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Kevin Markes writes about the latest gaff to come out of Congress.

Congress bans MySpace and blogs in Schools and Libraries
This law is like outlawing restaurants and bars in DC because Congressmen get bribed in them. DOPA is an example of the ‘poison gas’ view of the internet cloud.

H e adds that “Note that this is using the corrupt Universal Service Fund as a way to circumvent the First Amendment.

Thomas Hazlett, Professor of Law & Economics and Director, Information Economy Project, George Mason University in a 91 page study“UNIVERSAL SERVICE” TELEPHONE SUBSIDIES: WHAT DOES $7 BILLION BUY? goes Kevin a few better.


Universal Service Fund (USF) expenditures – now nearly $7 billion annually, up from less than $4 billion in 1998 – are driving telecommunications taxes ever higher. Growth in the USF stems primarily from rising payments to rural phone carriers labeled “High-Cost support,” where annual payments mushroomed from $1.7 billion in 1998 to $3.7 billion in 2005. These rising expenditures, in turn, are driven by increasingly expensive (per-line) payments to high cost rural phone carriers and by new payments to wireless phone carriers now qualifying as recipients of such funds.

High-Cost Fund (HCF) payments are distributed in a manner that encourages rural phone carriers (RLECs) to be inefficiently small. RLECs tend, as a result, to be extremely expensive to operate, even as they are highly profitable. HCF subsidies are as much as $13,000 per year per line, a remarkable outcome given that retail satellite phone service is available nationwide for about $800 annually. Corporate overhead is vastly inflated under this system, where taxpayers fund cost overruns. Scores of RLECs incur over $500 per line in annual administrative expense (costs unrelated to the higher capital expenditures often required in sparsely populated areas), more than what a typical U.S. mobile phone customer pays in total annual charges.

Uneconomic operations are a predictable outcome of taxpayer financing on a “cost-plus” basis. In fact, only 27% of RLEC revenues come directly from customers paying for local access, less than that contributed by USF monies. Using standard mobile and satellite phone subscriptions to provide service to residents in outlying areas could be achieved far less expensively than what is currently purchased wholesale with taxpayers’ money. Annual savings of at least $1 billion are easily achievable.

Current annual payments of nearly four billion HCF dollars to rural telephone companies increase RLEC shareholder wealth, but do not help consumers, low income or otherwise. To the extent that local telephone service in high-cost areas is offered to customers at reduced retail prices, other costs – most notably, residential rents – rise by an offsetting amount. Property owners may gain, but consumers are excluded. That telephone networks are improved via subsidies for traditional fixed-line coverage is an idea eclipsed by history. Competitive alternatives, including wireless and broadband, are today available to more than 95% of U.S. households – the threshold level of coverage achieved by decades of universal service subsidies. Targeting universal service subsidies to those few households lacking access to communications networks would produce substantial social savings, as would be expected from a system that spends more than an estimated $5,000 per year for each incremental phone connection.

The E-Rate program generously funds computers and computer network connections in educational institutions, using about $2.2 billion of the USF annually. Much of this spending would likely take place without the program, especially in higher income areas, and lax oversight results in gold-plated systems and fraud. More generally, research on student achievement suggests that E-Rate program benefits are illusory.

High Cost Fund payments flow, in the main, to shareholders of telephone companies serving relatively few customers in rural areas. These carriers, heavy recipients of taxpayer dollars, maintain a keen interest in supporting current policies. Moreover, subsidies are concentrated in a few sparsely populated states that exercise disproportionate political influence. The result is that universal service policies diverge, more and more, from the interests of the general public.

To pay for the Universal Service Fund, the tax rate applied to long distance revenues has skyrocketed from 3.2% in 1998 to its recent level of 10.9%.”

COOK’s Edge: Warning. If you have high blood pressure - do NOT read Hazlet’s work. It may be dangerous to you health!

In an earlier life I completed a doctorate in Russian and Soviet history. Corrupt system indeed! The 21st century American version What Hazlett describes under the corrupt Soviet regine would have gotten these rural telco owners many Orders of Lenin and vacation trips to Black Sea Health Spas. But I have to wonder since the Black Sea area has rather many Muslim extremists whether the rural telco geniuses don’t go on scottish golfing vacations and funnel back large amounts to republican campaign way chests.

Yes wouldn’t they just love it if the could ban blogging or otherwise hobble the internet. Corruption works best in secret so instead of building infrastructure they hire astroturfers and deflect attention with lampoons of net neutrality from the likes of Scott Cleland at the Precursor Group.

Time for Adam Green to start educating Move On members about a real seven billion dollar a year rip off rather than a merely hypothetical Red Hering called Net Neutrality. By the way I mean no offense to Adam. He’s a nice guy. Unfortunately there is a Republican majority at the FCC and in Congress devoted more to the goal of keeping the Republican in the White House happy than to the well fare of the American taxpayers who they got into office by swearing not to abuse.

But to come back to Kevin Marks. Note what wonderful leverage they get for these programs - the ability to try banning blogs and social networking sites from Schools and Libraries.

Now how many of you are going to write nice “thank yours” to Kevin Martin at the FCC for enhancing this fraud at your expense by raising the FCC monthly line charge from $6.50 to ten dollars a month?

Japan is investing is capital in FTTH having some 6 million homes connected. Riding into office on a taxpayer rebellion our elected official are increasing taxes sureptitiously by claiming to give granny affordable phone service.

The FCC and Congress a levying what sounds like a charitable fee and invesrting in waste and corruption. Time to have a rebellion. What will be the intyernet equivalent of the Boston Tea Party?

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