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Traditional Telecommunications Networks

The International Handbook of Telecommunications Economics, Volume I

Edited by Gary Madden

This major reference work provides a thorough and up-to-date survey and analysis of recent developments in the economics of telecommunications. The Handbook serves both as a source of reference and technical supplement for the field of telecommunications economics.
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Chapter 11: Universal service

James H. Alleman and Paul N. Rappoport


James H. Alleman and Paul N. Rappoport INTRODUCTION Digital divide, digital inclusion, universal service, universal service obligation (USO), and national information infrastructure (NII) initiative. These expressions all have the sound of virtue. Who could be against closing the digital divide or expanding universal service? But in fact when one explores the meaning of these terms in greater detail and, more importantly, the manner in which they are implemented and funded the concepts become much less virtuous. These are basically political clichés that have clouded the economic goals that underlie the terms. In this chapter it is argued that what is addressed by these phrases is really a resource allocation issue. The programs designed to implement these allocation goals have for the most part been unsuccessful. For clarity and expository purposes the notion of universal service and the digital divide are separated into: the desired goals; the available implementation methods – the instrument used and those proposed; and the funding mechanisms utilized. The definition and the rationales offered for universal service (including: increasing telephone penetration, network externalities, income redistribution and infrastructure development) are explored. The rationales are judged against economic theory, empirical evidence, the instruments used to obtain these goals and the efficacy of the mechanism itself. All are found deficient. Original and received empirical analyses support this conclusion. Although a global policy this chapter concentrates on its treatment in the United States (USA) because of the availability of data and the changing nature of the policy...

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