Abstract
Major changes in telecommunications technology have encouraged, and even forced, completely new approaches to the provision of telecommunications services. There is a worldwide recognition that reliance on competitive markets can encourage the deployment of advanced, but continually changing technology, more effectively than government, and that the availability of competitive telecommunications alternatives can help promote the efficient delivery of a wide range of benefits to consumers.
I owe particular thanks to Wayne Olson and Jaime D’Almeida for their insights and assistance.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Telecommunications Act of 1996, Pub. L. No. 104–104, 110 Stat. 56 (1996). The 1996 Act amended the Communications Act of 1934. 47 U.S.C. §§ 151 et seq.
Peter W. Huber et al., The Telecommunications Act of 1996: Special Report 53 (Aspen Law & Business 1996).
I do not review studies of the elasticity of demand for access to the telephone network here. Suffice it to say that for the last two decades studies have generally suggested that the elasticity is very low indeed. See generally, Lester D. Taylor, Telecommunications Demand in Theory and Practice 2–3 (rev. ed., Kluwer Academic Publishers 1994); and Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000).
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 104.
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000) at 12
Milton L. Mueller, Jr., Universal Service: Competition, Interconnection, and Monopoly in the Making of the American Telephone System 5 (MIT Press 1997).
Milton L. Mueller, Jr., Universal Service: Competition, Interconnection, and Monopoly in the Making of the American Telephone System 5 (MIT Press 1997). at 92.
FCC, Statistics of Communications Common Carriers, Table 6 (1981). Original source, AT&T.
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 33.
Thomas J. Duesterberg & Kenneth Gordon, Competition and Deregulation in Telecommunications: The Case for a New Paradigm 50 (Hudson Institute 1997).
The term “affordable” appears to lack a clear working definition when applied to universal service policies, and is used loosely. I do not attempt to rectify this deficiency. See the Joint Board’s discussion in its Recommended Decision, Federal State Joint Board on Universal Service, 12 FCC Red 87, 151–55 (1996).
This section draws on Kenneth Gordon, Access, Regulatory Policy, and Competition, National Economic Research Associates, 1997.
In Smith v. Illinois, the Supreme Court determined that certain non-usage sensitive telephone costs (essentially, the local loop) should be “allocated” between toll and local exchange services. Since such an allocation is fundamentally arbitrary from an economic point of view, regulators were free to use the process to manipulate end-user service prices. Smith v. Illinois Bell Teleph. Co., 282 U.S. 133 (1930). For a summary of this case, see Charles Phillips, The Regulation of Public Utilities 215–18, 233n (Public Utilities Reports, Inc. 1988).
In September 1974, MCI filed revisions to the tariff under which it furnished all its interstate private line services and announced a new class of “metered use” long distance services, including one called “Execunet.” Execunet allowed for a customer to reach any telephone in any city that was serviced by MCI simply by dialing a local MCI number followed by an access code and desired location number. The FCC ruled that Execunet was not an authorized service. MCI went to court and argued that the FCC had used illegal procedures in ruling against Execunet. When the matter went back to the D.C. Circuit Court of Appeals, the court ruled in favor of MCI and forced the local Bell Operating Companies to provide the local connections necessary for the provision of the Execunet service. Huber et al., Peter W. Huber et al., The Telecommunications Act of 1996: Special Report 53 (Aspen Law & Business 1996), at 602–04.
Mueller, Milton L. Mueller, Jr., Universal Service: Competition, Interconnection, and Monopoly in the Making of the American Telephone System 5 (MIT Press 1997), at 163. See also Duesterberg & Gordon, Thomas J. Duesterberg & Kenneth Gordon, Competition and Deregulation in Telecommunications: The Case for a New Paradigm 50 (Hudson Institute 1997), at 51.
These programs are summarized in Edwin A. Rosenberg & John D. Wilhelm, State Universal Service Funding and Policy: An Overview and Survey, National Regulatory Research Institute, Sept. 1998.
FCC Monitor Reports 1999, Table 2.2 (1999) (Low Income Program Dollars for Full Year 1998).
FCC Monitor Reports 1999, Table 3.9 (1999) (Universal Service Payments for 2000 based on 1998 data).
Telecommunications Act of 1996, § 254.
See Telecommunications Act of 1996, § 254 (c). The FCC defined the “designated” services that will be supported by universal service support mechanisms as “single-party service, voice grade access to the public switched network; … DTMF signaling or its functional equivalent; access to emergency services …; access to operator services; access to interexchange service; access to directory assistance; and toll limitation services for qualifying low-income consumers.” Federal-State Joint Board on Universal Service, 12 FCC Red 8776, 8790 (1997).
Telecommunications Act of 1996, Pub. L. No. 104–104, 110 Stat. 56 (1996), Preamble.
The Communications Act provides for a Joint Board of state and federal regulators to make recommendations to the FCC on matters pertaining to universal service. The Joint Board serves as a forum where state/federal jurisdictional and policy differences can be negotiated and resolved. Although the FCC must make the ultimate decision, states have had an important impact on the process. Telecommunications Act of 1996, § 254 (a)(2).
See, for one example of this, Jerry Hausman et al., The Effects of the Breakup of AT&T on Telephone Penetration in the United States, 83 Am. Econ. Rev., May 1993, at 178–84. See also Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 44.
Does Mickey Mouse Need a Universal Service Subsidy?, Telecommunications Reports, Oct. 9, 2000, at 43–44.
Telecommunications Act of 1996, § 254 (c)(2).
Federal State Joint Board on Universal Service, 12 FCC Rcd 87 (1996).
Federal-State Joint Board on Universal Service, 12 FCC Rcd 8776 (1997). There has been a lengthy series of orders elaborating, and in some cases modifying these policies. This paper does not address these in any detail.
Federal State Joint Board on Universal Service, 12 FCC Rcd 87, 151 (1996).
And, in fact, it is not necessary. For a discussion of how an appropriately designed program that includes portability of benefits across providers can drive embedded costs toward long run incremental cost in a universal service program, see Kenneth Gordon and William E. Taylor, Comments on Universal Service, CC Docket No. 96–45, Apr. 12, 1996.
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 10.
For example, see Alfred Kahn & William Shew, Current Issues in Telecommunications Regulation: Pricing, 4 Yale J. on Reg. 191 (1987).
For a discussion of this issue, including how the welfare losses might be modeled, see Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 134–35.
FCC, FCC Reforms High-Cost Support To Ensure The Preservation And Advancement Of Universal Service; Orders Are Part of Larger FCC Effort to Keep Telephone Rates Affordable and Reasonably Comparable Throughout the Nation, News Release, Oct. 21, 1999.
Telecommunications Reports, Does Mickey Mouse Need a Universal Service Subsidy?, Telecommunications Reports, Oct. 9, 2000, at 43–44.
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 19–20 citing Ross C. Eriksson et al, Targeted and Untargeted Subsidy Schemes: Evidence from Post-Divestiture Efforts to Promote Universal Telephone Service, 41 J. L. & Econ. 477. 477–502 (1998).
Duesterberg & Gordon, Thomas J. Duesterberg & Kenneth Gordon, Competition and Deregulation in Telecommunications: The Case for a New Paradigm 50 (Hudson Institute 1997), at 52–54.
Federal-State Joint Board on Universal Service, 12 FCC Red 8776, 8794 (1997).
Crandall & Waverman, Robert W. Crandall & Leonard Waverman, Who Pays for Universal Service?: When Telephone Subsidies Become Transparent 103–04 (Brookings Institution 2000), at 162.
Federal-State Joint Board on Universal Service, Rural Task Force Recommendation to the Federal-State Joint Board on Universal Service, Sept. 29, 2000.
Federal State Joint Board on Universal Service, 14 FCC Red 20432, 20440 (1999).
Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, Low-Volume Long-Distance Users, Federal-State Joint Board On Universal Service, 15 FCC Rcd 12962 (2000).
Agustin Ros & Karl McDermott, Are Residential Local Exchange Prices Too Low?, in Expanding Competition In Regulated Industries 149–68 (Michael A. Crew, ed., Kluwer Academic. Publ. 2000). Ros and McDermott also find statistical evidence that, holding rate rebalancing constant, where there is a functioning universal service program with explicit and portable support, local competition is more likely.
Agustin Ros & Karl McDermott, Are Residential Local Exchange Prices Too Low?, in Expanding Competition In Regulated Industries 149–68 (Michael A. Crew, ed., Kluwer Academic. Publ. 2000). at 149–68.
Telecommunications Act of 1996, §254 (b)(4) (emphasis added).
Telecommunications Act of 1996, § 254 (b)(7).
Hausman estimates a deadweight cost of $1.93 billion per year and suggests that each dollar raised through the markup on long distance service would impose a cost of $1.86 on consumers in terms of welfare. See Jerry Hausman, Taxation by Telecommunications Regulation, in Tax Policy and the Economy 29–48 (J. Poterba, ed., NBER and MIT Press 1998).
James Prieger, Universal Service and the Telecommunications Act of 1996: The Fact After the Act, 22 Telecommunications Policy 57–71 (1998).
James Prieger, Universal Service and the Telecommunications Act of 1996: The Fact After the Act, 22 Telecommunications Policy 57–71 (1998). at 64.
See W. Kip Viscusi et al., Economics of Regulation and Antitrust 365–67 (MIT Press, 2d ed. 1995).
This problem is similar to that of “infant industry” subsidies. See Douglas A. Irwin, Against the Tide: An Intellectual History of Free Trade 116–37 (Princeton Univ. Press 1996) (Mill and the Infant Industry Argument).
See Prieger, James Prieger, Universal Service and the Telecommunications Act of 1996: The Fact After the Act, 22 Telecommunications Policy 57–71 (1998), at 69.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2001 Springer Science+Business Media New York
About this chapter
Cite this chapter
Gordon, K. (2001). Reforming Universal Service One More Time. In: Eisenach, J.A., May, R.J. (eds) Communications Deregulation and FCC Reform: Finishing the Job. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1521-0_5
Download citation
DOI: https://doi.org/10.1007/978-1-4615-1521-0_5
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-5595-3
Online ISBN: 978-1-4615-1521-0
eBook Packages: Springer Book Archive