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Universal Service Reform: Are Reverse Auctions the Answer?

March 1, 2007, 12:00 pm - 3:00 pm
Oriental Ballroom C
Mandarin Oriental Hotel
1330 Maryland Avenue, SW
Washington, DC

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12:00 p.m. Luncheon
12:30 p.m. Panel Discussion

Scott Wallsten (Moderator) , Senior Fellow, Director of Communications Policy Studies, The Progress & Freedom Foundation

Shyamal Ghosh, Former Director, Indian Department of Telecommunications
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Paul Milgrom, Professor of Economics, Stanford University
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Vernon Smith, Professor of Economics and Law, George Mason University

Dennis Weller, Chief Economist, Verizon
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Universal service laws are intended to ensure that all Americans have access to telecommunications services at reasonable prices. Universal service is funded by taxes on telecommunications services and is becoming increasingly expensive, with subsidies expecting to top $7 billion in 2006. There is likely to be even more upward pressure on subsidies if additional services like high-speed Internet connections are added. The Federal Communications Commission recently raised the innovative idea of reducing expenditures through "reverse auctions," in which companies bid for subsidies. In such an auction, the firm that bids to provide service for the smallest subsidy, all else equal, would be chosen as the service provider. This approach, it is hoped, will reveal the true cost of providing service in high-cost areas and reduce the growth in universal service expenditures. How could reverse auctions be designed and implemented in practice? Have reverse auctions succeeded in other countries? How do reverse auctions affect the goal of promoting competition? This conference examined the promise and perils of reverse auctions and universal service.

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The Progress & Freedom Foundation