Hazlett Argues for Reform of Mushrooming Universal Service Fund

Rural phone service carriers who currently benefit from billions of dollars in annual subsidies through the Universal Service Fund fiercely resist the concept of reform, despite the economic sense such reforms
would provide for consumers says Professor Thomas Hazlett in a Baltimore Sun editorial. Hazlett argues that, "'Long distance' revenues have gone the way of the eight-track tape deck, replaced by e-mail, buckets of wireless minutes and Voice over Internet Protocol (VoIP). So now, to finance the Universal Service Fund, tax rates are rising for fixed and wireless phone subscribers and being newly imposed on VoIP customers." He suggests a cap and annual reduction to the USF, with "reverse auctions" to assign universal service obligations through a bidding process designed to secure the lowest bid for those services.

Phone Fund Rip-Off, Baltimore Sun, October 24, 2006. By Thomas W. Hazlett.

"While the goal of universal service is uncontroversial, Americans are ditching old-fashioned phone networks. In 2004, the latest year for which government data are available, just 89 percent of U.S. homes had a traditional fixed line, down from 94 percent a few years ago. The decline was more than offset by mobile phones. But the Universal Service Fund swims against this natural transition by bailing out yesterday's technology with today's tax dollars.

"Rural telephone companies are now so flush with subsidies that many of them pay out more in dividends to their owners than they charge for phone service. More than 100 rural telephone companies incur more than $500 per line in annual administrative expenses—what a typical mobile customer pays in total charges. These are corporate overhead costs not driven by expenses associated with providing service in low-density markets."

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