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Do Lifeline Programs Promote Universal Telephone Service for the Pool?

Fortnightly Magazine - March 15 1997

are biased towards redistribution while purporting to foster universal service. The FCC has no legal authority to tax telephone services in order to pay for a welfare program that does not promote universal service.

Alternatively, Mueller %n6%n has argued that competition in the early days of telephony did more for penetration than the monopoly regulatory consortium ever did. The concept of universal service in modern terms is penetration. The concept of universal service in the Theodore Vail sense (in the early days of consolidation) was the elimination of access competition and its replacement with a single network and the increased value of such a network. Interconnection rather than expansion was the goal.

Only after 1960 did regulation promote universal service in the modern sense, with cross-subsidies and so forth, to concentrate on penetration. But by then the penetration levels had already grown quite high. Only with the Bell system under attack in the 1970s did proponents seize on the modern version of universal service as a reason for keeping the monopoly system. At this time Bell developed the modern version of universal service that says monopoly really did set out to bring ubiquitous service to the U.S. from early days and it succeeded. If Mueller is correct, his ideas provide another explanation for the poor showing of the late-bloomer Lifeline programs.

Christopher Garbacz was a professor of economics for 25 years, holding positions in Missouri, Taiwan and New Zealand, before joining the Mississippi Public Utilities Staff in 1994 as director of the Economics and Planning Division. Herbert G. Thompson, Jr. is with Christensen Associates in Madison, Wis., where he specializes in incentive regulation issues such as costs and productivity analysis. Previously, he served as director of Economics and Planning for the Mississippi Public Utilities Staff. Joint Board Staff members also contributed to this report, including Emily Hoffnar of the FCC. Vicki Helfrich of the Mississippi Public Utilities Staff provided excellent data assistance. The views expressed in this paper are the opinions of the authors and do not necessarily reflect any position of any commenting party, the Mississippi Public Utilities Staff, the Mississippi Public Service Commission or Christensen Associates. This paper represents a summary and update of our previous article: "Assessing the Impact of FCC Lifeline and Link-Up Programs on Telephone Penetration," Journal of Regulatory Economics, Vol. 11, 1997, pp. 67-78.

Table 1. Elasticity Estimates at Sample Mean Values*

Determining the relative impact of pricing and policy on demand for service

Model Income Variables# PRICE# CONNECT# LIFELINE#

1 0.0968 (INCOME) -0.0078 -0.0423 0.0027

2 -0.0513 (POVERTY) 0.0061 -0.0072 0.0078

3 0.0413 (INCOME) 0.0037 -0.0230 0.0026

4 -0.0256 (POVERTY) 0.0098 -0.0075 0.0051

This table shows the results of logit model estimates of elasticity for INCOME (or POVERTY), PRICE, CONNECT, and LIFELINE variables evaluated as the means of the data for models with and without a lagged dependent variable. (See note at bottom of description of Model.) There are important differences in elasticities between these models. The mean elasticities for the income and poverty variables and the price variables are substantially smaller when the lagged