Reading :: Universal service obligations in a competitive telecommunications environment

Originally posted: Mon, 07 Feb 2005 23:41:32

Universal service obligations in a competitive telecommunications environment

by Patrick Xavier

Continuing my investigation of the slippery term universal service (see my review of Muller's Universal Service), I skimmed this thin monograph on universal service policy. The monograph was published in France by the Organisation for Economic Co-operation and Development -- an indication, I hasten to note, of how broadly the term "universal service" has traveled. Bear in mind that the term originated in a 1907 AT&T annual report as a way of articulating the company's new strategy for crushing its competition. So it's fascinating to see that the term has been translated (in Latour's sense) across the Atlantic and Pacific into "non-commercial objectives" (p.13)!

What are these objectives?

The so-called 'Universal Service Obligations' of telecommunication operators, which has been a common feature of telecommunication regulation in most countries, is an example of such a requirement. Usually these obligations constitute a requirement to provide basic telephone service to all who request it at a uniform and affordable price even though there may be significant differences in the costs of supply. (p.13)

Individual countries pursue additional means to provide universal service, and these means are by no means identical (pp. 13-14). In any case, however, the author notes that universal service has traditionally been maintained by cross-subsidies (e.g., keeping local costs low by charging more for long distance costs). But "recent rapid changes in telecommunication technology and policy which has liberalised markets in an increasing number of countries have given rise to concerns about the sustainability of universal service policies based on cross-subsidisation" (p.14). No kidding. When cross-subsidies support universal service by borrowing from other segments, competition in those segments will destroy cross-subsidies by charging market rates rather than inflated rates (pp.14-15). So countries that attempt to offer universal service are caught in a bind. If they liberalize markets and continue to finance universal service through cross-subsidies, they risk the cratering of the whole enterprise. But if they impede competition, they give up all the benefits that come with it -- and "since competition can yield significant benefits for at least some aspects of universal service, prohibiting competition could serve, in fact, to impede progress toward universal service" (p.15). The author goes on to advocate competition rather than monopoly, as long as "appropriate arrangements" are in place (p.15).

Let's skip forward to some interesting discussion. I've noted elsewhere that universal service is a moving target, certainly in the United States. Universal service refers to basic telephone service, but the definition of "basic" changes based on what features are widely available. In Texas, for instance, basic service encompasses "plain old telephone service" (POTS), but also other services such as 911 and relay services, and regulations state that the definition can expand in the future. But this monograph points out that in certain cases and along certain dimensions, the definition of universal service has narrowed:

In some instances, the contraction of the basic service definition has occurred largely at the instigation of the telephone companies as a means of creating revenue. The introduction of separate charges for operator services, directory assistance, special number assignment, and time-measured charges for local calling fall within this category. In other instances, the contraction of the basic service definition happened in connection with changes in regulatory policy. The unbundling of customer premises equipment and inside wire (both investment and maintenance components) from basic services are examples of this latter case. (p.28)

On the same page, the author thoughtfully includes a table showing the components of basic service in the US from the 1900s to the 1990s.

Later on, the author notes that BellSouth decided to declare victory on universal service in the 1990s. Citing the industry's 93% penetration rate nationwide, it argued that universal service had been accomplished and "argued that the remaining households fail to subscribe by choice, not due to a lack of availability" (p.39).

This policy monograph can be dry at times, but for me, it's fascinating to see how the term "universal service" has evolved over time and become articulated in so many different contexts. >

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