WHAT THE EXPERTS SAY
U.S. taxpayers pay as much as $13,345 per telephone line per year for federally subsidized phone service under the $7-billion federal "Universal Service Fund" (USF) phone tax.¹ Rather than providing phone service to low-income consumers in need, the bulk of USF taxpayer dollars are now part of a $4 billion wealth-transfer subsidy known as the "High-Cost Fund" that goes from the pockets of U.S. taxpayers to small, uneconomical private rural telephone companies that often have only a few hundred customers and are so engorged with tax dollars that they can afford to pay out more in dividends to shareholders than they actually charge for phone service. Increasingly, USF funds are also flowing to large wireless companies that provide what is often purely duplicative service - often competing with unsubsidized service providers.
Wireless companies are expected to receive more than $1 billion in subsidies from the Universal Service Fund in 2007. The subsidies to often substantial wireless companies have grown by more than 185 percent annually in recent years, raising concerns about the financial sustainability of the fund. In May, the Federal-State Joint Board on Universal Service proposed capping the subsidies at 2006 levels; a final decision on the proposal is pending at the FCC.
Not only are wireless company subsidies growing rapidly, but there is little evidence that low-income and other intended USF beneficiaries actually are better off for them. A June 2007 study by Criterion Economics expert Nicholas Vantzelfde compared the coverage of subsidized wireless carriers with coverage provided by unsubsidized wireless carriers in the same areas. Vantzelfde found:
"In the approximately 800 study areas where wireless carriers receive USF subsidies, unsubsidized carriers provide substantially more coverage. Unsubsidized carriers cover 97% of the population in these areas, while subsidized carriers cover only 70%.
Of the 148 million people living in areas where wireless carriers receive subsidies, subsidized carriers provide unique coverage to only 2% of the population. On the other hand, unsubsidized carriers provide coverage to 44 million people who do not have coverage from the subsidized carriers.
Wireless carriers receive over $1,000 in subsidies for each incremental line served, or $95 per subscriber per month.
"Subsidies to wireless carriers are highly duplicative: More than half of the population in areas where wireless carriers receive subsidies is covered by two or more subsidized carriers."²
The question with these larger telecom companies is not whether certain activities were funded with USF dollars. Instead, the real issue is whether or not such large and well-established companies have any need at all for a massive federal subsidy - and if there is any public benefit to doling out billions of dollars to such firms.
¹ Thomas W. Hazlett, "Universal Service" Telephone Subsidies: What Does $7 Billion Buy," study for The Seniors Coalition, June 2006, http://www.senior.org/Documents/USF.Master.6.13.06.pdf.
² Criterion Economics, news release, June 13, 2007, http://www.criterioneconomics.com/docs/Criterion%20USF%20Press%20Release%20061307.pdf.