Just How Inefficient Is Universal Service?

by on July 20, 2006 · 4 comments

Many years ago, I largely quit following developments on the “universal service” front. It was just too damn demoralizing. After studying the system for many years, I came to the conclusion that the Universal Service Fund (USF) – - and the entire universal service regulatory process – - was one of the most unfair, illogical, counter-productive, regressive, anti-technology programs EVER created in American history, And yet, no one in government seemed to be willing to do anything to fix it. Matter of fact, they actually decided to expand it in recent years with the creation of the E-Rate (or “Gore Tax”) program. And they brought cellular and VoIP into the system as well. Absolutely insane.

I was reminded of that again today when I received a new report from communications guru Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University. Hazlett has just penned a devastating critique of the universal service system in which he asks: “What Does $7 Billion Buy?” Answer: not much. Let me just quote from his executive summary here and then encourage you to go read the entire study for more miserable details about this horrendously inefficient government program:

“The ‘universal service’ regime ostensibly extends local phone service to consumers who could not otherwise afford it. To achieve this goal, some $7 billion annually is raised – - up from less than $4 billion in 1998 – - by taxing telecommunications users. Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail–on net–to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – - such as wireless, satellite, and Internet-based services – - that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals ‘universal service’ is said to advance.”

And, if you’re a real glutton for punishment and want even more grim details about the system, check out this recent report by PFF’s “DACA” working group on universal service reform. File all this under: “The Unintended Consequences of Misguided Government Regulation.”

  • http://speakingip.com Dave

    The whole 1996 telco act needs an overhaul which includes USF and it’s sub-programs like E-Rate.

    The USF is one small symptom of hopelessly broken telecom policy in DC. In my opinion, the idea of the USF is sound. Smallville deserves an onramp as much as Los Angeles. The problem is the monopoly system it supports.

    Remove the monopoly. Open the local loop. Problem solved.

    http://speakingip.com/wp/2006/07/22/telecom-deregulation-30/

  • http://speakingip.com Dave

    The whole 1996 telco act needs an overhaul which includes USF and it’s sub-programs like E-Rate.

    The USF is one small symptom of hopelessly broken telecom policy in DC. In my opinion, the idea of the USF is sound. Smallville deserves an onramp as much as Los Angeles. The problem is the monopoly system it supports.

    Remove the monopoly. Open the local loop. Problem solved.

    http://speakingip.com/wp/2006/07/22/telecom-der

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