Monday, January 12, 2009

Universal Service Reform

An increasing number of players—including the incoming Administration—have expressed interest in reforming the process by which the federal government seeks to promote wider and more affordable access to telecommunications services. Currently wireline, wireless and now many Internet telephone subscribers contribute over $7 billion annually to universal service funding, most of which goes to incumbent wireline carriers. The process is quite flawed and vulnerable to arbitrage. For example, a rural wireline telephone company in Iowa offers “free” teleconferencing (previously “free” calls to European locations) just by calling into their switch. For wireless callers with “unlimited nights and weekends” the additional out of pocket cost is zero, even though the carrier making the inbound call incurs charges of several cents per minute instead of the thousands of one cent typically charged by so-called “terminating carriers.”

I have written extensively on the subject of universal service reform and suggest the following “best practices”:

• True technology neutrality coupled with a willingness to fund well articulated and community-supported projects rather than limit support to a fixed list of existing carrier services;

• Capping government project funding to a percentage of total cost, thereby requiring project advocates to seek financial support from other grantors, or from bank loans;

• Emphasizing one-time project funding rather than recurring discounts;

• Creating incentives for demand aggregation among government and private users, particularly for broadband and data services;

• Promoting innovation and creativity in projects, including technologies that provide greater efficiency and lower recurring costs;

• Encouraging competition among universal service providers by auctioning off subsidy access; and

• Blending government stewardship and vision with incentives for private stakeholders to pursue infrastructure investments.

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