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Saturday, July 22, 2006

Cheaper to "Give Away" Free Cellphone Services in Rural Areas

U.S. taxpayers are getting stuck with the tab for up to US$13,345 per telephone line per year for federally subsidized phone service under the US$7-billion "Universal Service Fund" tax on long-distance service, according to a new study conducted for The Seniors Coalition by George Mason University Professor of Law and Economics Thomas Hazlett.

The "gold-plated" waste and inefficiency under USF is so out of control that taxpayers actually could save at least US$1 billion or more each year by simply giving away at full retail cost satellite or cellular phone service to the few remaining Americans who do not currently have access to wireline phone service, according to the study.
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The Hazlett study notes that, rather than providing phone-service to low-income consumers in need, the bulk of USF taxpayer dollars are now part of a $3.7 billon wealth-transfer subsidy known as the "High-Cost Fund" that goes from unwary U.S. taxpayers to small, uneconomical private rural telephone companies that often have only a few hundred customers and are so engorged with tax dollars that they can afford to pay out more in dividends to shareholders than they actually charge for phone service.

The Hazlett study identifies 20 companies in Alaska, Arizona, Arkansas, Colorado, Hawaii, Kansas, Mississippi, Nebraska, Nevada, New Mexico, Oklahoma, Texas, Utah and Wyoming that that have one or both of the following characteristics: (1) one of the 12 worst companies in terms of the cost to taxpayers per USF-subsidized line per year; and (2) overhead costs charged to taxpayers per customer of $1,000 or more.

The Hazlett report for The Seniors Coalition notes: "The 'universal service' regime ostensibly extends local phone service to consumers who could not otherwise afford it � Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail (on net) to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies - such as wireless, satellite, and Internet-based services - that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals 'universal service' is said to advance."

"Grandma" Flora Green, national spokesperson, The Seniors Coalition said: "America's seniors and other taxpayers are getting a real wake-up call today: The Universal Service Fund is such a costly mess that it makes those bills we all paid for Pentagon hammers and toilet seats look like a downright bargain! American taxpayers need to insist on reining in the runaway Universal Service Fund, which should only help out those who really need it. The Fund should be capped and then reviewed from top to bottom to squeeze out all the billions of dollars of waste and fraud going on today. We think FCC Chairman Kevin Martin is correct in calling for a reverse-auction system to make sure that those Americans who really need USF help get it with the best available technology and at the lowest possible cost to taxpayers."

The Universal Service Fund tax has surged to $7 billion, up from less than $4 billion in 1998. To pay for the Universal Service Fund, the tax rate applied to long distance revenues has skyrocketed five-fold from 2.1 percent to its current level of 10.5 percent. The primary cause of USF increases stem from rising payments to rural phone carriers, labeled "High-Cost Support," where annual payments mushroomed from $1.7 billion in 1998 to $3.7 billion in 2005. These rising expenditures are, in turn, driven by increasingly expensive per-line payments to high cost rural phone carriers and by new payments to wireless phone carriers now qualifying as recipients of such funds.

SOURCE:
Cheaper to "Give Away" Free Cellphone Services in Rural Areas

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