Topic: Taxation
Socialized Telephone Service! Who Knew? Did you know that you help susidize rural area telephone service?by The Frugal Libertarian
(libertarian)
Thursday, October 9, 2008
I paid my cable bill this week, but the $131.35 I paid for cable, internet, and phone was not what stung. It was a $0.81 fee that is added to my bill every month that really perturbed me. My cable company charges this fee so that they can recoup the Federal Universal Service Fund Fee that they are required to pay.
What is the Federal Universal Service Fund you ask? It a $7 billion a year program that supposedly helps provide telecommunication services to those that would otherwise not have access to such services. The fund is admininstered by the Universal Service Administration Company. Their website says "[t]he fund is maintained through contributions made by telecommunications providers across the country". They make these contributions sound as if they are voluntary. I assure you that they are not. These "contributions"are mandated by the Telecommunications Act of 1996.
Now you may be suprised that I would be upset about $0.81. Everyone knows I am frugal, but being outraged about $0.81 may catapult me into miser status. But, it is not the cost of the fee that I find upsetting. It is the existence of such a government program that I find outrageous.
The Universal Service Fund is comprised of four programs. The High Cost program "ensures that consumers in all regions of the nation have access to and pay rates for telecommunications services that are reasonably comparable to those in urban areas." The Low Income program "provides discounts that make basic, local telephone service affordable for more than 7 million low-income consumers." The Rural Healthcare program "provides reduced rates to rural health care providers for telecommunications and Internet services so they pay no more than their urban counterparts for the same or similar telecommunications services." The Schools & Libraries program"provides affordable telecommunications and Internet access services to connect schools and libraries to the Internet."
What could be wrong with trying to provide universal telecommunications? There are two problems with this type of program. First, the existence of these subsidies distorts competition and encourages small rural telecom companies not to implement cost cutting technologies. Competition and new technology would go farther to provide universal service than any government subsidy. If there is a market for a product, such as affordable telecommunications, then profit seeking companies have all the motivation they need to find innovative approaches to providing that product. These subsidies prevent this and instead encourage profit seeking companies to maintain inferior products while still making a profit at taxpayers expense.
Second,the government should not be in the business of forcefully reallocating our personal resources. Taking one person's rightful property and forcefully transfering it to someone else is theft. Redistribution of wealth is morally reprehensible, even $0.81 at a time.
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WOW!! You really are frugal! But I actually applaud you. However, If the TOTAL of all my taxes combined were $0.81 per month even if it is redistribution then I probably be o.k. with that theft.
There is no doubt that I would not have DSL were it not for the funding you describe. My phone company was once a local coop with a few thousand subscribers. It was purchased a while back by a large holding company that has specialized in purchasing rural communications companies that (in my opinion) stand to profit substantially from these subsidies.
Even more insulting is that in our area, we have no competition. Just yesterday, I had to threaten an indifferent employee in Timbuktu with the fact that I DO have cell service and I CAN get satellite internet if they try to shake me down again. Fortunately it worked.
No doubt, there are many reaping great profits from the USF.
Good post!! Let me offer a little something that may not make it easier to pay the 81 cents, but may help you direct your ire more accurately. When you say, "If there is a market for a product, such as affordable telecommunications..." the problem is that in many rural areas there is no market for affordable telecommunications. In areas where the cost of providing service is so high that folks would have to pay hundreds of dollars per month to get telephone service, the federal universal service fund kicks in to help carriers keep the cost of service low. The societal theory is that the overall network is more valuable when everyone can connect to everyone.
Here's where it gets tricky. You are spot on when you say that subsidies distort markets. That is why the Congress in the 1996 Telecom Act made subsidies available to any carrier that captures customers in these high-cost areas - on a "competitively neutral" basis. The idea is that the subsidy has to be sufficient to allow rural consumers to get the service and it doesn't matter which company gets the subsidy. If every carrier is eligible to get the same subsidy when they get the customer, then markets determine winners and the most efficient carriers get the customers, so that folks who pay in the 81 cents get appropriate value.
The idea was that inefficient rural telcos you mentioned would be forced to improve efficiency or lose in the market - just as carriers in urban areas do today when competition arrives. The FCC said that explicitly when they put the rules together. But the world is not ideal. The rural telcos have fought tooth and nail such that - some twelve years after the 1996 Act - they have never lost any subsidy even though newcomers (mostly wireless cariers) have tried to enter. The FCC continues to hold the old wireline carriers harmless from any adverse effects, and the FCC has capped fudning to newcomers who could be providing services that folks want and pushing the incumbents to get more efficient. Hey, elections have consequences.
The 1996 plan (bipartisan, passed by a republican congress and implemented by a democratically controlled FCC until 2001) has been replaced with a new plan, which favors the wireline industry and constrains newcomers from entering rural areas. Thus the drop in our nation's standing with respect to broadband penetration and poor wireless service in many rural areas.
There's a great societal benefit that government can bring in making sure rural areas have the same kind of quality services that are available in urban areas. It does take some 'redistribution', which I know you disagree with. That said, it should not take more than is necessary to do the job. And most of all, government should not fund old technology that people are abandoning (fixed voice) while denying new technologies (mobility/broadband) to rural folks who will not get them otherwise.
Your 81 cents may not sound like much, but the fact is, since 1999 the government has handed out $28 BILLION to wireline carriers who built networks decades ago and who have slow-rolled broadband deployment in rural areas, compared to $3 billion for wireless carriers, who are trying to build out new cell towers to provide services that compete with fixed voicenetworks and give consumers the servcies they are asking for. And the government has capped the wireless folks and is proposing to cut their funding by half.
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