Universal service

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In telecommunications, universal service was conceived by Theodore Vail, at AT&T, in the late 1800s. Universal Service became part of the U.S. Telecommunication regulatory landscape more than 60 years ago, starting with the Telecommunications Act of 1934. Before this 'commitment' citizens in non urban areas basic telephone service was difficult to access or unavialable. The 1934 Act sought to improve access to rural and insular areas by subsidizing a massive telecommunication build out to rural America.

More recently, Congress sensed a growing technological and telecommunication divide between America's urban and rural regions. While basic telephone service is far more ubiquitous (nearly 95 percent of all U.S. households have telephone service today), higher bandwidth telecommunication services and Internet access were lacking. In part, the Telecommunications Act of 1996 was passed to improve telecommunication access to America's schools, libraries and rural health care providers, as well as promote open access and competition among telecommunication companies (telcos). Compared to urban settings, higher bandwidth services, such as ISDN, frame relay, and T-1, are often so expensive in rural regions their costs prohibit use. The 1996 Act created a mechanism of discounts to encourage higher bandwidth and Internet usage.[1]

The goal of universal service was codified in the United States in the Telecommunications Act of 1996. According to this act, the 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

Contents

[edit] How Universal Service is Funded

Most countries have a Universal Service Fund 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) ,
  • England has the Universal Service Obligation (USO) , etc.

[edit] How Universal Service is Implemented

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[2] as shown in Fig. 1.

Fig.1
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 payed out to the telecommunication service provider in this case is shown in Fig.2.

Fig.2
Fig.2

Since each call infact costs price P1 and price P2 in the cash flow from the customer the rest (P1-P2) comes form the Universal Service Fund. This is a simplistic case and most countries have very complex legislature 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.

[edit] Efficiency

As we can see from the above Universal service is not truly “Universal” the number of potential customers increase 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 States which is also provided for in the Telecommunications Act of 1996.


[edit] See Also

[edit] References

  1. ^ http://tie.telemed.org/articles/article.asp?path=telemed101&article=telecomUniversalService_gw_tie99.xml
  2. ^ Courtesy, Professor James Alleman, University of Colorado at Boulder, Network Economics and Finance I, Lecture 24
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