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Regarding how to move forward from this untenable position, there seem to be two main camps at the moment. There are those who accept that Universal Service is here to stay, and carry out detailed studies to show the cost. On the other hand, there are those who are re-thinking the concept, for instance in the slipstream of the Information Superhighway. But there is also a more radical group who challenge the basic assumptions of the concept.
Universal Service is relevant to ACTS in the strategic domain. The integrated broadband network is, thanks to initiatives such as ACTS, becoming more and more pervasive. Will the scope of Universal Service be increased to include broadband multimedia networks? Or will another polarisation develop; not just the have and have-nots of telephone access, but those who are information-rich or information-poor?
A concise definition of Universal Service is given by the UK telecom regulatory body, OFTEL [1].
"the Universal Service policy should enable consumers, if they wish, to be connected to the telephone network and be able to take up the service at an affordable rate."
The definition goes on to say that the Universal Service should be available:
In the United States, Universal Service came about during the 1930s. An agreement was made between the Federal Government and AT&T whereby AT&T undertook to provide Universal Service in return for a monopoly [2]. This agreement was enshrined in legislation as the Communications Act (1934).
In Europe, the notion of Universal Service started to germinate in the late 1940s and 1950s [3]. The telephone service was no longer the luxury of the urban middle classes; it spread to the working classes and to rural areas. At the time of writing, telecom regulators in Europe, consistent with European Union Policy, still uphold the need for the Universal Service.
However, there are four basic assumptions, seldom made explicit, that underpin the concept of Universal Service.
All these assumptions are challenged by recent research in the United States.
In the free market, it would be expected that the cost of access and use should be borne by the telephone consumer. Universal Service requires that access should be possible and affordable. So who pays for it?
Traditionally, telecom operators have provided Universal Service by cross-subsidies. Long distance and international telephone calls were charged above the "true" rate so that, in effect, the main users of these services - businesses - were overcharged. The "excess profit" was then used to subsidise the cost of installing and maintaining the local loop (the connection between the telephone exchange and the subscriber's premises). In this way, the cost of providing connections for consumers was kept below the true level.
Another form of cross subsidy was to adjust the access and usage tariffs. The access tariff is defined as the cost of having a telephone connection (installation and rental); the usage tariff is self-explanatory. The balance between the access and usage costs can be used as a means of making the customers cross-subsidise the Universal Service. A low access cost (and correspondingly high usage costs) will benefit occasional users and will penalise heavy users.
As a general rule, whenever the tariff structure is non-uniform, one identifiable group of consumers will, in effect, be subsidised by another.
When these cross-subsidies are operated by a monopoly, they do not necessarily pose an obvious problem. When the market is opened up, however, matters become more complicated. A subscriber will naturally go for the cheaper of two comparable services. A new entrant to the market, without the legacy of an established telecommunications infrastructure, is unable to compete on the same terms as the former monopoly holder. It is for this reason that cross-subsidies have to be abolished, in order that telecom operators can compete fairly. This also requires that the true cost of providing services is calculated.
There is no straightforward answer. Politics has traditionally had something to say on the question of subsidies. Socialist governments have, in the past, tended to favour subsidies and nationalisation in general. The trend in today's age of deregulation is for the cross-subsidies, where they exist, to be made explicit and to be regulated. There are three main options at the time of writing.
Option 3 has the backing of major groups, such as the European Public Telecommunications Network Operators Association. In a paper published in 1993 [5], it is argued that in a
"competitive environment, service provision is market driven. Under this assumption, telecom operators would provide Universal Service voluntarily and there would be no need for an obligation. If the politically desired affordable market level of prices is below market prices, this could motivate an intervention (i.e. national government or EU subsidy) into the market."Option 2 seems to be the current practice. In the UK, the current situation is that the UK Regulatory body, OFTEL, recognises that British Telecom have a disproportionately large share of provision of Universal Service. Accordingly, competitors have to pay to British Telecom so-called Access Deficit Contributions (ADCs). In other words, British Telecom's competitors are penalised for not providing Universal Service.
A recent study [6] carried out for OFTEL estimates the cost of providing Universal Service. It considers the cost of core components of Universal Service: uneconomic residential consumers, uneconomic areas, public payphones and people with disabilities. The report goes on to propose that a Universal Service Fund is created, implemented by an institution independent of the operators involved. The operation of the institution would be open to inspection by OFTEL. Significantly, the report proposes that virtually all providers of two-way services should contribute to the fund: public fixed link operators, broadband cable operators, local delivery operators, cellular operators, PCN operators.
The basic assumptions (stated early in this article) have been the foundation for much of the policy on Universal Service. But a recent research project [7] indicates that these assumptions need updating. The study was funded by Bell Atlantic, and was based on interviews with families without a telephone service or who have recently lost the service. The report attempts to answer three questions:
The key findings have been summarised below.
These findings turn the basic assumptions for Universal Service on their head.
By Adrian Rawlings, Euronet Associates Ltd, 01.11.1996