The practice of overcharging urban and long-distance customers to subsidize phone service in high-cost areas began in 1950, when federal and state regulators began making long-distance customers pay more of AT&T’s costs. Explicit federal and state subsidy programs are a much more recent invention.
The current federal program began when the government broke up AT&T in 1984 and needed a way to transfer money between newly independent companies. Federal regulators soon realized subsidizing rural phone service by slapping big markups on long-distance service was no longer viable, so they placed a surcharge on all interstate and international telecommunications instead.
Many states that wanted to subsidize rural phone service followed suit, enacting universal service surcharges on intrastate telephone service instead of making long-distance customers pay for most of the subsidy.
— Jerry Ellig
