Court Voids FCC Authority Over Telecom Fund Supporting USVI Schools and Healthcare

The U.S. Court of Appeals for the Fifth Circuit has invalidated the Federal Communications Commission's legal authority to establish the Universal Service Administrative Company, the private nonprofit that runs a nationwide telecommunications funding system benefiting the US Virgin Islands.

In its October 15 decision, the three-judge panel found that the FCC violated the Government Corporation Control Act when it created USAC to oversee the Universal Service Fund. The court vacated the fund's contribution factor for the fourth quarter of 2025 and sent the case back to the FCC for further action.

Judge Edith Brown Clement, writing for the court, determined that USAC operates as an agency instrument despite its nonprofit structure, and that Congress must specifically authorize such an arrangement. The judges rejected claims that the FCC's existing powers or later congressional recognition of USAC provided the needed approval.

The case, Consumers' Research v. Federal Communications Commission, was filed by a consumer advocacy group, a telecommunications reseller and individual consumers challenging how the fund operates.

Substantial Support Flowing to the Territory

The Universal Service Fund supports four programs across the Virgin Islands. E-Rate delivers money to schools and libraries for internet connectivity and equipment. Lifeline offers discounted phone and internet service to low-income households. Rural Health Care funds connectivity for healthcare facilities. High-Cost helps carriers operate in expensive-to-serve areas.

Between 2022 and 2024, 40 schools and six libraries in the territory received roughly $3.53 million through E-Rate, serving 13,405 students. Ten healthcare providers obtained $307,312 through Rural Health Care between 2021 and 2023. As of March 2024, 1,316 Virgin Islands residents were receiving discounted services through Lifeline. Telecommunications carriers in the territory received approximately $14.9 million through High-Cost during 2023.

No Immediate Suspension of Benefits

The ruling does not immediately shut down the Universal Service Fund or strip away subsidies already granted to Virgin Islands recipients. The decision specifically concerns whether the FCC had the power to establish USAC and use its financial forecasts to set the contribution percentage that telecommunications firms must pay into the fund.

Telecommunications companies contribute based on a percentage of their assessable revenues, a cost they may pass to customers. For the fourth quarter of 2025, the FCC had set the contribution factor at 38.1 percent using USAC's projections.

The FCC must now decide how to proceed through additional proceedings, with potential for further appeals. For the Virgin Islands, the key question is whether the decision will alter how the programs supporting local telecommunications infrastructure, school connectivity, healthcare access and subsidized communications are managed or paid for.