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Winners and Losers from the Universal Service Subsidy Battle

Dec 1999
Working Paper
99-008
By  Gregory Rosston, Bradley Wimmer
The FCC recently adopted a new universal service plan to comply with the mandates of the Telecommunications Act of 1996 and the introduction of competition that make implicit cross-subsidy no longer viable.

The new universal service plan uses a detailed forward-looking cost model to estimate the cost of providing service for each of 12,493 wire centers across the country. Based on the model, the Commission will provide new universal service funding to 7 states. If states adopt a similar plan to fund high cost areas, it will cost about $1.7 billion more per year than a targeted subsidy to low-income households.

Combining the results of the universal service cost model with U.S. Census demographic data allows analysis of what different groups receive universal service subsidy if the states adopt similar plans. Less than 20 percent of households with incomes under $20,000 per year would receive any subsidy dollars -- the other 80 percent of these low-income households would pay into the system. At the same time, many high income households would receive support. As expected, Blacks, Hispanics and Asians are less likely than Whites and Native Americans to receive high cost support because they tend to live in more urban areas.