By Sara Raza, Clinical Fellow
A program that brought internet access to 7.5 million low-income households in 2024 and funneled $4.2 billion to telecom companies to expand rural broadband has faced mounting legal scrutiny in recent years. On June 27, 2025, the United States Supreme Court, in a 6-3 decision, upheld the constitutionality of the Universal Service Fund (USF) under the Constitution’s nondelegation doctrine in FCC v. Consumers’ Research and SHLB v. Consumers’ Research. This ruling overturned an en banc decision by the U.S. Court of Appeals for the Fifth Circuit and protects a funding source of about $9 billion a year that helps provide broadband and phone service to low-income families, schools, libraries, and rural areas.
Background
The USF is a decades-old telecommunications fund that provides affordable broadband through four key programs: E-rate (for schools and libraries), Rural Health Care program, Lifeline (for low-income consumers), and High-Cost (for rural and remote areas). The USF is administered by the private independent not-for-profit, Universal Service Administration Company (USAC), which was created and appointed by the Federal Communications Commission (FCC) and authorized by the Telecommunications Act of 1996.
In 1996, Congress revised the Communications Act to establish a universal service framework through Section 254. Under this law, the FCC requires all interstate telecommunications carriers to contribute to the USF by imposing fees on telecom companies, which are then passed on to consumers. The FCC uses this fund to support programs benefiting low-income individuals, rural communities, schools, libraries, and rural hospitals. The goal of the fund was to ensure subsidized communications services for all consumers, especially those living in underserved areas, and make connectivity affordable. The USAC oversees USF’s daily operations and contributes to developing the financial projections that shape the quarterly contribution factor.[1] As outlined in §§54.702, 54.709(a)(2)-(3), each quarter USAC estimates the fund’s expenses, compiles revenue forecasts from telecommunications providers, and submits these figures to the FCC for approval. The FCC then uses the approved projections to calculate the contribution factor.
This decision stems from the Fifth Circuit ruling that found that the USF funding mechanism violated the Legislative Vesting Clause of the Constitution (U.S. Const. art. I, § 1). The Fifth Circuit held that Congress may have impermissibly delegated the taxing power to private entities by involving the Administrator (USAC) in setting contribution amounts. The court noted that the FCC had “de facto abdicate[d]” governmental responsibilities to the Administrator by giving it the “final say” on how much carriers must contribute to the fund.
Decision of the Supreme Court
The Supreme Court rejected the argument, advanced by Consumers’ Research and the Fifth Circuit, that Congress overly delegated legislative and taxing authority to the FCC and to a private intermediary (USAC in this case). Writing for the majority, Justice Kagan held that Section 254 of the Communications Act provided clear legislative guidance for the FCC, with Congress setting both the policy objectives and procedural boundaries for the USF. The Court also affirmed that the FCC’s delegation of contribution calculation duties to the USAC is permissible, as the FCC retains final authority and oversight, leaving the ultimate control in the hands of the Commission. The dissent, on the other hand, agreed with Consumers’ Research’s views that the contributions function as a tax, thereby constituting an unconstitutional delegation of Congress’ (taxing) power, first to the FCC and then to the private entity, USAC.
Impact of the Decision and Reactions of the Broadband Community
In this decision, the Supreme Court effectively preserved the legal foundation of the USF as Congress and the FCC designed it. It avoided setting new limits on agency power under nondelegation but also left open opportunities for further reform moving forward. This case illustrates that as long as Congress provides clear goals and guidance, it can authorize federal agencies to carry out those goals, even with the help of third-party administrators, without violating constitutional principles.
This ruling protects an immensely important source of broadband funding for schools, libraries, rural health care clinics, and underserved communities by upholding the validity of programs such as E-rate and the Rural Health Care Program. Additionally, through this decision, the FCC continues to hold the authority to update and manage the USF to address shifting broadband demands, including initiatives to increase access in underserved areas.
Advocates and lawmakers welcomed the decision as essential to protecting internet access, but many also cautioned that the program’s funding base, tied to shrinking revenues from traditional phone services, remains unstable. Now, lawmakers on both sides of the aisle are focused on making long-term changes to keep the program strong and up to date. A Congressional USF Working Group – a bipartisan bicameral initiative – established two years ago was recently revived and will consider proposals for alternative funding streams to sustain the USF. Potential sources may include online advertising tax and assessments on “edge providers” such as major technology companies, and/or internet service providers.
For many in the broadband community, this ruling marked a significant victory in efforts to close the digital divide and reaffirmed the integral part that connectivity plays in the lives of workers, patients, health care providers, veterans, students, educators, and community leaders.
[1] The contribution factor is a fraction, expressed as a percentage, where the numerator is the Fund’s projected quarterly expenses (the subsidy payments it will make plus overhead) and the denominator is the contributing carriers’ total projected quarterly revenue.