Universal Service in a Wireless World

Abstract

In 2005, Lifeline, the primary federal program designed to promote universal basic phone service, was expanded to include discounts to qualifying low-income telephone service consumers to prepaid wireless as well as for traditional wireline service. Since then, the cost of Lifeline program has greatly increased along with calls for its reform. In this paper, I seek to provide further insights into the effects of the Lifeline program on household adoption of basic phone service. I focus first on two aspects: the impact of the size of the discount and the impact of the recent program expansion to include discounts for prepaid wireless service. Second, I conduct cost-benefit analysis of the subsidy as a whole and of its wireless element. I utilize a unique database taken from the National Health Interview Survey (NHIS) for the 2003-2010 period. The results indicate that the Lifeline program increases a household’s propensity to subscribe to phone service, however the effects are quite small. Based on the counterfactual experiments, only one out of eight households that receive the subsidy subscribes to telephone service because of the subsidy. The extension of the Lifeline subsidy to include prepaid wireless service has attracted additional subscribers. However, the counterfactual experiment shows that only one out of twenty households enrolled in the wireless Lifeline program subscribes to telephone service because of the subsidy.

Keywords: telecommunications, low-income, universal service, wireless

JEL Classification: L52, L96