WASHINGTON, D.C.: A U.S. appeals court has ruled that the Federal Communications Commission exceeded its authority in establishing the mechanism behind a telecom subsidy program that collects about US$9 billion a year and helps provide communications services to millions of Americans.

The U.S. Court of Appeals for the Fifth Circuit said that the FCC lacked legal authority in 1997 to establish the Universal Service Administrative Co., a private company that collects funds from telecom carriers and sets contribution rates for the Universal Service Fund.

"Because Congress never specifically authorized the FCC to establish USAC, we hold that the agency violated the Government Corporation Control Act," Judge Edith Brown Clement wrote for a three-judge panel.

The Universal Service Fund subsidizes basic communications services for consumers in rural and low-income areas. Most telecom companies pass the cost of their contributions on to customers.

The FCC said it was considering all options available following the decision.

"While the court takes issue today with an FCC decision made almost 30 years ago, the court's order would not go into effect until two months from now, at the earliest," an FCC spokesperson said.

The program has also been used to expand communications services on Native American tribal lands and provide internet access to schools, libraries and rural health care facilities.

In 2024, it benefited 7.5 million low-income households and provided telecom companies with $4.2 billion to deliver high-speed internet service in hard-to-serve rural areas.

The program also provided 118,000 schools and libraries with $7 billion over three years for internet service covering 54 million students.

The ruling comes after the U.S. Supreme Court endorsed the FCC's funding method in June 2025.

That decision overturned an earlier Fifth Circuit ruling that the FCC's funding mechanism, which uses mandatory contributions from telecom companies, had effectively imposed a "misbegotten tax" on consumers.

Thursday's decision addresses a different issue, finding that the FCC lacked authority to establish the company that collects the funds and set contribution rates.

U.S. telecom providers receive billions of dollars in payments from the Universal Service Fund, while millions of consumers rely on government-subsidized internet or phone services supported by the program.