Universal Service Fund Paper and Executive Summary

QUICK SUMMARY

Subsidyscope does not quantify potential regulatory subsidies in its presentation of federal spending and subsidy data. In order to provide an example of how regulations may provide subsidies, Subsidyscope commissioned the George Washington University Regulatory Studies Center to examine a specific regulation. This study, authored by Gerald Brock, a professor of economics and telecommunications at GWU's Trachtenberg School of Public Policy and Public Administration, and April Corbett, a former Graduate Research Assistant at the Trachtenberg School, provides a case study of the Universal Service Fund (USF). The USF is a regulatory cross-subsidy system applying to long distance telephone and cell phone service that is determined by the rules of the Federal Communications Commission (FCC). The paper is based on data through 2008 and thus does not incorporate a recent 2011 FCC rulemaking, which among other changes altered the program substantially by creating a new fund to replace the high-cost support mechanisms and setting a firm budget for the program. The case study thus serves as an historical analysis of the evolution of a regulatory subsidy. Subsidyscope has no position on this issue.

The Universal Service Fund (USF) currently distributes more than $7 billion per year among participants in the telecommunication industry. It is a regulatory cross-subsidy system that is determined by the rules of the Federal Communications Commission (FCC) and the administration of those rules. The USF affects consumers through higher prices for subscribers to services that pay into the fund and lower prices for subscribers to services subsidized by the fund. Companies pay into the fund 14 percent of their revenue derived from interstate long-distance calls and 5.2 percent of their revenue derived from cellular service. The companies charge customers for the fees they are required to contribute to the USF; consequently, the USF increases consumer prices by about 14 percent for interstate long-distance calls and by about 5 percent for cellular service. Read the full Universal Service Paper here and Universal Service Executive Summary here.