universal service and providing a telephone in every house. The initial goal of installing 6,000 phones in rural areas was quickly achieved, and the next goal was to install telecom centers in each of the 341 counties. Subtel, the Chilean telecoms regulator would oversee the application of a subsidy which should be carefully calibrated so as not to exceed the estimated investment value. Techniques were used to find the minimum cost solution. Once technical solutions were found for certain projects, they were put out for competitive tender and awarded to the bidder seeking the lowest subsidy. Commentators on the Chilean system have noted that the Subtel estimate of the subsidy was likely to represent the upper level of what is needed. The reason for this is that the Subtel estimate did not take into account existing infrastructure. $ ^{80} $ In any event, in the first year the total committed subsidy was 23.1m, a very low amount. Firms on average requested only 60 percent of the maximum subsidy. The subsidy on each rural phone was 3,800 as opposed to 12,000 before the fund. This was largely brought about by the competitive bidding process. The impact of the fund has been very significant with 93% of the rural population having access to telecom services by 2002, as opposed to only 10% in 1995.

Serra has commented that mobile phones have become more popular with poorer consumers, especially with pre-paid phone cards. This dynamic has also affected the notion of universal service with regard to landline telephony. Serra points out that greater competition is itself a way of satisfying the Universal Access Obligation, as more competition lowers price and thus makes services more generally available. For example, long distance prices have fallen by over 80% since 1994 after deregulation. In electricity generation, prices fell by 50 percent (and it should be noted that instilling competition in the generation area is notoriously difficult).

Serra also looks at whether cross-subsidies actually help the poor. The cross-subsidy that normally accompanies a USO fund was meant to make local telephony more accessible (on the basis that the poor would particularly need this kind of service, whereas businesses would use long-distance and international services). However, he notes that in the Chilean example, the average family's phone bill increased from $9.30 to $25.10, even as the number of lines increased by a factor of six. Subsidies that are funded from taxes, as opposed to from competitors or from the proceeds of a privatization are more likely to lead to efficiency enhancing uses that actually target the poor. Serra notes that in Chile's public utilities, cross-subsidies have been virtually eliminated, and any subsidies remaining are funded out of the national budget. This is a very significant achievement that should not be under-estimated.

The studies suggest that company-specific data should be avoided and hypothetical or proxy costs should be used. How should these proxy costs be calculated? The FCC has noted that the least cost, most efficient and reasonable technology should be used. However this may not be accurate – these technologies may not be immediately available and frequently take time to be rolled out.

Studies certainly appear to show that consumers and entrants lose in the event of a Universal Service Fund operated by a tax. Imposing a tax on other market participants naturally increases costs for those participants. This not only increases prices for their customers, but also can impede or even prevent entry by additional market participants, to the detriment of competition in those markets. This policy furthermore distorts market signals to consumers by artificially increasing