Universal Service: Are Subsidies Beneficial?

Universal service policy should be re-examined as it is basically a political dream. Updating and reformation of current universal service is needed. Universal service is implemented in number of ways like high cost area, low income, rural health, schools and libraries according to the Telecommunication Act of 1996 by providing subsidies. These subsidies are collected from telecom operators, which in turn collected from the customers, so it is hidden tax on them. Subsidies are not justified according to economics. Subsidies distort competition as the subsidies are inversely proportional to the competition. Currently 94% of United States residents have telephone and rest of residents can afford the cost as it is 1% to 2% of their monthly budget. Competition is the best way to lower the prices. Subsidies also discourage the deployment of the latest technologies.