Research & Commentary: Universal Access and Service Funds Are Outdated, Costly

Published February 1, 2010

Federal and state universal access and service funds (UASFs) have become an ineffective and outdated use of taxpayer money. These funds, first established to expand basic telephone service to rural and low-income residents, have grown exponentially over the years, even though phone and Internet service have been expanding successfully without them. The dramatic advances in telecommunications technology and service since the creation of these funds have made them an unnecessary and costly burden on taxpayers.

Expanding these funds would further burden consumers and providers alike and continue distorting the marketplace for telecom services. Sound telecom policy would be to eliminate UASF taxes completely and let providers compete openly in a market free of subsidies. At a minimum, the taxes used to finance these funds should be made transparent to consumers on their bills instead of hidden in the price of telecom services.

The current lack of transparency should be of great concern to both consumers and legislators. Expanding broadband access and phone service is important, but creating subsidies and raising hidden taxes are the wrong way to achieve this goal. Eliminating government-created barriers to investment by the broadband industry, slashing excessive telecom taxes, and freeing up subsidized areas to market competition are a more taxpayer-friendly and efficient way to expand access to telecommunication services.

The following articles offer additional information on sound telecom public policy and universal access funds.


Ten Principles of Telecom Policy
This booklet in The Heartland Institute’s Legislative Principles series provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to state telecom policy. It presents the 10 most important principles of sound telecom policy, from regulatory reform to the government’s role in expanding broadband.

Public Interest Comment on High Cost Universal Service Support
This study by the nonpartisan Mercatus Center at George Mason University evaluates the high cost of Universal Service Funds. “A study of Texas found that the high-cost program averages $10,000 to connect a single telephone subscriber,” the report notes.

Texas Considers Rural Phone Universal Service Subsidy Reform
This article from InfoTech & Telecom News notes Texas has improved the transparency of its Universal Service Fund and is considering further reforms.

A State Legislator’s Guide to Telecom Policy
This publication provides policymakers and civic and business leaders with a highly condensed yet easy-to-read guide to telecom policy matters and presents the most important principles of sound telecom policy.

Expansion of Universal Service Fund Debated
This article from Budget & Tax News examines the role of the Federal Universal Service Fund and considers whether it should be reformed to help expand broadband as well. Critics quoted in the article note the fund hasn’t created the promised benefits.

Digital Welfare: The Failure of the Universal Service System
This article outlines how public administrators have created a regulatory mess and disincentives through the use of the Universal Service Fund.

‘Universal Service’ Telephone Subsidies: What Does $7 Billion Buy?
This paper looks at the ineffectiveness of subsidizing universal service at the expense of taxpayers and gives an overview of how the $7 billion federal Universal Service Fund is distributed and how inefficient it has been.

High-Cost Universal Service Support
In this Recommended Decision, the Federal-State Joint Board on Universal Service recommends “the Federal Communications Commission address the long-term reform issues facing the high-cost universal service support system and make fundamental revisions in the structure of existing Universal Service mechanisms.”

A Telecommunications Policy Primer
This study explains how subsidizing higher-cost services undermines technological innovation by reducing demand for alternatives.

Preliminary Proposal of the Universal Service Working Group
This paper analyzes the best ways to create an effective universal service policy structure, noting, “The recommendations contained within this preliminary report derived from a set of universal service principles–affordability, efficiency, neutrality, and transparency.”


For further information on this subject, visit InfoTech & Telecom News at

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, you may contact Legislative Specialist John Nothdurft at 312/377-4000 or [email protected].