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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 8 relating to “the need to subsidize telecommunications access for distinct disadvantaged social groups, and if necessary, the most appropriate mechanism for doing so” (pp.26-27). History of Universal Service Although I examined the definition of universal service above, the modern definition of universal service is a quite recent one. The term ‘universal service’ was first used by Theodore Vail, the president of AT&T, in the company’s 1907 Annual Report (AT&T, 1907, pp.17-18, from Mueller, 1993, p.353). Theodore Vail’s interpretation, however, is not one that we would recognize in today’s telecommunication environment: it was in a world of competing island networks and his vision was that they should all be connected to the Bell System in order to have network externalities as it extends telephone service to more users and more locations. 4 That is, what Vail meant by universal service is an integrated monopoly that could interconnect all telephone users and his aim was to eliminate access competition during his days (Mueller, p.363). After Vail’s first notion of universal service, the US Communication Act of 1934 retained a meaning of it in the purpose of the Act as follows. 5 For the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, nationwide, and worldwide wire and radio communications service with adequate facilities at reasonable charges… 6 However, not until the late 1960s and early 1970s was there evidence that regulators began to consciously manipulate universal service. The crucial change came with the adoption of the Ozark plan in 1970, which shifted ever-larger portions of the local non-traffic-sensitive plant to be recovered from interstate revenues. Also, in 1975 AT&T used the term ‘universal and optimized’ telephone network to justify its monopoly power. This time the meaning was truly ubiquitous, suggesting that everyone could enjoy access to plain old telephone service, regardless of the supplier. Therefore, the modern notion of universal service is a very recent construction (Mueller, p.355). The next section will examine the methods of universal service that have been used since the new conceptualization. 4 Network externalities in a telephone system can be explained that with more people on it, the system becomes more valuable than one with fewer subscribers and gains a competitive advantage over its rivals. For more details about network externalities, see Katz and Shapiro (1985) and Katz and Shapiro (1994). 5 However, Mueller maintains that the Communication Act did not have the root of universal service arguing that a uniform, nationally administered separations and settlements system based on the station-to-station principle was not fully operative until the 1950s and cross-subsidies to promote household penetration did not emerge until the 1970s (Mueller, 1993, p.355). 6 47 U.S.C. § 151.

Authors: Park, Namkee.
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Tracking Number: ICA-1-11804 Regulatory Governance and Universal Service 8
relating to “the need to subsidize telecommunications access for distinct disadvantaged social
groups, and if necessary, the most appropriate mechanism for doing so” (pp.26-27).
History of Universal Service
Although I examined the definition of universal service above, the modern definition of universal
service is a quite recent one. The term ‘universal service’ was first used by Theodore Vail, the
president of AT&T, in the company’s 1907 Annual Report (AT&T, 1907, pp.17-18, from
Mueller, 1993, p.353). Theodore Vail’s interpretation, however, is not one that we would
recognize in today’s telecommunication environment: it was in a world of competing island
networks and his vision was that they should all be connected to the Bell System in order to have
network externalities as it extends telephone service to more users and more locations.
4
That is,
what Vail meant by universal service is an integrated monopoly that could interconnect all
telephone users and his aim was to eliminate access competition during his days (Mueller, p.363).
After Vail’s first notion of universal service, the US Communication Act of 1934 retained a
meaning of it in the purpose of the Act as follows.
5
For the purpose of regulating interstate and foreign commerce in communication
by wire and radio so as to make available, so far as possible, to all the people of the
United States a rapid, efficient, nationwide, and worldwide wire and radio
communications service with adequate facilities at reasonable charges…
6
However, not until the late 1960s and early 1970s was there evidence that regulators began
to consciously manipulate universal service. The crucial change came with the adoption of the
Ozark plan in 1970, which shifted ever-larger portions of the local non-traffic-sensitive plant to
be recovered from interstate revenues. Also, in 1975 AT&T used the term ‘universal and
optimized’ telephone network to justify its monopoly power. This time the meaning was truly
ubiquitous, suggesting that everyone could enjoy access to plain old telephone service, regardless
of the supplier. Therefore, the modern notion of universal service is a very recent construction
(Mueller, p.355). The next section will examine the methods of universal service that have been
used since the new conceptualization.
4
Network externalities in a telephone system can be explained that with more people on it, the system
becomes more valuable than one with fewer subscribers and gains a competitive advantage over its rivals.
For more details about network externalities, see Katz and Shapiro (1985) and Katz and Shapiro (1994).
5
However, Mueller maintains that the Communication Act did not have the root of universal service
arguing that a uniform, nationally administered separations and settlements system based on the station-to-
station principle was not fully operative until the 1950s and cross-subsidies to promote household
penetration did not emerge until the 1970s (Mueller, 1993, p.355).
6
47 U.S.C. § 151.


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