Subsidized Rural Telephony and the Public Interest: A Case Study in Cooperative Federalism and its Pitfalls

68 Pages Posted: 31 Aug 2006 Last revised: 20 Apr 2008

See all articles by James Ming Chen

James Ming Chen

Michigan State University - College of Law


The United States lags behind many other countries in wireless telephony despite its wealth and relatively high rural population. The answer to this conundrum may lie in the United States' commitment to cooperative federalism in the administration of subsidies for rural telephone service.

The federal universal service program for rural and high-cost areas relies on a cooperative scheme of joint federal and state regulation. State regulators must administer the program without discriminatory regard to carriers' incumbency status or their technological platforms. When state regulators determine the public interest to be served by competitive entry into rural and high-cost markets, competitive neutrality and consumer choice should be paramount. Yet incumbent carriers have tried to persuade state regulators to inject an affirmatively unlawful factor: the impact of competitive entry on the solvency of the Universal Service Fund. Insofar as most competitive rural carriers deploy wireless infrastructure in whole or in part, it is worth noting that federal law preempts state-law regulation of rates or entry in the market for commercial mobile radio services.

Federal mechanisms for subsidizing rural telephony demonstrate the irreconcilable conflict between decentralization and deregulation. Insofar as state regulators are not prepared to complete the transition from traditional public utility regulation, they deserve no deference. Indeed, this article argues that there should be no deference whatsoever to interpretations of law and other exercises of discretion undertaken by state regulators charged with implementing federal telecommunications law.

Keywords: federalism, telecommunications, wireless, rural, regulation, states, FCC, Federal Communications Commission, competition, subsidies, universal service, Universal Service Fund

JEL Classification: H32, H54, H71, H77, L51, L96

Suggested Citation

Chen, James Ming, Subsidized Rural Telephony and the Public Interest: A Case Study in Cooperative Federalism and its Pitfalls. Journal on Telecommunications and High Technology Law, Vol. 2, p. 307, 2003, Minnesota Legal Studies Research Paper No. 06-40, Available at SSRN:

James Ming Chen (Contact Author)

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

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