Reported / Citable
Background
The Federal Communications Commission funds universal-service programs by requiring telecommunications carriers to contribute to the Universal Service Fund. Each quarter, the FCC sets a contribution factor based on projected program expenses and contributing carriers’ projected revenue. The Universal Service Administrative Company, a private nonprofit corporation established at the FCC’s direction, supplies those projections and administers the fund’s day-to-day operations.
For the fourth quarter of 2025, the FCC largely adopted USAC’s projections and set the contribution factor at 38.1%, after directing USAC to apply unused E-Rate funds to reduce projected expenses. Consumers’ Research, Cause Based Commerce, and individual consumers petitioned for review, raising constitutional and statutory challenges. The Fifth Circuit addressed only their claim under the Government Corporation Control Act because it found that issue dispositive.
The Court’s Holding
The Fifth Circuit held that the FCC established USAC “to act as an agency” within the meaning of the GCCA. USAC functioned as an instrumentality of the FCC because it was created to administer universal-service programs, collect and distribute funds, develop financial projections, and operate under FCC oversight.
The court further held that Congress never specifically authorized the FCC to establish USAC, as the GCCA requires. The FCC’s general ancillary authority, Congress’s authorization for NECA to administer the Lifeline program, and later statutes permitting USAC to administer two temporary pandemic-era programs did not supply the necessary specific authorization or ratify USAC’s permanent administration of the Universal Service Fund.
Because the FCC relied on USAC’s projections to calculate the fourth-quarter 2025 contribution factor, the FCC exceeded its statutory authority. The court granted the petition for review, vacated the contribution factor, and remanded to the FCC for further proceedings. It did not reach the petitioners’ nondelegation, Appointments Clause, or other Administrative Procedure Act arguments.
Key Takeaways
- The GCCA requires specific congressional authorization before a federal agency may establish a corporation to function as an agency or governmental instrumentality.
- The FCC’s broad authority to implement universal service did not specifically authorize it to create USAC.
- The Fifth Circuit vacated only the fourth-quarter 2025 contribution factor at issue and remanded; it did not decide the petitioners’ alternative constitutional claims.
Why It Matters
The ruling places the statutory foundation of USAC’s role in administering the Universal Service Fund under significant pressure. Because the FCC uses USAC’s projections when setting quarterly contribution factors, the court’s reasoning may affect later contribution-factor orders challenged in the Fifth Circuit.
The decision also underscores that broad programmatic authority does not necessarily satisfy a statute demanding specific authorization for an agency-created corporation. Congress’s express approval of a corporation for limited programs will not automatically validate that corporation’s broader or permanent governmental role.