Allocating and Funding Universal Service Obligations in a Competitive Network Market

Abstract

We examine, in a network market open to competition, various mechanisms of allocating and funding ''universal service obligations'' among agents (rival operators and consumers). The obligations we consider are geographic ubiquity and non discrimination. We analyze, from both the efficiency and equity point of views, the respective advantages of a ''restricted-entry'' system (where the entrant is not allowed to serve high cost consumers) and the ''pay or play'' system at work for instance in Australia. We show that the pay or play regulation always dominates the restricted-entry regulation under ubiquity constraint alone. This result no longer holds when the regulator imposes also the non discrimination constraint.