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  • The FCC’s Universal Service Folly

    Are mobile phones and Internet access necessities that require taxpayers to foot the bill for the supposed “have-nots”? The Federal Communications Commission (FCC) evidently thinks so.

    The FCC voted unanimously to phase out subsidies for traditional telephone service and instead use $5 billion annually from the “Universal Service Fund” (USF) to equip residents of rural areas with mobile phones and Internet access.

    With traditional telephone service now available everywhere, it’s predictable that the commission would concoct another scheme to keep its USF taxing power intact. But there’s little evidence that rural areas need telecom subsidies of any sort. According to the FCC’s own data, the gap between broadband services in urban and rural areas is narrowing rapidly. In 2007, 38.8 percent of rural households were equipped with high-speed Internet compared to 53.8 percent of urban households. Just two years later, the rural proportion increased to 54.1 percent compared to 65.9 percent of urban households.

    Simply put, the deployment of broadband to rural communities lags that of urban areas by just two years—a small difference compared to the gaps of past technology deployment. That hardly justifies a whopping subsidy of $3,857 per rural household over six years, as estimated by the commission.

    Not only are the subsidies unnecessary, but they are likely to undermine the very competition that is most likely to result in greater availability and affordability of services. Subsidies will go only to companies that offer high-tier services such as “distance learning, remote health monitoring, VoIP, and two-way high quality video conferencing,” thereby leaving lower-cost basic service providers unable to compete.

    The one thing the commission seems to have done right is to commit to a price cap on the broadband subsidies. Rights to deploy the subsidized services will be awarded under a “reverse auction,” whereby firms will bid against a price ceiling. While this cap will help to contain the cost of subsidized services, there’s no guarantee that the commission won’t raise the cap in the future. Meanwhile, urban ratepayers will continue to pay artificially high prices to replenish the USF.

    By subsidizing rural broadband, the FCC is attempting to offset the additional costs of deploying technology to communities with low population density. But those costs reflect the realities of rural life, and it is simply wrong to force city dwellers to pay for the choices made by rural residents.

    Whether one chooses to live in a city or rural area, tradeoffs are inevitable. Continuing to expand the eligibility for subsidies will needlessly burden families’ budgets. Ironically, then, a policy intended to ensure affordable service is costing consumers dearly.


    Posted in Economics [slideshow_deploy]

    4 Responses to The FCC’s Universal Service Folly

    1. West Texan says:

      You cannot get anymore rural in CONUS than my far West Texas residence. Mobile phone service is limited in some areas but land lines are available. Most of our rural region is covered by both. My residence is some distance from the nearest small town and I have both land line internet and phone service through a local provider. My Dollar General "TracFhone" works great in and around town. For this reason, I do question the FCC's position. Did they seriously review rural communication needs, or is this more political back scratching at the American taxpayers' expense?

    2. Bobbie says:

      Where did the line of government ethics go? When are corrections to corruptions and eliminations of unconstitutional services going to commence? When are people going to be held accountable to the responsibilities to their personal expenses of their free choices?

      That's where the inequity is! There is no equal balance of responsibilities when it comes to people making the same choices. that can easily be corrected by holding all persons accountable to the expenses of their choices like expected in American society but on the unAmerican government contrary where discrimination and favoritism out numbers the tax payers thieved! What we can't afford we don't buy, who is teaching another way at our expense? oh, the unconstitutional Obama administration, that's who! Please stop this disrespect and cruel behavior of this administration. Poor people aren't dumb and if they want something they'll work for it without government giving them a way out no other poor person got! Get the fed government OUT!

    3. SamH says:

      The problem with this analysis is that it neglects the fact that the USF subsidies have, for years, been used to build broadband networks in rural America. The new rules are merely codifying what has been the practice for a long time. Thus, the reason that rural America only lags behind urban America in broadband access by the amount stated above is because of USF support. If it were not for USF support, it would lag much further behind. There just isn't the economic case for investing in rural networks. It's just not profitable without taxpayer support.

    4. saveamerica says:

      smart people don't force their business. if people want it they move where they can get it and pay the price in those hard to get places. tax payer support a crutch to outlandish business decisions the tax payer isn't accountable for? this social mindset is sickening individual minds!

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