WASHINGTON D.C. - Universal service reform should include a cap on the fund, introduce performance-based block grants, and shift funding to a "numbers tax." These are the conclusions of The Digital Age Communications Act Universal Service Working Group in a Preliminary Report, complete with model legislative language, being released today. After extensive deliberations over six months, the Working Group reached these conclusions based on a set of universal service principles -- affordability, efficiency, neutrality and transparency. DACA is an ongoing project in which The Progress & Freedom Foundation is working with other think tanks, members of academia and former officials from the last five Presidential administrations to craft a new communications regulation model for the digital age.

"We focused on the goal of making basic communication services affordable as efficiently as possible," says Working Group Co-Chairman Michael Riordan, a professor with Columbia University. "This means controlling the cost of universal service programs and financing the programs with taxes that distort economic activity the least. A key idea is to empower state governments to improve efficiency with innovative policies for distributing universal service funds."

"In any discussion of communications reform, universal service is the elephant in the room," says Working Group Co-Chairman Adam Peters, Research Fellow and Regulatory Counsel for The Progress & Freedom Foundation. "This proposal seeks to advance the conversation by encouraging durable, meaningful reform while ensuring that all customers have access to basic services."

"It is all too obvious and all too easily ignored that desirable universal service policies must balance benefits and costs," the Working Group found. "The difficult challenge for universal service policy is to balance vague benefits against clear economic costs." With this in mind, the Working Group proposes a national universal service policy motivated by the goal of securing affordable, basic electronic communication services for low-income households and households located in high-cost areas, with transparent, easy-to-administer distribution and contribution mechanisms that are economically efficient and competitively neutral. The proposal has three key features:

• A cap on overall size. The fund has grown rapidly along with expanding entitlements. "A cap on the size of the fund forces the FCC to allocate scarce funds based on the assessment of the comparable affordability of basic electronic communication services across states."
• Performance-based block grants. These would be administered by state authorities, which could devise their own distribution mechanisms within guidelines set by the FCC to allocate funds most efficiently.
• Funding from a "numbers tax." This tax is on access rather than usage. To fund the cap proposed by the Working Group, each number tax for consumer and business lines would be between $0.59 and $0.77 per month, low enough to offset most efforts to adopt technologies to bypass the tax, and would have the advantage of being transparent to the consumer.

As for advanced services, the majority of the Working Group also advocates that any immediate federal funding earmarked for advanced services (with the possible exception of funding for schools, libraries and rural health centers) should be appropriated by Congress from federal revenues.

"In the nearly ten years since the passage of the Telecom Act of 1996, the USF has found itself facing challenges of uncontrolled growth, a declining contribution base, and inefficiency and fraud," says PFF President Ray Gifford, DACA Co-Chairman. "Designed to fit in the context of other DACA Working Group proposals, this preliminary report outlines a policy approach advancing affordable basic electronic communication services for all households in the United States, while remaining economically efficient, competitively neutral, and administratively transparent."

The Universal Service Working Group Co-Chairmen will host a public forum, likely in early December, to discuss the Preliminary Report and how it fits with proposals from other DACA Working Groups.

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