The Effects of Providing Universal Service Subsidies to Wireless Carriers

51 Pages Posted: 10 Mar 2009 Last revised: 4 Sep 2014

Kevin W. Caves

Navigant Economics

Jeffrey A. Eisenach

American Enterprise Institute; NERA Economic Consulting

Date Written: June 13, 2007

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.

Keywords: wireless, telecommunications, universal service

JEL Classification: H54, K23, L51, L96

Suggested Citation

Caves, Kevin W. and Eisenach, Jeffrey A., The Effects of Providing Universal Service Subsidies to Wireless Carriers (June 13, 2007). Available at SSRN: https://ssrn.com/abstract=993621 or http://dx.doi.org/10.2139/ssrn.993621

Kevin W. Caves

Navigant Economics ( email )

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Jeffrey A. Eisenach (Contact Author)

American Enterprise Institute ( email )

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NERA Economic Consulting

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