Urban Poor Among Those Subsidizing Phones for Nation’s Wealthiest Locales

Published July 16, 2013

Researchers are expressing skepticism toward Federal Communications Commission reforms that attempt to end waste in a federal phone subsidy program.

Before the 2011 reforms, federal subsidies provided up to nearly $24,000 per year per phone line in certain high-income areas, including the island of Maui in Hawaii, Colorado resorts, and gated communities in Arizona. The subsidies have been going to approximately one-half of one percent of the nation’s households. Maximum subsidies per line are smaller now but still far more than the actual costs to provide phone service.

Phone service is available anywhere in the country, without subsidies, for $600 per line per year, said Thomas Hazlett, one of two authors of the study, “Unrepentant Policy Failure: Universal Service Subsidies in Voice and Broadband,” published by the Alliance for Generational Equity, or AGE.

“It’s very hard to believe that people in these very wealthy communities would be without phone service if it were not for poor people in urban areas subsidizing them,” said study coauthor Scott Wallsten.

Regressive Tax Program

Taxes on phone services, especially long-distance and international calls, fund the Universal Service subsidies. The taxes are imposed without regard to phone users’ income levels. Poor families spend more of their income on phone services than wealthy families do and so are hit harder by the taxes than higher-income families. Low-income immigrant families are hit the hardest, according to the study.

“It turns the whole idea of equity on its head,” Wallsten said.

The subsidy costs have been decreasing over the past several years, as more people move from land lines to cell phones, Wallsten said. By 2011, total costs were $4 billion.

Despite the decrease, the 2011 reforms require that administrators estimate costs of at least $4.5 billion, Wallsten said. This increases the cost by $500 million a year and leaves no room to reduce the cost to taxpayers.

In addition, the FCC reforms added a new reason for the subsidies: broadband Internet.

Higher Costs Overall

The reforms do little more than protect the FCC from dramatic news stories about the subsidies while increasing the overall cost of the Universal Service program, Wallsten said.

Per-line annual spending under the reforms is capped at $3,000, but even that number is about five times more than the actual cost. The $3,000 cap is “laughably high” compared with the actual $600 cost of phone service, Hazlett said.

Foregoing any loopholes, the cap prevents any one company from receiving huge amounts of money per line but ignores the root of the problem: hundreds of companies involved in smaller amounts of waste that’s less likely to make headlines.

Notably, the federal spending funds rural phone companies and not consumers. Phone users are often left with a $400 to $500 annual bill, Hazlett said.

Hazlett said it’s “outrageous” to spend thousands of dollars per line per year “when you could literally give satellite service free, essentially, for, at that time, $1,000 a year to the customers in any part of the country.”

Hundreds of Recipient Companies

The companies that received $24,000 a year per phone line have received most of the attention, “but it’s not the inherent problem in the program, it’s not where the big bucks are going,” Wallsten said. “The thing to really focus on is the hundreds and hundreds of companies that get much less than that that won’t be affected by the cap.”

“The companies that get these huge amounts are nice symbols of the problem with the program, but it’s not where most of the money is going, and the reforms have done nothing to affect where most of the money is going,” he said.

The researchers found FCC data showing more than 99 percent of U.S. households have access to mobile phone service and wireless broadband service, and that includes almost 98 percent of rural households.

“In essence, these programs have run out of things to subsidize,” the study notes.

Internet Info

“Unrepentant Policy Failure: Universal Service Subsidies In Voice & Broadband,” Arlington Economics: https://app.box.com/s/snp377aehtxicqy4q6ym