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![Page 1: Fixed-Mobile Substitution and the Promotion of Universal Service Glenn A. Woroch University of California at Berkeley.](https://reader035.fdocuments.in/reader035/viewer/2022071806/56649d045503460f949d7ba4/html5/thumbnails/1.jpg)
Fixed-Mobile Substitution and the
Promotion of Universal Service
Glenn A. Woroch
University of California at Berkeley
![Page 2: Fixed-Mobile Substitution and the Promotion of Universal Service Glenn A. Woroch University of California at Berkeley.](https://reader035.fdocuments.in/reader035/viewer/2022071806/56649d045503460f949d7ba4/html5/thumbnails/2.jpg)
Universal Service PolicyMeets Mobile Ubiquity
Should mobile access be counted toward the goal of universal service?
Should subsidies for fixed service be reduced or eliminated?
Should mobile access be subsidized in certain markets, e.g., rural areas?
►Answers depend on fixed-mobile substitution
![Page 3: Fixed-Mobile Substitution and the Promotion of Universal Service Glenn A. Woroch University of California at Berkeley.](https://reader035.fdocuments.in/reader035/viewer/2022071806/56649d045503460f949d7ba4/html5/thumbnails/3.jpg)
Lifeline Program
Targeted subsidy to promote telephone access Federal program implemented by 50 states. Discount off monthly phone bill set by FCC, states.
Eligibility Income test: HH income below threshold based on
Federal Poverty Guidelines. Program test: HH participates in a federal assistance
program (Medicaid, SSI, etc.). HH must “self certify” each year.
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Lifeline Program
Implementation Eligible Telecommunications Carries (ETCs)
implement through billing. Discounts range $6.75-$14.78 with an average of
$11.00 Composed of federal SLC ($6.75), plus state match,
plus federal 50% match (up to $1.75). Only one fixed/mobile line covered per household.
Participation ~19 million eligible but only ~6 million participate. Overwhelmingly on fixed not mobile.
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Lifeline Programs Across States
State
State + federal
discountAvg annual
discount
Income eligibility as
% of FPG
Estimated participation
rate
% of households participating
% of sample households with Lifeline
California $12.00 $128.32 150% 119.2% 27.79% 32.88%
Florida $12.00 $130.21 125% 13.5% 2.12% 5.4%
Illinois $10.85 $94.40 125% 9.0% 1.26% 3.8%
Maine $12.00 $130.13 130% 99.2%
Massachusetts $14.50 $160.96 175% 28.4% 6.77% 15.11%
Michigan $9.75 $103.92 150% 20.1% 3.74% 3.62%
New Jersey $6.75 $69.62 150% 5.9% 0.95% 4.26%
New York $10.74 $115.87 150% 34.6% 8.31% 14.48%
Ohio $6.75 $76.81 150% 19.9% 3.76% 5.15%
Pennsylvania $10.50 $110.92 150% 5.5% 1.03% 2.48%
Texas $12.00 $121.19 125% 18.6% 3.5% 1.68%
U.S. Total/Average $121.97 30.7%
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Household Panel Dataset
TNST’s ReQuest® Market Monitor household panelNationwide, 30K+ per quarter, 10 quarters
(3Q99-4Q01).Survey responses and demographics.
TNST’s Bill Harvesting® databaseFixed and mobile “bill harvesting” (~ 25%
response rate).Not a panel but some re-sampling (~ 10% of
bill submitters).
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Lifeline Participation
Identified by service designation on household fixed line bill.
Lowest income group participation rate ~30%, gradually falls with income to 2% for highest group.
Lifeline also related to: Marital Status Size of household Composition of household Ages of children
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Lifeline Participation by Income
0%
5%
10%
15%
20%
25%
30%
35%
Perc
ent o
f Sam
pled
Hou
seho
lds
![Page 9: Fixed-Mobile Substitution and the Promotion of Universal Service Glenn A. Woroch University of California at Berkeley.](https://reader035.fdocuments.in/reader035/viewer/2022071806/56649d045503460f949d7ba4/html5/thumbnails/9.jpg)
Lifeline-Mobile DecisionHousehold income, size, state
Eligibility
Awareness
LL participation
Household education, mobility, carrier switching
LL subsidy AccessChoice
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Fixed-Mobile Cross-Price Effects
Lower fixed charges of Lifeline could elicit cross price effect on mobile subscription
But the Lifeline “experiment” is not random Might mobile response to lower fixed price be an
“income effect”? Controlling for income & demos, wish to see
fixed price effect of Lifeline on mobile Check if Lifeline has an incremental effect on HH
purchase of cable, personal, Internet to see if it is a “pure price effect”
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Empirical Problems
Errors arise in measuring fixed and mobile prices.
Self selection into Lifeline program. Unobserved household characteristics.
► All likely correlated with determinants of mobile subscription decision.
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Solutions
Re-sampling of householdsControls for time-invariant characteristics
Instrumental variablesPurges prices of common unobservable
household factors Two stage estimation
Regress fixed and mobile bills on instrumentsProbit choice model of cellular subscription on
fitted prices
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Cross Elasticity Estimates
Base Model
Low Income
(<$20k)
High Income
(>$20k)
Complete Sample 1.42 1.88 1.06
Without Mobile Phone Initially
1.79 1.97 1.62
With Lifeline Currently
1.73 2.17 0.83
Never Lifeline 1.58 -0.22 1.85
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Cross Elasticities (cont’d)
Complete Participation
States*
Partial Participation
States
No Mobile Lifeline States**
Mobile Lifeline Allowed
Complete Sample
0.92 1.39 2.35 1.19
Without Mobile Phone Initially
0.85 2.03 3.03 1.72
With Lifeline Currently
0.08 2.06 2.43 1.62
Never Lifeline -0.53 1.72 10.37 1.46
* - California and Maine; ** - California, Illinois, New York
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Two Policy Experiments
1. Withdraw the Lifeline discount from all participating households
2. Impose the average Lifeline discount on all non-participating, eligible households
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Policy Simulation
Experiment
Target Population Base Case
Mobile
Change
Withdraw Lifeline
Current Participant 20.4% +9.8%
Expand Lifeline
No Lifeline, Income < 20k 14.3% -4.5%
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Conclusions Mobile ubiquity presents challenges to the
design of universal service programs. Modification, or elimination, of existing subsidies
turns on accurate measure of fixed-mobile substitution.
A key universal service program, Lifeline, provides a natural experiment to estimate FMS.
After correcting for endogeneity problems, cross elasticities of access demand are quite large.
Simulation of expansion/contraction of Lifeline confirms that mobile subscription significantly impacted by fixed subsidies.