Universal Service: Time for Reform

Published December 1, 2003

WASHINGTON, DC–Millions of Americans benefit from the Universal Service program–a patchwork of policies that helps fund basic and advanced telecommunications services in high-cost urban and rural areas, as well as the ‘schools and libraries’ program. But, according to a new study, the program is “ill-defined,” threatened by the effects of new technology, and “facing unprecedented challenges to its funding sources.” What should be done? The authors highlight various proposals for consideration by policymakers and the public, as Congress and the Federal Communications Commission debate options for reform.

“The viability of the Universal Service Fund is being attacked on all sides, not only by the growth of competition, but the persistence of an antiquated regulatory regime and technological innovation,” write Raymond L. Gifford and Adam Peters of the Progress & Freedom Foundation in “Universal Service Policy: At the Crossroads.”

“There is general consensus” the funding mechanism “needs to be altered or overhauled entirely,” write the authors. But, “both regulators and legislators would be well-advised to take a step back and reconsider what the universal service fund is really supposed to pay for before determining which mechanisms should be employed.” There is “an urgent need,” they write, “for regulators to get serious about deregulation of retail rates.”

One option for reform presented in the paper is “replacing the existing system of charges on interstate service with an across-the-board surcharge on all communications services revenues.” Another is using “reverse auctions” as a distribution mechanism, an idea that “could provide for ‘predictability’ that carriers aim for, minimize welfare loss, and ensure that customers are served in isolated areas.” The study also mentions phone stamps, a sort of voucher system that would be paid to low-income and rural communications subscribers. Also noted is the possibility of “an offset similar to the earned income tax credit.”

David Fish ([email protected]) is vice president of communications and external affairs for the Progress & Freedom Foundation, a 501(c)(3) nonprofit organization founded in 1993.