Hazlett and Wallsten Paper on USF Waste Covered by Marketwatch, Computerworld

A recent paper by IEP Director Dr. Thomas Hazlett and Scott Wallsten, senior fellow at the Technology Policy Institute, has been covered by the Wall Street Journal’sMarketwatch” and the online news-magazine Computerworld. The paper, “Unrepentant Policy Failure: Universal Service Subsidies in Voice & Broadband,” describes how the FCC’s Universal Service Fund levies a substantial tax on long-distance telephone service and enriches inefficiently small telecommunications firms, yet fails to make an even modest impact in improving access to phone and broadband service.

News coverage of the piece has largely focused on egregious specific examples of waste cited in the paper, such as the USF granting annual subsidies of over $20,000 for single phone lines. While noteworthy, Hazlett and Wallsten draw attention to the full extent of USF waste. The scholars estimate, for instance, that $64 billion has been spent on telephone carrier subsidies, extending voice services to, at most, one-half of one percent of US households. Despite recent cosmetic USF reforms, USF continues to incentivize inefficient behavior by telecommunications firms.

Hazlett and Skorup on LightSquared and Spectrum Rights

IEP’s Thomas Hazlett and Brent Skorup recently completed a new research piece, Tragedy of the Regulatory Commons: LightSquared and the Missing Spectrum Rights. The Duke Law & Technology Review will publish the article later this year. Hazlett and Skorup describe how the FCC’s rights assignment process caused the GPS-LightSquared conflict, resulting in LightSquared’s 2012 bankruptcy. The authors outline how spectrum rights definition can avoid similar conflicts in the future.

The endemic underuse of radio spectrum constitutes a tragedy of the regulatory commons. Like other common interest tragedies, the outcome results from a legal or market structure that prevents economic actors from executing socially efficient bargains. In wireless markets, innovative applications often provoke claims by incumbent radio users that the new traffic will interfere with existing services. Sometimes these concerns are mitigated via market transactions, a la “Coasian bargaining.” Other times, however, solutions cannot be found even when social gains dominate the cost of spillovers. In the recent “LightSquared debacle,” such spectrum allocation failure played out, killing the entry of a nationwide, state-of-the-art, 4G network; GPS interests, using a neighboring band, lobbied for the outcome. Yet, the most conservative estimates place the 4G gains at least an order of magnitude above GPS losses. Transaction costs — caused by policy choices to issue limited and highly fragmented spectrum usage rights (here in the GPS band) — proved prohibitive. This provides a template for understanding market and non-market failure in radio spectrum allocation.

Download (PDF, Unknown)