http://www.chicagotribune.com/business/chi-0607200172jul20,1,5769160.story?coll=chi-business-hed

Wireless phones cheaper for rural areas, study says

By Jon Van
Chicago Tribune staff reporter

Published July 20, 2006



Rural phone-service subsidies are so bloated and inefficient that providing 
wireless or even satellite phones is cheaper, an economic analysis prepared 
for a senior citizen advocacy group suggested Wednesday.

Taxes to support the universal service fund, which is intended to pay for 
higher costs of serving rural areas, are growing so fast as to force some 
low-income citizens to drop current phone service, said Thomas Hazlett, a 
George Mason University economist who prepared the analysis for the Seniors 
Coalition.

"It's perverse when shifting tax money around for the universal service 
fund results in more people leaving the network than joining it," said Hazlett.

Totaling more than $7 billion a year, universal service outlays have nearly 
tripled in the past decade. The fund is now financed by a tax of more than 
10 percent on long-distance phone service, but the Federal Communications 
Commission is looking for new revenue sources.

Last month the FCC decided to raise the tax on wireless customers and to 
impose the tax for the first time on Internet telephony customers, but even 
those changes are unlikely to keep up with rising expenditures.

FCC Chairman Kevin Martin has indicated he favors shifting to a flat tax of 
$1 or more on every telephone number issued.

Seniors and low-income customers who seldom place long-distance calls would 
see their phone bills rise if that happens, said Flora Green, a national 
spokeswoman for the Seniors Coalition.

"The fund should be capped and then reviewed from top to bottom," Green 
said Wednesday at a teleconference to unveil the Hazlett study.

Educational groups have also expressed reservations about the change, 
citing universities that maintain thousands of phone numbers for student 
dormitories where long-distance calling isn't permitted.

Roger N. Bonnett, telecommunications manager at Wake Forest University, 
estimates that if Martin's plan is adopted, his university's universal 
service tax payments will jump from less than $5,000 a year to about $84,000.

Large phone carriers have endorsed Martin's idea, embracing its simplicity 
and predictability. But they have called for exemptions for low-income 
customers with lifeline phone service and reductions for wireless customers 
with multiple cell phones under family-based plans.

Hazlett said that reforming the current universal service fund is very 
difficult because rural phone companies that benefit directly from the plan 
have political clout in Congress. They beat back efforts in the Senate last 
month to impose a cap on expenditures.

Universal service subsidies have become so widespread that rural phone 
companies on average collect only 27 percent of their revenues from 
customer payments, Hazlett found. Even so, many rural customers are opting 
to drop traditional wired service to go wireless.

"It's cheaper and they like the mobility," Hazlett said. "About 5 percent 
of rural households have dropped fixed-line service to go wireless."

The FCC's Martin has suggested he might be open to changing the way 
universal service funds are distributed, Hazlett said. This could include 
an auction that would let wireless carriers bid against traditional wired 
operators to serve rural areas.

Many rural carriers receive subsidies that exceed $1,000 a year per 
customer, with some subsidies topping $10,000 a year per customer, Hazlett 
said.


================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923  Fax: 713-743-3927
antunes at uh dot edu



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