October 27, 2011

FCC Vote Should Target Significant USF Reform

Jerry Ellig

Research Professor, George Washington University Regulatory Studies Center

At its open meeting this morning, the FCC is scheduled to vote on a plan to reform its “universal service” program that subsidizes phone service in high-cost and rural areas.  Jerry Ellig, a Mercatus Center senior research fellow, found in a 2006 study that rural telephone subsidies are the third costliest group of telecommunications regulations the FCC administers, in terms of their effects on consumers and the economy. “Before transforming the rural telephone subsidies into rural broadband subsidies,” Dr. Ellig said, "the commission needs to fix significant systemic problems with the current program.”

“We won’t know for sure what the five FCC commissioners have agreed to until they vote,” he said. “But any reform plan that actually fixes the problems with the current system needs to contain these elements:

  • A competitive bidding process to select a single, lowest-cost provider to receive subsidies in places that lack service;
  • A sunset provision that would require the commission to evaluate, after a period of years, what the subsidies have accomplished and whether they need to be continued; and
  • Clear measures of outcomes so that the commission and the public can tell several years from now whether the subsidies are actually achieving the intended public benefits.”