Commentary

What Does $7 Billion Buy?

Leave it to Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University to meticulously document and qualify what many of us have long-suspectedââ?¬â??that the Universal Service Fund (USF) encourages rural phone companies to keep costs high. The more they spend, the more subsidies roll in, to the tune of $7 billion a year. Competing technologies that would drive down real costs of providing service, and relieve the USF burden on ratepayers, don’t have a chance in this regime. Hazlett’s 91-page paper dissects the inefficiency of the USF concluding that its processes, which ignore current telecom market realities such as wireless and VoIP, actually undermine the “Universal Service” mission. Funds rarely find their way into the hands of those who truly need them, instead, they flow directly to the coffers of small and mostly rural phone companies, some in quite wealthy areas, like Jackson Hole, Wyo., where they act largely as huge reimbursements for hefty infrastructure investments, the necessity of which are never adequately reviewed.

Steven Titch served as a policy analyst at Reason Foundation from 2004 to 2013.