Universal Service Woes

by on November 1, 2004

The FCC’s universal service fund finds itself, not unsurprisingly, increasingly embroiled in accounting troubles, from fraud to difficulty complying with accounting rules requiring it to have monies in hand before paying them out. Not to mention consumers irate about the growth of the line items on their bills.

This pit is potentially bottomless. In a nutshell, “Everyone wants to take out of the pool, especially if they pay into it, and anyone who doesn’t stake a claim will lose out to more aggressive competitors.” I quote IPI‘s recent telecom guide for state legislators, which I helped author.

Years ago, I saw the economic justification for universal service set out in the form of an equation. In English, it went something like this: The network is more valuable to everyone if absolutely everyone is on it. So we impose a tax to avoid the cost of some being excluded from the network. It all sounds very precise, put that way. But consider that no one knows the amount of the cost we are supposedly avoiding by this tax & spend scheme! And the amount we are coughing up to avoid it is apparently limitless! At the same time that technologies from the Internet to wireless are finally bringing transmission costs down. It is sad, that we cannot give the market a chance to work in rural areas as it has worked elsewhere.


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