March 27, 2008

Public Interest Comment on High Cost Universal Service Support

Key materials
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The Regulation

  • The FCC collects mandatory "contributions" from providers of interstate telecommunications services to subsidize rural telephone companies, phone service for low-income households, communications services for rural health care facilities, and Internet access for schools and libraries.
  • The FCC has sought comment on extending Universal service to broadband internet connections.
  • The FCC has also asked for comment on whether it should change funding rules for universal service and whether the fund is in need of fundamental reform.

Our Findings

  • Universal service fees raise the prices of these services for consumers, which causes them to use less and leaves them less well off.
  • The FCC does not evaluate the outcome of this program, making it impossible to determine whether it is accomplishing what it was designed for.
  • Extending universal service to broadband would dramatically increase the cost of the program and would likely cause fewer people to subscribe to broadband.

By the Numbers

  • Universal service long-distance charges totaled $2.7 billion and cost producers and consumers $1.16 billion in lost welfare (43 percent of revenue raised). For wireless, federal universal service charges generated a welfare loss of $978 million (56 percent of revenue raised).
  • A study of Texas found that the high-cost program averages $10,000 to connect a single telephone subscriber.
  • Expanding universal service to broadband would increase the size of the fund to by $700 million-$1.2 billion and would reduce subscribership by 4-7 million customers.


  • The FCC should issue outcome-based reports on Universal Service, so that it becomes possible to evaluate whether it has successfully achieved its goals.
  • The FCC should arrange an independent analysis of universal service's history to determine whether past efforts have been effective.
  • The commission should not extend the universal service entitlement to broadband, which would likely be a net harm to consumers.