Time to Kill the USF

Ars reports on a Congressional hearing called to address the failings of the Universal Service Fund, which is supposed to provide telephone access to remote areas, low-income families, high-cost regions of the country and broadband access to schools, hospitals, and libraries. The USF is collected via a tax on telephone service. As such, it essentially amounts to a convoluted, anti-competitive transfer program.

As Adam Thierier pointed out two years ago, the USF costs $7 billion, most of which goes to shareholders of rural telcos. He cites a study by Prof. Thomas Hazlett, who teaches Law and Economics at GMU. Hazlett finds that “the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – such as wireless, satellite, and Internet-based services – that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks.”

The USF has been raked with fraud. Apparently, up to 20% of the funds are distributed “in error.” Of course, all of the funds are distributed in error, since the fund should not exist in the first place. As Ars reports, at the hearing today “Randolph May, who heads the Free State Foundation, told the subcommittee that any reform should rely on market forces instead of subsidies, pointing out that collecting the USF fees by charging phone companies actually leads to higher costs on basic phone service, which hurts the poor.”

It is time to do what Pennsylvania Democratic Congressman Mike Doyle suggested at the hearing and blow the USF up “like the Death Star.”