Universal service

From Wikipedia, the free encyclopedia

Universal service is an economic, legal and business term used mostly in
regulated industries, referring to the practice of providing a baseline level of
services to every resident of a country. An example of this concept is found in the
US Telecommunications Act of 1996 whose goals are:

 to promote the availability of quality services at just, reasonable, and

affordable rates
 to increase access to advanced telecommunications services throughout the
Nation
 to advance the availability of such services to all consumers, including those
in low income, rural, insular, and high cost areas at rates that are reasonably
comparable to those charged in urban areas
It was widely adopted in legislation in Europe beginning in the 1980s and
1990s. For instance, under the EU Postal Services Directive (97/67/EC), the
Electricity Market Directive (2003/54/EC) and the Telecommunications Directive
(2002/22/EC). The language of "universal service" has also been used in proposals
by the US Democratic Party for the reform of health care.

Universal service obligation

1. Introduction

Universal Service Obligation is necessary from a social point of view to ensure that
there is a balanced growth in the economic and social well-being of the masses.
The social rate of return is acceptable while the economic rate of return is not for
unremunerative areas. Therefore these areas have to be subsidized by a payment
which can at most equal the value of the positive externality. Of course, if the
social rate of return is itself not attractive or if the value of the subsidy is greater
than the value of the positive externality, then the project of fulfilling USO earns a
socially unacceptable rate of return. In this report, we look at the various issues
raised by the USO Consultation paper by the Telecom regulatory Authority of
India (TRAI) which was based on the National Telecom Policy 1999.

2. USO Design and Implementation

2.1 General Concepts

It is well recognized that service usage pattern is not uniform amongst the
subscribers, some are high calling while some others are low calling subscribers
and accordingly certain number of Direct Exchange Lines (DELs) contribute to
revenues above the commercially attractive level and the contributions from the
rest are otherwise. Variations also exist between urban and rural / remote areas.
The latter, expectedly,having comparatively lower revenue per DEL but at the
same time higher costs of provisioning.

2.2 Pricing

Pricing of basic services has been under a price cap regulation, which does not
permit increase greater than RPL for rental & local call charges. Therefore, the
tariff for these two elements were kept below cost. Accordingly, development of
telecommunication network and universal service provision was based on cross
subsidies from long distance to local service and from urban to rural areas.

3. Need for a Universal Service Fund

The current cross-subsidization which exists with the Long Distance calls
subsidizing the local calls that are charged below cost must go with the entry of
new private players in both the basic service as well as long distnce service.In this
case, the fixed access providers are allowed to make up for their loss in the short
distance calls through Interconnection charges taken from Long Distance
operators. Tying the payment of universal service contribution (USC) to the
interconnection charge could be a simple mechanism to operate when there is
only one universal service provider. Anyone who buys interconnection services
should have to pay the USC, and there is no way to impose USC on those who do
not consume any interconnection services if there are more than one Universal
Service Providers (USPs). This results in the need for a Fund which would act as an
intermediary to channelise the resources from one party to6 another. It would
reduce the inefficient bypass of the network of the universal service provider.

4. The Indian Scenario

Currently in India, the rental of the telephone line has been kept below cost.
Adequate margins have been provided in the long distance charges to meet this
deficit, generally called, access deficit. The margins also cover for the costs
caused to access / local service provider for providing long distance functionality
which is transferred as access or carriage charge under an Interconnect
agreement. The FSPs thus get a share of the long distance revenue on
interconnection. The accounts need to be separated for local and long distance
services for working out access charges. Access charges are the amounts incurred
by a telephone provider for setting up the DEL or VPT and making it functional. As
a result of few calls, there is an access deficit that needs to be compensated by a
Fund or subsidy because the operators do not have the option to raise the prices
proportionate to the cost.