[ars technica] A new study issues a stern warning to the Federal Communications Commission as it embarks upon transitioning its Universal Service Fund from phone service to broadband. First, the government must address the fact that a big percentage of USF cash currently goes to "inflated overhead expenses," rather than to making a call more affordable.
Here's the bottom line, according to the Technology Policy Institute's report. Of each dollar distributed to the USF's High Cost Fund, which subsidizes phone carriers in mostly rural areas, 59 cents goes to "general and administrative expenses"—personnel, government relations, planning—rather than to the actual business of making telephone service cheaper. The study is based on a review of 1,400 receivers of these subsidies from 1998 to 2008.
"These results, consistent with a large body of economics literature, suggest that the Universal Service Fund's method for subsidizing service in high-cost areas should be radically overhauled as a key component of the current desire to shift USF support from voice to broadband," concludes the report, authored by the TPI's vice president for research Scott Wallsten.
This finding can't be a complete surprise to the FCC, which is in the process of managing that shift. The USF was designed "for a world that no longer exists," FCC Chair Julius Genachowski told the Information Technology and Innovation Foundation last month. It was created "for a world with separate local and long-distance telephone companies; a world of traditional, landline telephones before cell phones or Skype; a world without the Internet."
Report: huge chunks of your phone bill's USF fee wasted
see also Full text of report