A federal appeals court has invalidated a telecommunications funding assessment used to finance nationwide broadband, school internet, healthcare connectivity and low-income phone subsidies, ruling that the Federal Communications Commission lacked congressional authorization to establish the private corporation administering the programs. The decision affects a federal funding system that has provided millions of dollars in support to telecommunications providers, schools, libraries and healthcare facilities in the U.S. Virgin Islands.
In a ruling issued Thursday, October 15, the U.S. Court of Appeals for the Fifth Circuit found that the FCC violated the Government Corporation Control Act when it established the Universal Service Administrative Company, known as USAC, to administer the Universal Service Fund. The three-judge panel vacated the fund's fourth-quarter 2025 contribution factor and returned the matter to the FCC for further proceedings.
The ruling does not immediately terminate the Universal Service Fund or cancel subsidies awarded to Virgin Islands recipients. It addresses the FCC's legal authority to establish USAC and rely on its financial projections to determine what telecommunications companies must contribute to the fund.
Millions in Federal Support for the Virgin Islands
The Universal Service Fund finances four major programs: E-Rate, which helps schools and libraries pay for internet service and related equipment; Lifeline, which provides communications discounts to qualifying low-income households; Rural Health Care, which supports connectivity for eligible healthcare providers; and High-Cost, which helps telecommunications carriers serve areas where providing service is expensive.
Federal Communications Commission records show that all four programs have supported services in the Virgin Islands.
According to an FCC fact sheet detailing the territory's participation, 40 schools and six libraries received approximately $3.53 million through E-Rate between 2022 and 2024, supporting connectivity for 13,405 students. Ten healthcare providers received $307,312 through the Rural Health Care program between 2021 and 2023.
The FCC also reported that 1,316 Virgin Islands subscribers received discounted telephone or internet service through Lifeline in March 2024. Telecommunications carriers serving the territory received approximately $14.9 million through the High-Cost program during 2023.
Those figures reflect the historical reporting periods identified by the FCC. They do not establish current funding levels or indicate that any of the reported assistance has been withdrawn because of the latest court decision.
Court Finds FCC Lacked Authority to Establish Fund Administrator
The case, Consumers' Research v. Federal Communications Commission, concerned a challenge to the contribution factor adopted for the final quarter of 2025.
Telecommunications companies contribute to the Universal Service Fund based on a percentage of their assessable revenues. The FCC sets that percentage using projected program expenses and industry revenues supplied by USAC. Companies are permitted to pass contribution costs along to customers.
For the fourth quarter of 2025, the FCC adopted a contribution factor of 38.1 percent after relying substantially on USAC's calculations. The percentage applies to the relevant telecommunications revenue used in the federal assessment, rather than representing a 38.1 percent charge on every customer's telephone bill.
Consumers' Research, telecommunications reseller Cause Based Commerce and several individual consumers challenged the assessment, raising objections to the FCC's authority and the administration of the fund.
Writing for the appeals court, Judge Edith Brown Clement concluded that USAC functions as an instrumentality of the FCC, even though it is organized as a private, nonprofit corporation.
The court determined that the Government Corporation Control Act requires specific congressional authorization before a federal agency can establish a corporation to act on its behalf. It found that the FCC had not received that authorization when it established USAC.
The judges rejected arguments that the FCC's general statutory powers or Congress's subsequent recognition of USAC supplied the required authorization.
Because the FCC relied on the corporation's calculations in adopting the fourth-quarter 2025 assessment, the court concluded that the agency exceeded its statutory authority.
The ruling follows a separate 2025 decision in which the U.S. Supreme Court upheld the Universal Service Fund's broader statutory framework against a constitutional challenge involving congressional delegation of authority. The latest case concerns a different question: whether the FCC was legally authorized to establish USAC as the fund's administrator.
Existing USVI Funding Not Ordered Suspended
Although the Fifth Circuit invalidated the fourth-quarter 2025 contribution factor, the decision did not direct the FCC to discontinue E-Rate, Lifeline, Rural Health Care or High-Cost support.
It also did not determine whether the Virgin Islands would lose any particular grant, subsidy or funding commitment.
The FCC must now address the ruling through further proceedings, with the possibility of additional appellate review.
For the Virgin Islands, the immediate question is whether the decision will result in changes to the administration or financing of programs that support local telecommunications infrastructure, school internet access, healthcare connectivity and discounted communications services.
The FCC's historical figures establish the territory's participation in those programs, but no interruption to existing Virgin Islands funding has been confirmed.
The case is Consumers' Research v. Federal Communications Commission, No. 25-60535, decided October 15, 2026.
