Americans are robbed in the name of subsidies

Posted on January 17, 2007  /  1 Comments

Most consumers overlook the small surcharges on their telephone bills. Usually no more than a few dollars per month, these support a variety of programs, including those that ensure affordable telephone service for low-income and disabled customers. But the high-cost subsidies are the most expensive and possibly the least regulated. 

In California for example, the two biggest phone companies, AT&T Inc. and Verizon California, received $1.2 billion in subsidies over the past three years as compensation for serving more than 7,600 designated high-cost areas. That list has remained static for years and is based on the 1990 census. 

The state’s 25 million cellular subscribers contributed 60 percent of those payments, a proportion that is likely to increase given the growing number of consumers relying exclusively on wireless communication. California’s full universal service program includes five funds and has received $2.8 billion since 2003. An estimated 57 percent of that going to the high-cost fund. 

A 2004 report from the California Public Utilities Commission’s own ratepayer advocate found the fund amounted to a questionable subsidy for which “no cost-benefit analysis has been done to demonstrate that Californians receive value from this increasingly costly program.” 

Among other things, the advocate found the program “largely failed to meet its objectives” and was operating under “ineffective and flawed program rules.” The telephone companies were not required to spend subsidy money on their California networks and the costs they claimed to have incurred might not be legitimate, the report said. 

That prompted state lawmakers to order the CPUC to review the fund, but the Legislature’s Jan. 1, 2006, deadline for completing the study passed with no action. 

Finally, in June, the commission opened its study and began collecting comment from the industry and consumer advocates. Many of the phone companies filed their information secretly, or submitted heavily censored public versions. The companies claim the information – such as the number of subscribers, their California revenues and methods of calculating subsidy requests – is proprietary and would put them at a competitive disadvantage if revealed. 

When California deregulated telephone rates in August, the high-cost surcharge fund was left intact, ensuring the subsidies will flow at least through 2009.

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1 Comment

  1. There’s a story here about an entrepreneur who uses the kickbacks generated by each call made in the US to offer free (or for the cost of a call to Iowa if you are in the US) international calls –

    The scheme of subsidies is shameful, and changing it is inevitably going to involve a pack of high priced lawyers and lobbyists threatening litigation.

    But as a friend of mine from the US, to whom I sent this story noted, it’s not as shameful as this: