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The Federal Communications Commission (FCC) recently released a proposal to place an overall cap on its universal service fund. The critics have been quick and harsh (see here and here), including the two Democratic commissioners (see here and here).
It appears that most critics say they disapprove of there being a cap. They don’t really mean that. Each of the four elements of the fund — the high-cost fund (also known as the Connect America Fund), Lifeline, E-Rate, and Rural Health Care — already has a cap, although some are more formal than others. So the idea of an overall cap doesn’t impose more limits.
Also, none of the individual caps appears to have constrained the FCC’s spending. The FCC’s Notice of Proposed Rulemaking on this matter gives the details.
Lastly, if the critics did mean to oppose a cap, what they are really opposing is explicitly identifying what it is. There are always caps on spending. To illustrate, consider the following thought experiment. Suppose that we could fund everyone’s universal service wish lists by devoting the entire gross domestic product of the country to it. Would anyone agree that doing so would be a good thing? Probably not, since that would mean no money for schools, housing, food, police, etc. Everyone would probably also object to spending half of our gross domestic product on universal service. So there is a de facto cap, even if it is unexamined. Which means that if people say they oppose a cap, at best they are saying that they oppose talking about it.
Are there reasons for having a cap such as the FCC proposes? Yes. Even though there are individual caps on each of the four elements of the FCC’s USF, having an overall cap would force the agency to explicitly examine the tradeoffs. For example, at a recent Senate hearing on rural broadband, some Senators described situations their constituents had conveyed to them about students from low income households not having broadband at home and so being dependent on broadband at school. This raises the question: Do low income households benefit more from Lifeline, E-Rate, or the Connect America Fund? If the programs’ benefits are unequal at the margin, then there are good arguments for reallocating monies towards programs that give more bang for the buck. To my knowledge, this question hasn’t been studied and would be an excellent topic of study for the FCC’s Office of Economics and Analytics.
I am sure that some people might say that it is wrong to consider tradeoffs between the programs. But there are always tradeoffs: For every million dollars the FCC spends on universal service, the telecommunications customers that fund the programs are spending a million dollars less on housing, education, and the like. Is that a good tradeoff? We don’t know. This would also be an important topic that is raised by the presence of a cap, and another important study for FCC economists.
The FCC has made good progress on reforming universal service programs. Forcing discussions on how much to spend and how to spend it would be another important improvement.
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