The Cost of Universal Service Obligations in PSTN and VoIP

Universal Service Obligations are a set of requirements that are used to ensure widespread access to telecommunication services in areas that otherwise might not be sufficiently profitable in a purely commercial environment. Having existed in the telecom industry for a long time, disagreement surrounds the current discussion on which approaches should be used to ensure universal access during the foreseen transitional period of competing PSTN and VoIP services. Although providing basically the same perceptional functionality to end users, VoIP and PSTN services differ greatly in the technical scope of the services they provide. PSTN includes costly data transmission within its system, while VoIP is essentially an overlay service that requires the existence of a separate data connection. These inherent properties greatly affect the implementation and cost of offering universal service in PSTN and VoIP. In this paper the technical and economic aspects of providing universal service obligations in PSTN and VoIP are examined. We have developed a cost model for the public telecommunications system in Iceland which will serve as the basis of an empirical study of the cost of universal service obligations in rural areas. The study reveals different cost structure of VoIP and PSTN systems, as well as additional cost of offering services in rural and remote areas. The paper concludes with a case study of Iceland, proposing a framework for calculating the number of commercially unprofitable areas and customers