e markets. The pressure for regu- lation today derives from a political demand to keep rates high, not to restrain monopoly power. Among the most important issues facing U.S. telecom regulators today are those that involve the levying of taxes on telecom services to support a variety of "universal service" objectives. These taxes are of two forms: (1) explicit levies on interstate and international revenues and (2) implicit subsidies through regulatory rate distortions. The 1996 Telecommunications Act instructed the FCC to move toward explicit, transparent subsidies to support low-income subscribers, high-cost rural telephone companies, schools, libraries, and rural health facilities. The FCC complied by establishing a universal service levy on all telephone rev- enues, but the federal courts subsequently ruled that the tax base for such a program must be limited to interstate and international revenues. The cur- rent tax rate for these programs is now about 9 percent of these revenues, which generates about $6 billion in annual receipts to sprinkle among the politically favored constituent groups. The schools and libraries allocation is absorbing about $1.7 billion a year of these funds, and the rural, high-cost A Look Back and a Look Forward telephone companies are receiving $3.3 billion a year. 11 As the revenue base declines because of competition in interstate and international services, the tax rate must be increased or the disbursements must be reduced. Obvi- ously, the development of free long-distance services on wireless systems in off-peak hours and VoIP are major threats to these programs. A second form of subsidy generated by the current regulatory system is found in the regulated rate structure. Regulators have traditionally kept long-distance rates and some business rates high to cross-subsidize high- cost rural telephone services. The most obvious of these implicit subsidies is now found in the switched access rates charged by local carriers to orig- inate and terminate long-distance calls. These 