Unlike the rollout of most other technologies, when electricity and telephone service were rolled out to the nation, government programs were created to make sure that everyone had access to these critical technologies. In the telephone world, this commitment is called “universal service.”
The idea of universal service was promulgated in the days when a single telephone company served the nation. Their slogan was ""one system, one policy, universal service." In order to achieve universal service, a complicated system of cross-subsidies was created. But today, when virtually everyone has access to multiple communications options, and in an era of competition between communications providers, universal service is a grotesque anachronism, and is creating incredible economic distortions.
The recent recommendation by FCC Chairman Kevin Martin to base Universal Service Fund (USF)-contributions on phone numbers, replacing the current system under which contributions are based on long-distance revenue, begs an obvious question: Isn't the whole USF program a dinosaur that is no longer applicable or necessary in today’s competitive environment?
Years ago, in an era of monopoly or oligopoly, it may have made sense to subsidize the two-way voice-grade telecommunications to guarantee the availability of access to everyone.
But in today’s world of multi-modal communications (wireline, wireless and Internet based), the underlying justification for USF is no longer valid.
Remember, the original subsidies were created many decades ago and were designed to supplement revenue streams for small independent and rural telephone companies to provide opportunities to extend the national telephone network.
This Robin Hood economics may have worked in the early days of telephony to spur universal service. But with 95 percent to 97 percent of all Americans having access to a telephone, the reasoning no longer justifies continuation. Today, the Universal Service program has become subsidization of protected classes.
If there are groups—seniors, the underprivileged and libraries—who need assistance to access basic access to voice and Internet services, then Congress and state legislatures have the authority to create assistance programs provided directly to the recipients of the services.
Continuation of subsidies through the rate and pricing structures of the providers only serves to increase the costs of doing business and ultimately the prices that consumers are being charged. Changes to modernize USF are good. Doing away with it entirely or replacing it with a direct assistance plan would be even better.