Competitive Universal Service TC 310 June 5, 2008
Universal Service Premise Network Externality Individuals Society Subsidies (implicit) Rationale for Implicit challenged Essential, people will pay Programs don't keep people on USF funded by industry fees, not “taxes”
Current Programs Universal Service Fund Life Line & Link-Up Non-need based: High cost suppression Broadband to schools/libraries Broadband to rural health care facilities Without these, who leaves the network? Isn't that our concern?
Competition Kills Old System Monopolies can cross-subsidize Competitive entities struggle to Arbitrage rate opportunities New telecom techs VoIP Wireless 1996 Act Mandates Explicit Less popular, look like taxes Universal Service Problems Solely Regulation Based
Non-Needs Based Primary focus Willing to pay at cost rate Largest user of USF Least socially desirable Greatest challenge to reform Vested State interests Arbitrage opportunities Politically sensitive
High Cost Customers Pure competition would not serve rural communities State Demands Carrier-of-last-resort (ILECs) AT low costs USF helps cover costs Eligible Telecommunications Carriers (ETC) Wireless and CLECs compete
Non-Rural Carriers Interstate v. Intrastate Interstate: Dominate ILECs lower rates USF makes up difference Intrastate: Only help high averages (135%) No help without this threshold Burden is on States Free to experiment Few do, leaving implicit subsidies in tact
Rural Carriers Small ILECs, few customers Insulated from 1996 Act Safe from unbundling, pro-competition sections Still face wireless & VoIP challenges Untenable Still allow ECTs Arbitrage opportunity Enter market, get a subsidy USF needs to keep growing!
Funding USF Impose both Intra and Interstate contributions Supreme Court rules only has Interstate jurisdiction Long Distance bears burden Based on retail revenues, approx 9% Problems Fewer customers, competition Unfairly dampens demand for services No technological rationale
Solutions Connection-Based Based on customer connections to public network Irrespective of what technology Exempts LD, they never connect customers, instead they use a LEC Numbers-Based Assign numbers, make a contribution Excludes LD and broadband Does preserve 10 digit numbers
Information v. Telecommuncations Problematic distinction Cable does not have to contribute Telephone companies do (even for DSL) VoIP also excempt Problem defining telecommunications Use numbers and connection together Pulls in VoIP and Cable (bundled VoIP)
Universal Service for What? USF policies consider only voice as essential USF applies to what is essential to society 1996 Act grants expanded authority Likely to include “enhanced” services Broadband minimally Do we need it? Broadband subsidies already $2 billion Makes more sense than telephone Who's going to pay?