I’ve never liked mincing words so I’m going to start right off the bat and be clear about what I am talking about in this post.  I am not talking about people’s “right” to own a computer or connect to the Internet via broadband, I am talking about entitlements when it comes to broadband policy.  “Rights” sounds better and it’s is the usual terminology used in this discussion, but most people know that it is a euphemism for “entitlement” which is why so many people believe broadband isn’t a “right”.  They are not saying that people don’t have a right to purchase broadband access; they are saying that it shouldn’t be any different than owning a car.  This post really isn’t a debate about the philosophical/political merits of broadband and computer entitlements (even though it’s a good separate debate); the question is how do we make better use of existing entitlement money and whether there is a better way of funding these entitlements.

The Universal Service Fund (USF) is a federal program intended to bring universal phone service across America.  It is funded by a consumption tax on phone services such as interstate, long distance, international, and even VoIP phone service.  The bulk of the USF goes to the High Cost program which spent $4.428 billion as of 2008 on telephone service for high cost regions.  Some of these high cost customers cost the USF $16,834 per year to support a single phone line and many of these “high cost” customers sit in places like Maui that already have cellular phone coverage.

As I wrote last year:

“The billions of USF dollars wasted on the high cost each year could easily go to support to low income Americans.  Less than a billion dollars a year could give 7 million low income families a $10/month broadband subsidy a year.  $1.15 billion could give a $165 coupon to 7 million low income families so that they can pay just another $165 to get a fairly nice notebook or all-in-one computer these days.  And since most non broadband subscribers have access to broadband but choose not to buy it, this would probably boost broadband penetration significantly, shrink the broadband gap, and stimulate the economy.  It’s certainly a lot better than giving millions of dollars to a few millionaires who set themselves up to bilk the system.  Even if we added subsidies low income Americans, we could probably still cut USF spending by eliminating High Cost waste and lower the USF tax.”

The low income fund subsidizes 6.6 million low income and 329 thousand tribal cost $0.824 billion as of 2007 averaging $119 per year per person which is less than the $1 billion of erroneous payments made out to the USF High Cost fund.  So while many people would question the merits of billions of dollars in entitlements, everyone should question why we are misallocating billions of dollars instead of using it to increase broadband penetration and computer ownership.

Another important question is the source of USF funding.  Verizon’s Executive VP Tom Tauke raised some very interesting points about this in his speech last week when he said:

“When you look at other consumer-assistance programs for food or fuel, you don’t see energy companies or food companies collecting fees from their customers and then figuring out how to split those fees among themselves. The consumer receives direct support from the government and then uses it to purchase fuel or groceries. We should look at the model for fuel assistance and food stamps. Competitive subsidies that are technologically neutral and targeted solely for the benefit of consumers, not corporate intermediaries, would be one alternative to ensuring full national broadband deployment.”

The point raised here is that broadband and computer ownership assistance (entitlements) would be better funded through a general fund rather than a regressive consumption tax.  It is also counterproductive policy to tax communication services and raise prices on things that we are trying to encourage.  We use high consumption taxes or “sin taxes” to discourage detrimental products like smoking yet we apply sin taxes to economic enhancing services like wireless data and voice communications.

The second point here is that we should not be worried about the welfare of companies that bilk American citizens $16,834 a year for telephone service.  We should not be worried about the welfare of companies that engage in traffic pumping schemes which offer free sex lines, long distance, or free conferencing services by exploiting intercarrier compensation.  The concept of suburban customers subsidizing the communication costs of rural customers is already questionable given that rural citizens don’t subsidize the higher costs of suburban citizens such as rent, but forcing them  to subsidize free sex line schemes is adding insult to injury.  Entitlements should be limited to those who need it most and the contribution pool should be as broad and least burdensome as possible.