Affordability is not an issue. Numerous studies show that demand for local telephone service is not very responsive to the monthly charge. As a result, few people would drop their service even if local rates were deregulated. Americans who forego telephone service usually do so because they cannot afford installation charges or because they cannot afford to pay off past bills with large long-distance charges. In other words, removal of local rate subsidies would throw virtually no one off the telephone network.
Universal service is an extremely inefficient form of income redistribution.
The people currently paying below-cost prices would of course pay more if local rates were deregulated, but that fact does not provide a fairness argument for subsidies. The subsidies do not even always help the intended beneficiaries. Poor families who use a lot of long-distance service are worse off with the subsidies than without. Universal service subsidies clearly qualify as one of the least efficient government attempts to redistribute income. When a normal business gives away its product at a price below cost, it is accused of predatory pricing.