Saturday, August 18, 2012

Universal Service Policies in the Context of National Broadband Plans

Broadband networks, or more specifically the services and applications they support, are increasingly critical for economic growth, global competitiveness and a better life. While these networks are rolled out and technologies evolve there is a need to review universal service regimes so that they continue to fulfil their role. This report therefore discusses the main areas in which national strategies to expand broadband networks affect universal service objectives, proposes criteria to rethink the terms of universal service policies, and shares the latest developments across a selected group of OECD countries.

The notion of universal service in telecommunications was established immediately after the liberalisation of the sector. The common view was that guaranteeing affordable access to a minimum set of predetermined services for all would help prevent social exclusion and maximise the economic benefits of existing telecommunication networks. No common concept of universal service was ever adopted across the OECD. However, to articulate universal service goals, most OECD countries imposed an obligation to provide service on one or more carriers.

The economic and social objectives that served as the original foundation for universal service in telecommunications remain valid today but acquire a new dimension with the expansion of high capacity networks and the evolution of social needs. Economic incentives are insufficient to extend broadband networks and their services beyond a certain point, but there are broader economic and social justifications that support the provision of telecommunication services for all at a certain level. In this context, strategies to articulate universal service goals are changing. Legally enforceable universal service obligations remain a core instrument in many countries. However, OECD countries increasingly rely on a host of additional demand and supply instruments to achieve the maximum possible availability, affordability and accessibility of telecommunication services. These additional instruments are not always legally enforceable and include, among others, political commitments, national plans, and aspirational goals to expand broadband for all; computer and Internet literacy plans; or standard setting measures to ensure einclusion.

A re-evaluation of the scope of universal service aims to establish whether some of the services currently guaranteed through universal service obligations no longer need to be supported through this means, and vice versa, whether other services fulfil essential needs and should be supported through enforceable obligations or through other policy instruments. The inclusion of broadband service in the scope of universal service obligations is currently a core issue and there is no common position on the subject. OECD countries share a vision about the socio-economic role of broadband networks and services and they are committed to attain their greatest practical national coverage and use. However some countries view a universal service obligation on broadband as the adequate instrument to articulate their goals and others consider that an obligation may discourage market-driven investment and innovation.

Governments should follow a systematic process to decide which tool is the most suitable instrument to achieve their universal service goals in regards to broadband. The decision-making process should clearly define the specific features of the service under consideration, determine whether broadband is essential for full participation in society, establish that market mechanisms are insufficient to ensure that service is available and affordable for those without it, assess the option of imposing a universal service obligation relative to other policy alternatives, and evaluate those alternatives in light of broader policy objectives and other on-going programmes. In the end, the ever-present question will be how best to economically expand broadband coverage and use, to the greatest practical extent, with the minimum distortion on competition, as opposed to imposing a particular policy instrument.

As mobile telephony becomes ubiquitous, OECD countries may consider the role of wireless
technologies in universal service policies. In some cases, the inclusion of mobile telephony in the scope of
universal service obligations could lead to better coverage and reception. Conversely, costs could be hard
to justify, especially in large, sparsely or unpopulated areas. Countries with high population densities and
extensive, advanced wireless networks are more likely to consider the universal service obligation option.
Wireless broadband may come to play an important supporting role to fibre networks. Wireless already provides broadband connectivity to remote areas. Furthermore, mobile connectivity is eroding the justification for fixed-line subsidisation through universal service obligations by reducing the costs and expanding the functionalities of public payphones. To ensure that the potential of wireless technologies is fully unleashed, countries will need to ensure that telecommunication policies are technology neutral, and that enough suitable spectrum is made available to expand coverage and to support bandwidth intensive services.

Where universal service funds (USFs) exist, they were designed to cover relatively small gaps derived from fulfilling universal service obligations over existing networks, not to deploy new infrastructure. Where fulfilling universal service goals requires network deployment, countries will sometimes need to supplement private investment. To do so, countries face the option of reforming existing USFs or creating new funding mechanisms. USF reform requires fundamental changes to the funding mechanism and may face substantial opposition. In those cases where reform is undertaken, mechanisms should ensure that the USF is sufficient, flexible, technologically neutral and efficient. Timing for reforms should be carefully considered to prevent any potential negative impact on private investment.

New broadband networks introduce uncertainty regarding the costs of fulfilling universal service policies. Price and cost structures of broadband networks differ from those of the public switched telephone network (PSTN). Therefore it is unclear how many people will be unable to afford services on broadband networks or what will be the cost per connection. Current subscription prices for PSTN telephony may serve as rough estimates, but will need to be adapted to account for broadband network characteristics. The difficulties estimating costs may be compounded during the transition to next generation access (NGA) networks. Decreasing traffic will likely increase the costs of maintaining PSTN networks and voice-only customers may require assistance to prevent discontinuity in service and topurchase adequate equipment. Furthermore, investment will be needed to design reliable and efficient systems to transmit emergency communications over VoIP. Transition may therefore cause a temporary spike in funding requirements.

To maximize the benefits of NGA networks and telecommunication technologies for people with physical disabilities, countries will need to develop specific policies and consider the potential role of universal technical standards. Measures could be taken early on in the state of development of new communication infrastructures and encompass design, development and fabrication processes of applications and equipment to ensure that developments do not go down a path that creates new barriers and forces the disabled to play catch-up. That being said, new technologies, such as text-to-speech functions on computers/e-readers, or voice prompted “search and query responses” on smart-phones offer  tremendous opportunities to empower users that face challenges in one or more areas. These technologies are sometimes driven by commercial imperatives and in other cases they are developed in response to requests from certain communities. Both these drivers need to be acknowledged in the formulation of government policy. In addition, historical differences in the treatment for content (e.g. value added tax) delivered through different media (e.g. books and newspapers vs. electronic devices) need to be considered in terms of the ability of electronic devices to foster inclusion.

The Annex provides a description of universal service policies in selected OECD countries.

Calvo, A. G. (2012), “Universal Service Policies in the Context of National Broadband Plans”, OECD Digital Economy Papers, No. 203, OECD Publishing.

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