FCC will appeal the ruling. The court's decision could prompt the FCC to seek alternative methods for managing the Universal Service Fund or to request congressional authorization for USAC's establishment. The outcome of this case may influence how federal agencies operate and the extent of their authority in creating entities to manage public programs.