Rural Phone Carriers Accused of Wasting Tax Money

Monday, July 24, 2006

A recent news story described how the Universal Service Fund tax in America was being severely wasted by the inefficiencies of both the government and local phone carriers. According to the article it can cost up to US$13,345 a year for a single phone to be installed in a Rural area benefiting from the Universal Service Fund. The Rural phone carriers are being accused of being inefficient and using too much of the tax fund to pay shareholders. The Universal Service Fund tax has surged to $7 billion from less than $4 billion in 1998

According to the news story the Hazlett report for The Seniors Coalition notes: "The 'universal service' regime ostensibly extends local phone service to consumers who could not otherwise afford it ? Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail (on net) to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies".

Despite the criticisms implementation of communications into rural areas is always going to be more inefficient since the benefits of economy of scale are lost. The article states that by using cell phones as an alternative to landline phone services in rural areas that US$1 billion or more could be saved. Whether the article has taken into consideration the fact that cell phone signal coverage would need to be extended to rural areas is not known. The article has been accused of being biased towards the cell phone industry in an attempt for the industry to gain government funding for the Universal Service Tax.

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