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

35 Pages Posted: 18 Sep 2007

See all articles by Eric P. Chiang

Eric P. Chiang

Florida Atlantic University

Janice Alane Hauge

University of North Texas

Date Written: September 2007

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

JEL Classification: L52, L96, O11

Suggested Citation

Chiang, Eric P. and Hauge, Janice Alane, Funding Universal Service: The Effect of Telecommunications Subsidy Programs on Competition and Retail Prices (September 2007). NET Institute Working Paper No. 07-08. Available at SSRN: https://ssrn.com/abstract=1013661 or http://dx.doi.org/10.2139/ssrn.1013661

Eric P. Chiang (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Janice Alane Hauge

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States
940-565-4544 (Phone)

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