Economic Welfare and Telecommunications Regulation: The E-Rate Policy for Universal- Service Subsidies

Abstract

The Telecommunications Act of 1996 attempts to address distributional issues in its "universal services "provisions, which establish a regulatory framework for equitable and affordable access to advanced communications services. This Article examines the Federal Communication Commission's most significant and debated universal services decision to date under the 1996 Act-the "e-rate" program for providing low-cost, educational access to the Internet-and finds that the FCC has chosen a mechanism that likely imposes high social costs compared to the costs that would be incurred under alternative policies. It argues that these costs are unnecessary to achieve the equitable goals embodied in the universal services provision and that they undermine rather than advance the statutory "public interest" criteria that guide the Commission's regulatory decisionmaking. The authors suggest that the FCC could implement a more efficient policy without impairing the affordability or distribution of telephone service in the United States.