The Effects of Providing Universal Service Subsidies to Wireless Carriers

Abstract:     
Wireless carriers are permitted under the Federal Universal Service program to receive subsidies for serving high cost areas. The primary justification for the subsidy is to increase the availability of wireless services in rural America. Because subsidies are based on the number of subscribers a carrier has rather than the amount of coverage it provides, we hypothesize that they do not provide strong incentives for carriers to expand their coverage areas. We test this hypothesis empirically, and are unable to find an effect of subsidies on either the extent of coverage or the number of carriers operating in subsidized areas. Accordingly, we recommend policymakers re-examine this $1 billion program.

Number of Pages in PDF File: 51

Keywords: wireless, telecommunications, universal service

JEL Classification: H54, K23, L51, L96

working papers series