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ERIC Number: ED504163
Record Type: Non-Journal
Publication Date: 2006-Apr-18
Pages: 61
Abstractor: As Provided
Reference Count: 32
Rethinking Universal Service for a Next Generation Network Environment. OECD Digital Economy Papers, No. 113
Xavier, Patrick
OECD Publishing (NJ1)
There is a clear need, in view of significant competitive, technological and service changes taking place in the telecommunications sector, to review universal service obligations, their coverage, how they are financed and who is responsible for providing them. In many OECD countries, a primary longer term issue is how to provide universal service in the new competitive environment where voice is ubiquitous and cheap, voice revenues low and where voice has become just one of many applications provided on networks. Access too is changing, with more choice in platforms available that allow access to voice applications. This paper overviews the main issues that need to be examined in such a review with a view to the reform of universal service in a way consistent with emerging technological realities and competitive circumstances. The paper draws a number of conclusions outlined below. Important changes have already taken place in universal service in OECD countries, where market liberalization and technological developments in the telecommunications sector have resulted in improvements in telecommunications availability (through increased penetration of fixed line and wireless as well as enhanced quality of service), affordability (through lower prices, in overall terms, and through pre-paid mobile) and accessibility (improved through voluntary but also through regulatory schemes). As a result, there has been significant progress towards universal service. In an NGN [Next Generation Networks] environment where new technologies are competing, a question that arises is whether an approach towards universal service that was framed for a legacy network is still the appropriate policy? An increase in communications facilities and service competition is expected over the next ten years as the communications sector converges, shifts technology to one based on IP [Internet Protocol] protocol and gravitates towards new kinds of networks built with technologies such as wireless, wireline, fibre, cable, powerline, and satellite. With such technological developments and a more competitive environment, cross-subsidy practices are likely to be increasingly unsustainable and an increasing number of countries are turning to the use of Universal Service Funds in order that the burden of USOs [universal service obligations] can be shared more equitably and flexibly among market participants. But as competition from sources such as VoIP [Voice over Internet Protocol], cable telephony, e-mail, instant messaging, pre-paid mobile and pre-paid cheap long distance/international calling erodes the revenue base of telecommunications operators, Universal Service Funds too may come under pressure. The growing diversity of technologies and the capabilities of these new technologies require more precise reflection on what it is about telecommunications services that justifies a universal service policy, and how these telecommunications services should be defined. With the technological changes on the horizon, there seems significant potential for "availability" of telecommunications access, and hence services, in rural and remote areas to be largely achieved over the next ten years. Whether this potential materialises will depend importantly on the removal of disincentives to invest and barriers to entry (including those due to spectrum policy that generates artificial scarcity). This includes minimising price controls and subsidies that discourage competitive entry. All this is consistent with forbearance of regulation in a dynamic, increasingly competitive and convergent communications sector. If availability of telecommunications access is achieved, is universal service policy still necessary? If so, would access alone achieve the goals of universal service, or is it some package of affordable services that require access which should be the objective? Universal service policies in an NGN environment should be constrained by the recognition that USOs should be specifically defined and targeted, transparent, competitively and technology neutral and cost-effective. Universal service objectives such as "affordability" and "accessibility" may be addressed by specifically targeted subsidies (including vouchers) that allow consumers in a multi-platform NGN environment to themselves choose the service provider and technology most suitable to their needs. In appropriate competitive circumstances, the use of well-designed competitive tenders can help generate incentives to contain costs, innovate, and reveal the true cost of delivering universal service thus minimising the subsidy required. At the same time, it needs to be recalled that, in most OECD countries, the PSTN [public switched telecommunications networks] incumbent is still dominant in terms of access to traditional telephone service and the only operator with national (regional) coverage. As broadband access matures, it is becoming clearer that not all broadband access is the same. Each broadband technology has its own performance and economic characteristics, and positive or negative technical aspects. For example, cable, fibre, and DSL technologies have significant bandwidth advantages over broadband wireless local loop, BPL [broadband over power lines], and VSAT [very small aperture terminals]. However, cable, DSL, and fibre work best in high population density areas and may be uneconomic in less densely populated areas. A potential scenario in many OECD countries, therefore, is an environment where metropolitan areas have significantly richer capabilities than the rural areas. This may have long-term effects on social and economic opportunities in rural areas. Moreover, in the future, the quality of access, not merely the availability of access, may become the major consideration in setting policy. In rethinking "universal" access to the range of NGN services, a core issue is whether broadband should be part of USOs. The EU has already moved from voice USOs to include a data USO with a "functional Internet access" provision in its current USO Directive. No doubt there will be close examination of whether "functional access" in an NGN environment necessitates an upgrade to broadband access. Indeed, there are strident calls for such a policy already. But "at least at this early stage of broadband penetration" there are strong reasons to be wary of using a "blunt", blanket USO approach that could distort competition and investment incentives. However, this view may require regular reconsideration because universal service is an evolving concept. More generally, as competition develops through the use of unbundling in a number of countries, it may be necessary to determine the role of unbundled lines in the provision of universal service. In an NGN environment, current funding arrangements for USOs may be unsustainable. A variety of alternative arrangements can be envisaged ranging from a tax on each telephone number to financing through general taxation revenue. They should be thoroughly assessed against a number of criteria, such as economic efficiency, equity and competitive entry as well as against current practice where the infrastructure and service providers directly fund universal service. As part of this assessment, governments may want to consider advantages that could be gained by funding the cost of pursuing the "social" objectives of USOs from government general taxation revenue. Importantly, government funding would link decisions concerning the nature and scope of universal service closely with financial responsibility for such decisions. This could prevail against excessive growth by installing in-built incentives to restrain political disposition for widening universal service expenditure. Certainly, while political advantages flowing from universal service programmes can be gained at the expense of operators and/or consumers, restraint over universal service (needed to stimulate innovation, best practice and cost-effective USO programmes and to minimise the distortions that can arise from excessive USO programmes) is less likely. (Contains 73 notes, 7 figures, and 9 boxes.)
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Publication Type: Reports - Descriptive
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Organisation for Economic Cooperation and Development
Identifiers - Location: United Kingdom