Hazlett Report Cited in WSJ Market Watch

A government plan designed to subsidize phone lines in remote areas is, in the words of Professor Thomas Hazlett, "a failed government initiative that taxes urban phone users."

A paper written by Hazlett and Scott J. Wallsten, vice president for research and senior fellow at the Technology Policy Institute, shows that the Federal Communications Commission's "Connect America Fund," created to provide landline services for remote rural areas, in fact provides subsidies to telecom companies in wealthy areas at a huge cost to consumers, who pay a Universal Service Fund fee on fixed-line phone bills.

"The subsidies have been wasted, padding the costs of rural phone companies and delivering only pennies on the dollar," says Hazlett.

Hazlett suggests an alternative of satellite phones in hard-to-reach areas, pointing out that they would cost a maximum of $600 per line annually for the most remote areas.

How your phone fees subsidize golf resorts, The Wall Street Journal Market Watch, July 15, 2013. By Quentin Fottrell.

"Consumer advocates agree that accessing rural areas is a complex, if expensive, problem. 'The fund has never been means tested and the Telecom Act of 1996 strongly affirms that principle,' says Mark Cooper, director of research at the Consumer Federation of America. 'Congress did not give the FCC the discretion to pick and choose which high-cost area should get subsidies.' By statute, Wigfield says, subsidizing U.S. landlines is meant to ensure that rural phone rates are reasonably comparable to those in urban areas. 'It’s never been based on income,' he says.

"To be fair, the FCC has taken steps 'to end waste, fraud and abuse' Wigfield says, 'while adopting measures to connect millions of currently unserved Americans to broadband.' These reforms, which took effect in January 2012, include capping subsidies at a maximum of $250 a line per month, he says, and they free up resources to expand broadband connectivity to all of rural America. That still works out to $3,000 a year for one phone line." 

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