Universal service
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:
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.
and the Uniform Penny Post which he introduced in the United Kingdom
in 1837. Though Hill never used the term "universal service", his postal system had the hallmarks of early universal service; postal rates were reduced to uniform rates throughout the nation which were affordable to most Britons, enabled by the postage stamp
(first introduced here) and a General Post Office
monopoly on mail. Hill's reforms were quickly adopted by postal authorities worldwide, including the United States Post Office Department
(now the United States Postal Service
) which already held a monopoly through the Private Express Statutes
. The service obligations of USPS under current law are commonly referred to as the "universal service obligation" or "USO". Universal service is also a key objective of the Universal Postal Union
.
The term "universal service", on the other hand, appears to have originated with Theodore Newton Vail
, president of American Telephone & Telegraph
(the original AT&T) and head of the Bell System
, in 1907 with the corporate slogan
"One Policy, One System, Universal Service". It was intended as a contrast to the "dual service" that had become common since the original Bell telephone patents expired in 1894, where independent telephone companies operated not only in non-Bell System markets, but also as a competitor in Bell markets.
These independent phone companies did not interconnect to the Bell System; though modern commentators suggest Bell refused to do so as an excuse for monopolization, it was argued then that phone systems of that day could not interconnect unless all phone companies used the same technology, as the Bell System did. This required many businesses to maintain phones with both companies, or else risk losing customers who subscribed to the other phone company.
Vail argued that an interconnected phone system (the Bell System), operated by one company (AT&T) and with rates regulated by the government, would be superior to the dual system and would produce great social benefits, much like Hill's postal reforms. Though largely ignored by modern commentators, Vail did work for the U.S. Post Office Department earlier in his career; thus, he may have been inspired by the U.S. postal system of that day.
Eventually, Vail prevailed in his views, first through state laws and ultimately through the Kingsbury Commitment
of 1913, where AT&T agreed to several measures, including interconnection with non-competing independent phone companies, to avoid antitrust
action, thus formalizing the Bell System monopoly. Meanwhile, the Mann-Elkins Act
of 1910 made AT&T subject to regulation by the Interstate Commerce Commission
.
Universal service in telecommunications was eventually established as U.S. national policy by the Communications Act of 1934
, whose preamble declared its purpose as “to make available, so far as possible, to all the people of the United States, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges”. The chief purpose of this law was to combine the Federal Radio Commission
with the ICC's wire communications powers, including regulation of AT&T, into a new Federal Communications Commission
with greater powers over both radio and wire communications.
Though the Bell System divestiture
of 1984 dissolved the monopoly that inspired the term (though SBC
, one of the Baby Bells created then, ultimately bought AT&T and assumed its name), universal service remained official U.S. telecommunications policy under the 1934 Act, even as the FCC began to abandon rate regulation. It was further codified by the Telecommunications Act of 1996
, even as it permitted expanded competition in the telecommunications field. The Federal Communications Commission
is actively exploring universal service reform, and the place of universal service to the broadband communications environment.
and have all their telecommunications industries pay a part of their net earnings into it. This fund has different names in different countries:
Though the nomenclature is different the importance of the goal of universal service has been noted by most of the countries and similar methods are being implemented to work towards this end. Each country gives certain service providers Universal Service Provider or Eligible Telecommunications Carrier status. This allows the provider in question to get subsidies from the universal service fund to economically provide the necessary service.
The basic concept of Universal service is the below cost pricing of service to increase the quantity of service as shown in Fig. 1.
The figure shows a Demand Curve
where the region in red shows the extent of the original service and the increase shown by the green area represents the increase in the service area once the subsidy helps reduce the prices. The conclusion is simple, as the prices reduce from P1 to P2 the quantity of customers increases form Q1 to Q2. Thus satisfying allowing universal service.
The size of the subsidy paid out to the telecommunication service provider in this case is shown in Fig.2.
Since each call in fact costs price P1 and price P2 in the cash flow from the customer, the rest (P1-P2) comes from the Universal Service Fund.
This is a simplistic case and most countries have very complex legislation to guarantee the service and have several subsidy mechanisms to implement universal service. The case shows the idea behind universal service not the universal service mechanism actually used in any country.
which is also provided for in the Telecommunications Act of 1996
.
Besides services to deprived areas, there is also a "Lifeline" program that subsidizes telephone service to low-income people regardless of location.
Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
, 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.
Origins of concept and term
The concept of universal service appears to have originated with Rowland HillRowland Hill (postal reformer)
Sir Rowland Hill KCB, FRS was an English teacher, inventor and social reformer. He campaigned for a comprehensive reform of the postal system, based on the concept of penny postage and his solution of prepayment, facilitating the safe, speedy and cheap transfer of letters...
and the Uniform Penny Post which he introduced in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
in 1837. Though Hill never used the term "universal service", his postal system had the hallmarks of early universal service; postal rates were reduced to uniform rates throughout the nation which were affordable to most Britons, enabled by the postage stamp
Postage stamp
A postage stamp is a small piece of paper that is purchased and displayed on an item of mail as evidence of payment of postage. Typically, stamps are made from special paper, with a national designation and denomination on the face, and a gum adhesive on the reverse side...
(first introduced here) and a General Post Office
General Post Office
General Post Office is the name of the British postal system from 1660 until 1969.General Post Office may also refer to:* General Post Office, Perth* General Post Office, Sydney* General Post Office, Melbourne* General Post Office, Brisbane...
monopoly on mail. Hill's reforms were quickly adopted by postal authorities worldwide, including the United States Post Office Department
United States Post Office Department
The Post Office Department was the name of the United States Postal Service when it was a Cabinet department. It was headed by the Postmaster General....
(now the United States Postal Service
United States Postal Service
The United States Postal Service is an independent agency of the United States government responsible for providing postal service in the United States...
) which already held a monopoly through the Private Express Statutes
Private Express Statutes
The Private Express Statutes are a group of United States federal civil and criminal laws placing various restrictions on the carriage and delivery of letters by all organizations other than the United States Postal Service.-History:...
. The service obligations of USPS under current law are commonly referred to as the "universal service obligation" or "USO". Universal service is also a key objective of the Universal Postal Union
Universal Postal Union
The Universal Postal Union is an international organization that coordinates postal policies among member nations, in addition to the worldwide postal system. The UPU contains four bodies consisting of the Congress, the Council of Administration , the Postal Operations Council and the...
.
The term "universal service", on the other hand, appears to have originated with Theodore Newton Vail
Theodore Newton Vail
Theodore Newton Vail was a U.S. telephone industrialist. His philosophy of using closed systems, centralized power, and as much network control as possible, in order to maintain monopoly power, has been called Vailism...
, president of American Telephone & Telegraph
American Telephone & Telegraph
AT&T Corp., originally American Telephone and Telegraph Company, is an American telecommunications company that provides voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies. AT&T is the oldest telecommunications company...
(the original AT&T) and head of the Bell System
Bell System
The Bell System was the American Bell Telephone Company and then, subsequently, AT&T led system which provided telephone services to much of the United States and Canada from 1877 to 1984, at various times as a monopoly. In 1984, the company was broken up into separate companies, by a U.S...
, in 1907 with the corporate slogan
Slogan
A slogan is a memorable motto or phrase used in a political, commercial, religious and other context as a repetitive expression of an idea or purpose. The word slogan is derived from slogorn which was an Anglicisation of the Scottish Gaelic sluagh-ghairm . Slogans vary from the written and the...
"One Policy, One System, Universal Service". It was intended as a contrast to the "dual service" that had become common since the original Bell telephone patents expired in 1894, where independent telephone companies operated not only in non-Bell System markets, but also as a competitor in Bell markets.
These independent phone companies did not interconnect to the Bell System; though modern commentators suggest Bell refused to do so as an excuse for monopolization, it was argued then that phone systems of that day could not interconnect unless all phone companies used the same technology, as the Bell System did. This required many businesses to maintain phones with both companies, or else risk losing customers who subscribed to the other phone company.
Vail argued that an interconnected phone system (the Bell System), operated by one company (AT&T) and with rates regulated by the government, would be superior to the dual system and would produce great social benefits, much like Hill's postal reforms. Though largely ignored by modern commentators, Vail did work for the U.S. Post Office Department earlier in his career; thus, he may have been inspired by the U.S. postal system of that day.
Eventually, Vail prevailed in his views, first through state laws and ultimately through the Kingsbury Commitment
Kingsbury Commitment
The Kingsbury Commitment of 1913 established AT&T as a government-sanctioned monopoly, as an out-of-court settlement of the government's antitrust challenge...
of 1913, where AT&T agreed to several measures, including interconnection with non-competing independent phone companies, to avoid antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
action, thus formalizing the Bell System monopoly. Meanwhile, the Mann-Elkins Act
Mann-Elkins Act
The Mann–Elkins Act was a 1910 United States federal law that is among the Progressive era reforms. The Act extended the authority of the Interstate Commerce Commission to regulate the telecommunications industry, and designated telephone, telegraph and wireless companies as common...
of 1910 made AT&T subject to regulation by the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
.
Universal service in telecommunications was eventually established as U.S. national policy by the Communications Act of 1934
Communications Act of 1934
The Communications Act of 1934 is a United States federal law, enacted as Public Law Number 416, Act of June 19, 1934, ch. 652, 48 Stat. 1064, by the 73rd Congress, signed by President Franklin D. Roosevelt, codified as Chapter 5 of Title 47 of the United States Code, et seq. The Act replaced the...
, whose preamble declared its purpose as “to make available, so far as possible, to all the people of the United States, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges”. The chief purpose of this law was to combine the Federal Radio Commission
Federal Radio Commission
The Federal Radio Commission was a government body that regulated radio use in the United States from its creation in 1926 until its replacement by the Federal Communications Commission in 1934...
with the ICC's wire communications powers, including regulation of AT&T, into a new Federal Communications Commission
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
with greater powers over both radio and wire communications.
Though the Bell System divestiture
Bell System divestiture
The Bell System divestiture, or the breakup of AT&T, was initiated by the filing in 1974 by the U.S. Department of Justice of an antitrust lawsuit against AT&T. The case, United States v...
of 1984 dissolved the monopoly that inspired the term (though SBC
AT&T
AT&T Inc. is an American multinational telecommunications corporation headquartered in Whitacre Tower, Dallas, Texas, United States. It is the largest provider of mobile telephony and fixed telephony in the United States, and is also a provider of broadband and subscription television services...
, one of the Baby Bells created then, ultimately bought AT&T and assumed its name), universal service remained official U.S. telecommunications policy under the 1934 Act, even as the FCC began to abandon rate regulation. It was further codified by the Telecommunications Act of 1996
Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
, even as it permitted expanded competition in the telecommunications field. The Federal Communications Commission
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
is actively exploring universal service reform, and the place of universal service to the broadband communications environment.
Funding
Most countries fund their USO by requiring the incumbent operator to be the designated USO provider or USP. USPs often held a previous legal monopoly protection. The USO is thus funded by rates/tariffs, and also by scale and scope economies. The risk of such an approach under allowing competitive entry is that a cross-subsidy exists and thus new entrants can potentially cream-skim (enter in only profitable routes or lines). One response is that some countries have a Universal Service FundUniversal Service Fund
The Universal Service Fund was created by the United States Federal Communications Commission in 1997 to meet Congressional universal service goals as mandated by the Telecommunications Act of 1996...
and have all their telecommunications industries pay a part of their net earnings into it. This fund has different names in different countries:
- Chile has the Telecommunications Development Fund (FDT),
- India has the Universal Service Obligation Fund (USOF),
- Pakistan has the Universal Service Fund Company (USF Co.),
- Taiwan has the Universal Service Fund (USF), etc.
Implementation
The basic concept of Universal service is the below cost pricing of service to increase the quantity of service as shown in Fig. 1.
The figure shows a Demand Curve
Demand curve
In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule...
where the region in red shows the extent of the original service and the increase shown by the green area represents the increase in the service area once the subsidy helps reduce the prices. The conclusion is simple, as the prices reduce from P1 to P2 the quantity of customers increases form Q1 to Q2. Thus satisfying allowing universal service.
The size of the subsidy paid out to the telecommunication service provider in this case is shown in Fig.2.
Since each call in fact costs price P1 and price P2 in the cash flow from the customer, the rest (P1-P2) comes from the Universal Service Fund.
This is a simplistic case and most countries have very complex legislation to guarantee the service and have several subsidy mechanisms to implement universal service. The case shows the idea behind universal service not the universal service mechanism actually used in any country.
Efficiency
As we can see from the above, the number of potential customers increases as the number of people who can now afford it increases. However service providers need to be able to actually provide that service through their network. This build-out of network is also subsidized by funds like the High Cost Fund in the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
which is also provided for in the Telecommunications Act of 1996
Telecommunications Act of 1996
The Telecommunications Act of 1996 was the first major overhaul of United States telecommunications law in nearly 62 years, amending the Communications Act of 1934. This Act, signed by President Bill Clinton, was a major stepping stone towards the future of telecommunications, since this was the...
.
Besides services to deprived areas, there is also a "Lifeline" program that subsidizes telephone service to low-income people regardless of location.
See also
- E-rateE-rateE-Rate is the commonly used name for the Schools and Libraries Program of the Universal Service Fund, which is administered by the Universal Service Administrative Company under the direction of the Federal Communications Commission .-Function:...
- Universal Service Administrative CompanyUniversal Service Administrative CompanyThe Universal Service Administrative Company is an independent American nonprofit corporation designated as the administrator of the federal Universal Service Fund by the Federal Communications Commission. USAC is a subsidiary of the National Exchange Carrier Association...
- National broadband plans from around the worldNational broadband plans from around the worldBroadband is a term normally considered to be synonymous with a high-speed connection to the internet. The term itself is technology neutral; broadband can be delived by a range of technologies including DSL, LTE or next generation access. This page presents an overview of official Government...
- Broadband universal serviceBroadband universal serviceBroadband universal service, also known as "universal broadband service", refers to government efforts to ensure all citizens have access to Internet service...