“Lifeline” programs subsidize telephone services for low-income subscribers. These programs have two distinct goals: to encourage universal access and to alleviate financial hardship. The first goal can be related to network externalities and to telephone access as an “economic right.” The second objective has been alluded to earlier under the headings of customer-class pricing (Section 4.6) and discriminating two-part tariffs (Section 5.4). Note that the tariffs described in this chapter use household characteristics, such as income, as a discrimination device rather than the level of consumption, as in self-selecting two-part tariffs (Section 5.6.5).

Telephone penetration

The Communications Act of 1934, which created the Federal Communications Commission, officially endorsed wide availability of telephone service as a central aim of telecommunications regulation. From 1983 until March 1990, telephone penetration of US households increased from 91.6 percent to 93.3 percent, as measured by the presence of a telephone in the housing unit. Although the average level of penetration is quite high, certain subsectors of the population experience much lower levels of telephone access.

Table 11.1 summarizes historical penetration rates and shows how those rates vary according to different demographic strata. Penetration rates in the southern United States tend to be below the national average; while penetration rates in the central and northeastern part of the country exceed the average. Lower-income households, households which are either larger or smaller than the national average, households headed by someone sixteen to twenty-four years old, and black and Hispanic households experience below-average telephone penetration rates. For example, black and Hispanic households with annual incomes under $15,000 experience penetration rates below 85 percent, as shown in Figure 11.1.

Penetration increases with the age of the head of household in all demographic groups.