Universal Service Subsidies to Areas Served by Cable Telephony

Abstract

This study analyzes the extent to which Federal Universal Service Fund subsidies are paid to rural telephone companies to provide service in areas served by unsubsidized competitors, i.e., cable TV companies that now provide both broadband and cable telephony service. The evidence shows that approximately $1.6 billion was spent in 2008 to subsidize telephone companies in service territories where cable companies now offer voice service to at least some households. Moreover, based on an analysis of population density and topography (the two factors that most heavily affect the costs of providing wireline telecommunications services), cable companies often serve portions of study areas which are no less costly, or even more costly, to serve than the overall study area. The existence of unsubsidized cable telephony in these areas is prima facie evidence that a significant portion of the subsidies paid to rural telephone companies are no longer necessary to meet the goal of reasonably affordable service.