Universal Service in a Wireless World

In 2005, the FCC expanded Lifeline: the primary telephone subsidy program, to include discounts for prepaid wireless service as well as for traditional landline service. This study provides insights into the effects of the subsidy, including its expansion, on household adoption of basic telephone service and conducts cost-benefit analysis using data taken from the National Health Interview Survey over 2003-2010. Results indicate that the Lifeline program increases a household?s propensity to subscribe to phone service; however, the effects are quite small. Findings reveal that subsidy, as it has evolved, suffers from a great deal of infra-marginal subscribers and would benefit from restructuring. JEL classification: L96, L98 I am grateful to John Mayo, John Rust, Marius Schwartz, Alexei Alexadrov, Nate Miller, Greg Rosston, and Scott Wallsten for their comments. I am grateful to Amanda Delp and Marcia Mintz for their editorial suggestions. And I am also grateful to the Georgetown Center for Business and Public Policy for sponsoring the access of the proprietary data for this project.