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Regulatory Governance and the Implementation of Universal Service: A Comparative Study of the US and Japan
Unformatted Document Text:  Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 3 Regulatory Governance and the Implementation of Universal Service: A Comparative Study of the US and Japan Introduction ‘Universal service’ in telecommunications is a widely held social and economic objective in most societies. Basically, universal service focuses on the interconnectivity of networks, highlighted by telephone penetration in a country. It also takes into account differences amongst consumers, questioning whether they are rural or urban, and their socioeconomic status. For this reason, most advocates of universal service maintain that some sort of governmental intervention is needed for implementation of it. While policy goals and regulatory approaches naturally vary from one country to another, reflecting differences in political and economic doctrines and practical circumstances, most countries recognize universal service in telecommunications as a policy goal (Tyler, 1994). Meanwhile, with the dramatic technological changes in the telecommunications sector and a worldwide trend of regulatory reform through liberalization, the goal of universal service might be endangered because those changes would force a move to cost-based pricing which would undermine the cross-subsidy arrangements that have underpinned universal service. If we assume, however, that the underlying aim of universal service is to ensure the benefits of cheaper and higher quality telephone service and to encourage fair competition in the telecommunications marketplace, the liberalization process should not be a threat to universal service. 1 Given that, one central question is how to recover the costs of implementing universal service from the public and/or private sectors (Crandall & Waverman, 2000; Tyler, 1994; Noam, 1997). In other words, who will pay, what are the specific mechanisms and methods for determining the necessary payments, and what will ensure that payments are made? Irrespective of the degree of overall penetration of telephone service, activities taken to ensure universal service will tend to increase costs for the telecommunications carriers. In the case of a monopoly public telecommunications operator (PTO), this cost may be borne within the PTO itself, by means of a transfer of funds from more profitable parts. In other cases, it may be necessary to compensate the costs in different ways. The choice among these methods is a fundamental economic and policy issue and is likely to be different in each country, given its own conditions and needs. Furthermore, the role of government and the regulator will, of course, vary with the particular method of funding that is chosen (Tyler, 1994). In assessing the need for, and appropriateness of, a particular 1 Some studies maintain that it can no longer be argued that competition per se will be detrimental to the poorest in society and universal service can no longer be used to cloud the main issue of ensuring a competitive environment (e.g. OECD (1995)).

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 3
Regulatory Governance and the Implementation of Universal Service:
A Comparative Study of the US and Japan
Introduction
‘Universal service’ in telecommunications is a widely held social and economic objective in most
societies. Basically, universal service focuses on the interconnectivity of networks, highlighted
by telephone penetration in a country. It also takes into account differences amongst consumers,
questioning whether they are rural or urban, and their socioeconomic status. For this reason, most
advocates of universal service maintain that some sort of governmental intervention is needed for
implementation of it. While policy goals and regulatory approaches naturally vary from one
country to another, reflecting differences in political and economic doctrines and practical
circumstances, most countries recognize universal service in telecommunications as a policy goal
(Tyler, 1994).
Meanwhile, with the dramatic technological changes in the telecommunications sector
and a worldwide trend of regulatory reform through liberalization, the goal of universal service
might be endangered because those changes would force a move to cost-based pricing which
would undermine the cross-subsidy arrangements that have underpinned universal service. If we
assume, however, that the underlying aim of universal service is to ensure the benefits of cheaper
and higher quality telephone service and to encourage fair competition in the telecommunications
marketplace, the liberalization process should not be a threat to universal service.
1
Given that,
one central question is how to recover the costs of implementing universal service from the public
and/or private sectors (Crandall & Waverman, 2000; Tyler, 1994; Noam, 1997). In other words,
who will pay, what are the specific mechanisms and methods for determining the necessary
payments, and what will ensure that payments are made? Irrespective of the degree of overall
penetration of telephone service, activities taken to ensure universal service will tend to increase
costs for the telecommunications carriers. In the case of a monopoly public telecommunications
operator (PTO), this cost may be borne within the PTO itself, by means of a transfer of funds
from more profitable parts. In other cases, it may be necessary to compensate the costs in
different ways. The choice among these methods is a fundamental economic and policy issue and
is likely to be different in each country, given its own conditions and needs. Furthermore, the
role of government and the regulator will, of course, vary with the particular method of funding
that is chosen (Tyler, 1994). In assessing the need for, and appropriateness of, a particular
1
Some studies maintain that it can no longer be argued that competition per se will be detrimental to the
poorest in society and universal service can no longer be used to cloud the main issue of ensuring a
competitive environment (e.g. OECD (1995)).


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