Can Reduce Universal Service Subsidies, International Experience Shows
May 1, 2008 – Reverse auctions can be an effective tool for reducing universal service subsidies and distributing them more efficiently, according to a new paper released by Technology Policy Institute vice president for research and senior fellow Scott Wallsten. The FCC’s action last Thursday capping the USF increases the pressure to find ways to do more with the available universal service funds. Reverse auctions are at the top of the list of available policy measures.
Wallsten’s paper reviews auctions that have taken place in Australia, Chile, Colombia, India, Nepal and Peru. He finds that reverse auctions can be implemented successfully, but the details matter. While not all the auctions have gone smoothly, when done properly they reduce expenditures on universal service.
In a reverse auction the company that submits the lowest bid-that is, the company that asks for the smallest subsidy-wins the auction, all else equal. While this type of procedure is commonly used for other types of government procurement, it is not yet used for universal service in the United States.
The U.S. now spends about $4 billion subsidizing “high cost” telecommunications service areas through the Universal Service Fund, and the program’s costs are increasing rapidly. Both the Federal Communications Commission and Congress, through Senator Joe Barton’s proposed “Universal Service Reform, Accountability, and Efficiency Act of 2008” suggest using reverse auctions as a mechanism for reducing subsidies.
The Technology Policy Institute
The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at http://www.techpolicyinstitute.org/.