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Funding Universal Service: The Effect of Telecommunications Subsidy Programs on Competition and Retail Prices

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Abstract

There is general concern that producer subsidies distort competition. We examine a telecommunications subsidy system that transfers money from low cost regions to high cost regions of the U.S. Even though the system is designed to be competitively neutral, we find evidence that the system, combined with carrier of last resort policies, promotes cream skimming by entrants in low cost areas and less entry in high cost areas, where incumbents are more likely than entrants to receive subsidies. We are unable to rule out the possibility that state regulatory policies favor incumbents in states that are net beneficiaries of the subsidy system.

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File URL: http://www.netinst.org/Chiang-Hauge.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 07-08.

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Length: 34 pages
Date of creation: Aug 2007
Date of revision: Aug 2007
Handle: RePEc:net:wpaper:0708

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Web page: http://www.NETinst.org/

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Keywords: subsidies; Universal Service Fund; telecommunications; regulation;

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  1. Wolak, Frank A., 1996. "Can universal service survive in a competitive telecommunications environment? Evidence from the United States consumer expenditure survey," Information Economics and Policy, Elsevier, vol. 8(3), pages 163-203, September.
  2. Trevor R. Roycroft, 2005. "Empirical Analysis of Entry in the Local Exchange Market: The Case of Pacific Bell," Contemporary Economic Policy, Western Economic Association International, vol. 23(1), pages 107-115, 01.
  3. Chone, Philippe & Flochel, Laurent & Perrot, Anne, 2000. "Universal service obligations and competition," Information Economics and Policy, Elsevier, vol. 12(3), pages 249-259, September.
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  5. Mueller, Milton, 1993. "Universal service in telephone history : A reconstruction," Telecommunications Policy, Elsevier, vol. 17(5), pages 352-369, July.
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  7. Garbacz, Christopher & Thompson, Herbert G, 2002. "Estimating Telephone Demand with State Decennial Census Data from 1970-1990," Journal of Regulatory Economics, Springer, vol. 21(3), pages 317-29, May.
  8. T. Randolph Beard & David L. Kaserman & John W. Mayo, 2003. "A Graphical Exposition of the Economic Theory of Regulation," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 592-606, October.
  9. Barros, Pedro P. & Seabra, M. Carmo, 1999. "Universal service: does competition help or hurt?," Information Economics and Policy, Elsevier, vol. 11(1), pages 45-60, March.
  10. Rosston, G.R. & Wimmer, B.S., 2000. "The "State" of Universal Service," Papers 99-018, United Nations World Employment Programme-.
  11. Zolnierek, James & Eisner, James & Burton, Ellen, 2001. "An Empirical Examination of Entry Patterns in Local Telephone Markets," Journal of Regulatory Economics, Springer, vol. 19(2), pages 143-59, March.
  12. Donald Alexander & Robert Feinberg, 2004. "Entry in Local Telecommunication Markets," Review of Industrial Organization, Springer, vol. 25(2), pages 107-127, 06.
  13. H. Cremer & F. Gasmi & A. Grimaud & J. J. Laffont, 2001. "Universal Service: An economic perspective," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 72(1), pages 5-43, 03.
  14. Rosston, Gregory L. & Wimmer, Bradley S., 2000. "The 'state' of universal service," Information Economics and Policy, Elsevier, vol. 12(3), pages 261-283, September.
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