Universal Service - Implementation

Implementation

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.