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Friday, September 26, 2003
CONTACT: David Fish
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Universal Service: Time for Reform
New Study Highlights Challenges, Raises Options for Reform

WASHINGTON, D.C. - Millions of Americans benefit from the Universal Service program – a patchwork of policies that helps fund basic and advanced telecommunications services in high-cost urban and rural areas, as well as the ‘schools and libraries’ program. But, according to a new study, the program is “ill-defined,” threatened by the effects of new technology and “facing unprecedented challenges to its funding sources.” What should be done? The authors highlight various proposals for consideration by policymakers and the public, as Congress and the Federal Communications Commission and Congress debate options for reform.

“The viability of the Universal Service Fund is being attacked on all sides, not only by the growth of competition, but the persistence of an antiquated regulatory regime and technological innovation,” write Raymond L. Gifford and Adam Peters of The Progress & Freedom Foundation in “Universal Service Policy: At the Crossroads,” their study released Friday.

“There is general consensus” the funding mechanism “needs to be altered or overhauled entirely,” write the PFF duo. But, “both regulators and legislators would be well-advised to take a step back and reconsider what the universal service fund is really supposed to pay for before determining which mechanisms should be employed.” There is “an urgent need,” they write, “for regulators to get serious about deregulation of retail rates.”

One option for reform cited in the paper is “replacing the existing system of charges on interstate service with an across-the-board surcharge on all communications services revenues.” Another is using “reverse auctions” as a distribution mechanism, an idea that “could provide for ‘predictability’ that carriers aim for, minimize welfare loss, and ensure that customers are served in isolated areas.” The study also mentions phone stamps, a sort of voucher system that would be paid to low income and rural communications subscribers. Also noted is the possibility of “an offset similar to the earned income tax credit.”

The Progress & Freedom Foundation is a market-oriented think tank that studies the impact of the digital revolution and its implications for public policy. It is a 501(c)(3) nonprofit organization.



The Progress & Freedom Foundation