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

Eric P. Chiang () and Janice A. Hauge ()
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Janice A. Hauge: Department of Economics, University of North Texas, http://www.cas.unt.edu/~jhauge/

No 07-08, Working Papers from NET Institute

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.

Keywords: subsidies; Universal Service Fund; telecommunications; regulation (search for similar items in EconPapers)
JEL-codes: L52 L96 O11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
Date: 2007-08
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