Universal telephone service was originally funded though a complex process of implicit cross-subsidization of local residential telephone rates from more profitable long distance and business customer service. Presently the funding is through explicit contributions from all telecommunications companies. This pool of funds is then redistributed to local telephone service providers to ensure that the goals of universal service are met.
Since 2000 total telecommunications revenues have declined as have the eligible revenues for contributions to the Universal Service Fund. The taxation rate has increased on the remaining contribution base to insure adequate funding but new funding options should be considered. This research examines three funding mechanisms for universal service (i.e., taxes on telephone numbers, taxes on line carrying capacity, and reverse auctions) regarding their ability to generate revenue and their possible impacts on customers, technology, and the telecommunications network.