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MEDIA ADVISORY                                  September 19, 2014

 

Contact: Randolph May at 202-285-9926

 


 
Free State Foundation Scholars Urge Congress to Reform the Outdated Universal Service Regime
 
    
Free State Foundation President Randolph May, Senior Fellow Seth L. Cooper, and distinguished members of FSF's Board of Academic Advisors Richard A. Epstein, Justin (Gus) Hurwitz, Daniel Lyons, Glen O. Robinson, James B. Speta, and Christopher S. Yoo today submitted a Response to the House Commerce Committee's Fifth White Paper, "Universal Service Policy and the Role of the Federal Communications Commission."

Each of the signatories to the Free State Foundation's Response is a widely recognized expert in the fields of communications law and policy, administrative law, and/or regulatory policy generally. Each has published articles in academic journals and other publications on the subjects addressed in the Response.
   
Immediately below is the Introduction and Summary of the Free State Foundation scholars' response. A PDF of the complete Response, with footnotes, is here.

  

Introduction and Summary 

 

Once again, we commend the Committee for undertaking this effort to review and update the Communications Act. And we also commend the Committee for using the Fifth White Paper to focus on universal service reform. As the Committee correctly noted, "[t]he principle of universal service has been at the heart of federal and state telephone policy" nearly from its inception. And rightfully so.

 

The universal service principle, which supports access to basic communications service for all Americans, is an important component of the social safety net. Keeping all members of society connected, regardless of income or social status, redounds to the benefit of those who can afford to pay as well as those who cannot afford to pay for access to the network. And, in so doing, this helps reduce America's digital divide, which, parenthetically, we observe is also narrowed by adoption of efficiency measures that reduce the costs of access for all.

 

But while universal service is a laudatory goal, its execution has often left much to be desired. In the nearly two decades since the system was overhauled in the Telecommunications Act of 1996, Universal Service Fund expenditures have doubled in size to $8.3 billion annually. Yet much of that new funding has been spent on projects that have little to do with the traditional goals of universal service. The Federal Communications Commission has admitted that the current system distorts investment and competition in myriad ways, while the Government Accountability Office pointedly has criticized the program's lack of oversight and accountability.

 

At the same time, advances in technology that have eroded legacy jurisdictional boundaries and service distinctions mean that the fund is drawing from a shrinking base of interstate and international telecommunications revenue. The increased USF payouts, coupled with the shrinking revenue base, has caused the USF "surcharge" paid by consumers to skyrocket from 3% in 1998 to 16.1% in the fourth quarter of 2014. This 16.1% surcharge necessarily operates as a tax on all interstate and international calls. It is counterproductive to fund universal service by taxing the very same services the Commission seeks to promote.

 

To the Commission's credit, it has recently begun to reform the most troubling portions of the current Universal Service program, and it has begun to shift the program's focus from supporting ordinary telephone to supporting broadband service, recognizing the importance of high-speed Internet access to modern society. But these reforms, while not insignificant, represent only the first steps in what should be a complete reform-minded overhaul of the program. As part of its Communications Act Update process, the Committee should refocus the Universal Service program on what ought to be its core mission: (1) assisting consumers who cannot afford broadband access, through market-based, consumer-empowering initiatives that befit an increasingly competitive broadband marketplace; and (2) supporting build-outs only in unserved areas and then only through economically efficient mechanisms such as reverse auctions (whereby firms bid the lowest rate that they will accept to supply narrowly targeted subsidy support.) In addition, any Lifeline program that is maintained for those who cannot otherwise afford service must also be operated in a way that incorporates means to prevent fraud and waste.

 

Moreover, the Commission should abandon the antiquated contribution mechanism currently in place, with the present USF surcharge set at a 16.1% tax on all interstate and international calls. Instead, it should avoid within sector distortions by funding subsidies through appropriations from the general treasury where they are subject to more intensive scrutiny. This approach would allow Congress to set a hard budgetary cap on expenditures for a definite period, which, in turn, will encourage the Commission to wring inefficiencies out of the system in order to live within the congressional funding restraints. It would also make today's hidden tax more transparent in a way that provides for greater accountability to Congress and taxpayers.

  

* * *

 

A PDF of the complete Response, with footnotes, is here.
 

   

Randolph J. May, President of the Free State Foundation, is a former FCC Associate General Counsel and a former Chairman of the American Bar Association's Section of Administrative Law and Regulatory Practice. Mr. May is a public member of the Administrative Conference of the United States, and a Fellow at the National Academy of Public Administration.

  

Mr. May is a nationally recognized expert in communications law, Internet law and policy, and administrative law and regulatory practice. He is the author of more than 150 scholarly articles and essays on communications law and policy, administrative law, and constitutional law. Most recently, Mr. May is the editor of the new book, "Communications Law and Policy in the Digital Age: The Next Five Years." He is the author of A Call for a Radical New Communications Policy: Proposals for Free Market Reform. And he is the editor of the book, New Directions in Communications Policy and co-editor of other two books on communications law and policy: Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated? and Communications Deregulation and FCC Reform. 

    

Biographical sketches for members of the Free State Foundation's Board of Academic Advisors are here

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