Caveat. I am not a lawyer, let alone a telecommunications lawyer. I may also have some basic misunderstandings about universal access. Please enlighten me via email.
The Universal Service had its origins in a policy of using revenues from urban telephony to subsidize rural telephony. The sparse rural environment made it very expensive to run wires. The intent was laudable, treat telecommunications as a national resource, like the Interstate (Defense) Highway system in the 1950's. The ability to call anywhere in the country also added value to the urban service.
This seemed to be a reasonable public policy, especially in an era when telephony was being treated as a natural monopoly. It was just another piece of regulation.
We are now at a turning point that is forcing the issue. IP (Internet Protocol) Telephony doesn't need to use existing phone network. The telephone connection is simply converted to data. While all signals are data, IP Telephony allows for much greater flexibility in processing the signal and thus can thus achieve dramatic cost advantages. It also allows one to choose how good a service one wants from a high bandwidth/low latency connection to a much lower quality connection that has essentially no cost.
The problem is that Universal Service has become an accepted practice. And, to many (as in Lloyd Morrisett's essay), it seems natural to extend it.
Rather than extending it, the issues raised by IP telephony provide us with a change to question the whole concept:
Cost of Telephony
The cost of computing has gone done by a factor of a trillion while the cost of telecommunications has declined to a much smaller degree. More important, the capacity of the local wires has gone up dramatically from a single scratchy conversation to millions of bits per second capable of supporting hundreds or thousands of conversations. And wires aren't even necessary. Supporting a "lifeline" phone available for emergencies has essentially no cost.
The effect of the subsidy from the Universal Service fund is simply to allow the local phone companies to maintain the fiction of high fees and the fiction that residential services needs subsidies. Very strange that there are so many companies vying for such an uneconomic business.
The Internet and Schools
Here too we have economic consequences. In order to reach the residential marketplace much effort is being expended to reduce the costs of supporting such users. The effect is to reuse existing wires (or wireless) to connect to the home and to connect within the home. The goal is to reduce the costs to near zero. There is some cost to ongoing support but, as noted above, this is very low compared with the capacity provided.
But by providing lavish funding, the effect is to encourage bad economics such as buying the most expensive network equipment even if it is obsolete.
There are indeed some costs such as improving the power wiring to schools and buying computers. But that bears no more relationship to the cost of a phone call than does the cost of books or teachers salaries. We must support education but hiding the sources of funding only interferes with achieving the goal of a more educated society.
Access to the Internet is only a small part of the larger challenge of creating a population that is ready to cope with new challenges and technologies.
We must recognize the Universal Service fee as a social policy gone awry. If we do believe in such subsidies we should be honest and make it an explicit governmental expense. Otherwise we are in danger of threatening the vital resource of the Internet in the interests of solving the problem of running wires to the vanishing small farmers.
Furthermore, the whole notion of running cheap wires to rural sites is itself nonsensical. To the extent we do terrestrial wiring, the existing wires have much latent capacity. But wireless approaches are increasingly economical.
Rather than extending the universal access fee, IP telephony gives us a chance to reexamine the premises and eliminate the fee!