USF Contribution Hits 42% as Court Ruling Forces Congress' Hand

The Universal Service Fund's contribution rate now stands at 42% of eligible interstate and international phone-service revenue — up from an original 3% — and a fresh federal appeals court ruling has again called the fund's legal foundation into question.

On Oct. 15, a unanimous panel of the 5th U.S. Circuit Court of Appeals found that the Federal Communications Commission lacked specific congressional authorization to create the Universal Service Administrative Co., which administers the fund. The court held that the agency violated a 1945 law governing government corporations and vacated the administrative company's fourth-quarter 2025 funding calculation.

The decision does not abolish the fund. But Jeffrey Westling, senior scholar of innovation policy at the International Center for Law & Economics, argues in a Broadband Breakfast commentary that another Supreme Court rescue would not fix the program's financial weaknesses or give recipients lasting certainty.

How did the fund get here?

Congress established the fund's modern framework in 1996, building on existing programs that helped rural and low-income Americans obtain telephone service. The law also supported connections for schools, libraries and rural health-care providers. Over time, the FCC expanded broadband support, notably through the Connect America Fund, which subsidizes networks in areas without adequate coverage.

The funding mechanism never caught up. The fund collects assessments on phone-service revenue, including wireless and internet-based calling, and providers generally pass those costs to customers. As Americans shift toward services outside that base, the assessment climbs. In effect, a shrinking pool of phone customers now carries the weight of the entire program.

What is the legal background?

The Oct. 15 ruling is the second recent judicial blow. In 2024, the full 5th Circuit ruled 9-7 that the funding structure unconstitutionally combined Congress' delegation of authority to the FCC with the agency's reliance on a private administrator. The Supreme Court reversed that decision in 2025.

The new decision rests on a separate statutory argument — the lack of congressional authorization for the administrative company — which keeps the fund in a cycle of litigation it may not survive indefinitely.

Where could the money come from?

Westling contends the FCC should exhaust options to cut unnecessary spending before collecting more. Some subsidies still reward providers for maintaining outdated networks. The Connect America Fund's intercarrier compensation program, for example, helps rural phone companies replace revenue lost during changes to how carriers pay one another to complete calls — transitional assistance that now risks prolonging dependence on old copper networks.

The broader justification for network subsidies has also weakened, he writes. Many communities already have multiple broadband options, while Congress has committed $42.5 billion through the Broadband Equity, Access and Deployment (BEAD) program to reach unserved areas. Policymakers should account for those investments before asking consumers to finance overlapping support.

A congressional working group has explored changes, and reports suggest lawmakers may extend assessments to broadband service. That would spread costs across more subscribers and ease pressure on phone customers — while making internet access more expensive.

Westling flags a distributional problem. Households earning $20,000 and $2 million would face the same surcharge for the same service, consuming a larger share of the poorer family's income. A program designed to expand internet access, he writes, should not make service harder to afford.

What would a replacement look like?

One approach Westling outlines is winding down the high-cost program, which subsidizes providers serving expensive-to-reach areas. Wireless home internet and low-Earth-orbit satellites offer alternatives to traditional wired service, and some households now rely entirely on mobile connections. These options will not meet every customer's needs equally well, but they weaken the case for indefinitely subsidizing particular networks.

Congress could also convert Lifeline, which serves low-income consumers, along with E-Rate for schools and libraries and the Rural Health Care program, into vouchers tailored to each group. Recipients could choose eligible wired, wireless or satellite services; providers would compete for their business, and a larger pool of paying customers could encourage investment.

Funding those vouchers through direct appropriations — spending Congress approves through the federal budget — would spread costs across the broader tax base and give lawmakers clearer responsibility for oversight. Savings from eliminating unnecessary network subsidies could finance more generous benefits than Lifeline currently provides.

Any such change would require a predictable transition that honors existing commitments and protects recipients from abrupt disruptions. But, Westling concludes, preserving an outdated structure offers no lasting security: Washington can keep patching the Universal Service Fund, or it can replace it with directly funded assistance that puts recipients first.