July 27, 2006

What Does $7 Billion in Telco Subsidies Buy?

Thomas Hazlett:
The “universal service” regime ostensibly extends local phone service to consumers who could not otherwise afford it. To achieve this goal, some $7 billion annually is raised – up from less than $4 billion in 1998 – by taxing telecommunications users. Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail – on net – to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – such as wireless, satellite, and Internet-based services – that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals “universal service” is said to advance.
Alex Tabarrok adds:
Guess how much would it cost a farmer to get telephone service in a small rural county far from a major city? Let's say $800 for satellite service.

Now guess how much the government subsidizes rural phone carriers to provide this service. The answer? As much as $13,000 per line per year.
Posted by James Zellmer at July 27, 2006 8:28 AM | Subscribe to this site via RSS:
Posted to Broadband | Electronic Rights | Politics | Taxes