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

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Author Info
Eric P. Chiang () (Department of Economics, Florida Atlantic University)
Janice A. Hauge () (Department of Economics, University of North Texas)

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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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Publisher 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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Related research
Keywords: subsidies; Universal Service Fund; telecommunications; regulation;

Find related papers by JEL classification:
L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Carlos Martins-Filho & John W. Mayo, 1993. "Demand and Pricing of Telecommunications Services: Evidence and Welfare Implications," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 439-454, Autumn. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Donald Alexander & Robert Feinberg, 2004. "Entry in Local Telecommunication Markets," Review of Industrial Organization, Springer, vol. 25(2), pages 107-127, 06. [Downloadable!] (restricted)
  6. T. Randolph Beard & David L. Kaserman & John W. Mayo, 2003. "A Graphical Exposition of the Economic Theory of Regulation," Economic Inquiry, Oxford University Press, vol. 41(4), pages 592-606, October. [Downloadable!] (restricted)
  7. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law & Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
  8. 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. [Downloadable!] (restricted)
  9. Lukasz Grzybowski, 2005. "Regulation of Mobile Telephony across the European Union: An Empirical Analysis," Journal of Regulatory Economics, Springer, vol. 28(1), pages 47-67, 07. [Downloadable!] (restricted)
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