Ellig U Service Funding And Economic Welfare May 2007

406 views

Published on

Published in: Business, Health & Medicine
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
406
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Ellig U Service Funding And Economic Welfare May 2007

  1. 1. Universal Service Contributions and Economic Welfare Jerry Ellig Senior Research Fellow [email_address]
  2. 2. Effect of the Contribution Mechanism <ul><li>Universal Service contributions are similar to a tax and can be analyzed as such </li></ul><ul><li>Explicit costs: Revenue raised </li></ul><ul><li>Hidden costs: Benefits society gives up when people change their behavior in response to the price change </li></ul>
  3. 3. Hidden cost of contribution mechanism <ul><li>“Deadweight loss”: </li></ul><ul><li>Value of service that consumers forego, plus operating profits that producers forego, because increased price reduces use of the service </li></ul>
  4. 4. When is the hidden cost large? <ul><li>Additional costs of providing additional service are low </li></ul><ul><li>Value of the additional service to consumers exceeds these costs </li></ul><ul><li>Consumer decisions are sensitive to price </li></ul>
  5. 5. Effect of a 1% price change > 1.0% Wireless minutes 0.57% Wireless subscription 0.7% Long-Distance minutes 0.01-0.02% Wireline subscription
  6. 6. Explicit + Hidden Costs Source: Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006). $2.7 billion $978 million $1.76 billion Wireless 2004 $3.86 billion $1.16 billion $2.7 billion Long Distance 2002 Total Cost Hidden Cost (DW loss) U Service Revenue
  7. 7. Hidden Cost as a % of Revenues Raised Source: Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006). 25-40% (OMB “rule of thumb” – 25%) General Taxation 56% Wireless USF Contributions 43% Long-Distance USF Contributions
  8. 8. Costliest Federal Telecom Regulations Source: Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006). $568 million 5. Wireless number portability $693 million 4. Wireless E-911 $1.5 billion 3. L-D Access Charges $2.14 billion 2. USF Contributions $30 billion 1. Spectrum Allocation Annual Hidden Cost
  9. 9. Effects of numbers-based contribution on size of hidden costs Source of last figure: Jerry Ellig & James N. Taylor, “The Irony of Transparency: Unintended Consequences of Wireless Truth-in-Billing,” Loyola Consumer Law Review 19:1 (2006), pp. 43-69. <ul><li>Wireline access: Hidden costs approximately unchanged </li></ul><ul><li>Long-distance: Hidden costs fall to approximately zero </li></ul><ul><li>Wireless: Hidden costs fall by $530 million annually </li></ul>
  10. 10. Caveats Around the Edges <ul><li>Low-income demand for wireline access is 2-3 times more price sensitive than average household </li></ul><ul><li>Per number charge on additional “family plan” wireless lines would be a large % of the price </li></ul><ul><li>Per number charge on low-usage per-minute wireless plans would be a large % of the price </li></ul>
  11. 11. The Bottom Line <ul><li>Numbers-based charge can reduce hidden costs by $1.7 billion (or more) annually. </li></ul><ul><li>Hidden cost falls by 80 percent, from $2.14 billion to $440 million. </li></ul>
  12. 12. For more information … <ul><li>Jerry Ellig, “Costs and Consequences of Federal Telecommunications Regulation,” 58 Federal Communications Law Journal 37 (Jan. 2006), available at </li></ul><ul><li>http://www.mercatus.org/Publications/pubID.1229/pub_detail.asp </li></ul><ul><li>Jerry Ellig & James N. Taylor, “The Irony of Transparency: Unintended Consequences of Wireless Truth-in-Billing,” Loyola Consumer Law Review 19:1 (2006), available at </li></ul><ul><li>http://www.mercatus.org/Publications/pubID.2494/pub_detail.asp </li></ul><ul><li>Jerry Ellig & Alastair J. Walling, “Regulatory Status of VoIP in the Post-Brand X World,” Santa Clara Computer & High Technology Law Journal 23:1 (Nov. 2006), available at </li></ul><ul><li>http://www.mercatus.org/Publications/pubID.1430/pub_detail.asp </li></ul>

×