The existing high-cost fund suffers from two inherent flaws: it does not incorporate how much consumers value the services being subsidized, and does not measure the incremental, rather than average, effects of the program. This paper proposes a way to incorporate those factors into the Connect America Fund—the proposed high-cost broadband support program—to enable it to operate more efficiently than the existing high-cost program ever could.
In particular, decisions about where to provide subsidies should be based on cost-effectiveness analyses that explicitly take into account not just the cost of providing service but also how much consumers would value the improvement in service the subsidy would bring beyond what is currently available. Incorporating this information requires conducting regular research on consumer willingness-to-pay for different levels of broadband service. This information would be used to help determine what types of service should be subsidized in unserved areas, which areas to fund, and the maximum amount that should be spent on subsidies.
Such an approach would help achieve universal service objectives in a way that provides real benefits to citizens, does not enrich particular firms, and limits total spending.
Available at: http://works.bepress.com/scott_wallsten/65/