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

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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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  • Eric P. Chiang & Janice A. Hauge, 2007. "Funding Universal Service: The Effect of Telecommunications Subsidy Programs on Competition and Retail Prices," Working Papers 07-08, NET Institute, revised Aug 2007.
    • Handle: RePEc:net:wpaper:0708
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    More about this item

    Keywords

    subsidies; Universal Service Fund; telecommunications; regulation;
    All these keywords.

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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