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Telecommunications Terminals Supply -
A Universal Service Model

Dr. John Gill
Tony Shipley
June 2001


What is the Problem?

The need for accessible and affordable basic telecommunication services is widely recognised and is strongly supported by European Union Directives. It is also clearly identified as a policy objective for national regulators in the proposed new Directive on a common regulatory framework for the converging electronic communications networks and services. Addressing this need forms a significant objective for Oftel - the UK telecommunications regulator - and a number of measures have been put in place towards that end. There is, however, a serious gap in the system. For very many disabled and elderly people, access to the telecommunications networks can only be obtained by means of a terminal which has the features that they require. If accessible terminals are not available and affordable, the objective remains out of reach.

People with disabilities, including those whose disabilities are consequent upon advancing age, are doubly disadvantaged by a regime which sees the market-place as the driving force in the supply of terminals. Apparatus designed for a mass consumer market frequently lacks features that would make it accessible for disabled people. If their particular needs are then met only by niche market players, the inevitable consequences are restriction of choice and higher costs. The cost differential can be considerable. For example, terminals designed for real-time text messaging are likely to cost ten times as much as ordinary voice terminals, and more than twice as much as e-mail terminals of somewhat similar construction. The double disadvantage for disabled users lies in the difficulty of finding equipment suited to their specific requirements and then, when it can be found, of having to pay significantly higher prices for it.


Universal Service

The concept of universal service in telecommunications lies in using regulatory intervention to ensure provision of a set of basic services. If, and only if, market forces fail to deliver the defined set throughout the whole territory, national regulators are empowered and obliged to apply measures to direct the behaviour of the market players. They can, for example, require that some aspects of service are delivered regardless of location and at costs which will, for some subscribers, effectively be subsidised. However, this principle applies only to the provision of services; it has no validity in relation to the supply of goods. There is no mechanism in a free economy for requiring traders to manufacture or import goods of a specific kind. If the universal service approach is to be applied to the subject of accessible and affordable telecommunications terminals, it has to be addressed to the service providers. It cannot be applied directly to the manufacturers or importers of terminal equipment.

This conclusion is underlined by a consideration of the practical outcomes of the Single Market in Europe. 'Accessible' and 'affordable' are not absolute terms. Interpretation of these qualities will necessarily differ between Member States in the European Union. A Member State is not permitted to discriminate against service providers from outside its territory, but the services do not have to be identical throughout the whole Community.

Provided that it treats all applicants fairly and evenly, a Member State can require that the services provided do comply with its national laws and regulations. The Single Market in services recognises these national differences, which reflect different conditions and expectations, whereas the Market in goods is totally harmonised and national or local preferences are handled simply through market forces. Therefore, national considerations of accessibility and affordability in relation to terminal equipment can be applied only in the context of service provision, for there is no leeway for similar national intervention in the supply of goods.


A Model Solution

What follows is a model for discussion and debate. It seeks to address the problem set out in the first paragraph, using the mechanism of universal service. The key elements would be:
· an obligation upon designated universal service providers to ensure the availability and affordability of accessible terminal equipment
· a mechanism for those service providers to recover net costs arising from this obligation, from a universal service fund
· a management system guided by an advisory group, with the task of determining and reviewing the types of terminal to be covered by the scheme
· a regulatory and monitoring function to ensure effective working of the scheme.


Part A: Obligation on Service Providers

Designated universal service providers at present have some obligations to ensure availability of certain types of accessible terminals. These obligations are very limited but the principle is a long-established one. The service providers are required to take steps to maintain supply of the defined terminal types, should the free market fail to offer them. There is no obligation to offer terminals at less than cost but such an obligation could be added, provided that there was then an opportunity to recoup any losses through a universal service fund. At present, universal service is confined to the fixed networks (although Oftel has encouraged mobile operators to provide some elements of it under voluntary agreements). In future, it is expected that formal universal service obligations will be applied to mobile networks.

In the proposed model, designated universal service providers - fixed and mobile - would be required to ensure that terminals of specified types were available to, and affordable by, UK customers. The providers would be free to decide how to do this. They might opt for bulk purchase of terminals for supply through their own sales outlets, or they could contract with other traders to carry out the function. They would be guided by the management group on the levels of prices to be met by the purchasers, but the broad objective would be to keep the retail price of terminals with accessible features close to that of comparable, but less accessible, models. The differential would then be met by a subsidy to the provider from the universal service fund.


Part B: Cost Recovery from a Universal Service Fund

One principle of universal service is that any net cost to the designated provider in delivering the obligation may be recovered from a universal service fund. That fund is financed by means of a levy on all the service providers, which is of course tantamount to a hidden charge on all customers using their services.

For the purposes of this model the amount of the levy is a matter for discussion, but it should be related to the market size of each contributor, either by the number of retail customers or the volume of business. However, it is not identified or accounted for as a customer levy, but rather as a business overhead. The rationale is that all service providers in the sector benefit from the traffic resulting from additional users - the so-called 'network externality' - so all should contribute to the costs of bringing them in.

This leads to the question of whether providers who do not serve consumer markets should pay the levy, for they would not seem to benefit from the added business. If the link between costs and benefits is lost, the levy becomes in effect just a form of taxation and it is then highly questionable whether it should be applied at all at the level of a specific industry.


Part C: A Management System

There might be a temptation, given the availability of a significant source of funding, to apply it across a wide range of projects without any clear plan. There will be no shortage of deserving causes and much lobbying in support of each one. Without clear objectives and very careful management the scheme would soon fall into disarray. The primary responsibility of the management group - guided by an advisory committee and a consultation process - would be to prioritise calls on the resource and match them to income. It must be noted that a universal service fund is unlikely to be applied to the particular purpose of assured supply of accessible and affordable terminals alone. The process of prioritisation would have to take account of other areas of net unrecovered costs arising from the operation of universal service in electronic communications. This is perhaps the most difficult area of decision-making, namely the fair and transparent determination of which of many competing demands can be accommodated.

Since this proposed model relates to only one small, if important, potential aspect of universal service, its management would have to be dovetailed with that of the others. This might be achieved by giving the terminals management group a delegated budget, thereby moving the wider prioritisation to a higher level. Alternatively, it might be done by setting resource priorities within an overall management group, but then creating sub-groups to consider the more detailed sectoral objectives - of which terminals provision would be one. These alternatives are of course somewhat similar, but they serve to emphasise that no single special interest can be allowed to dominate decisions on resource allocation.

Decisions on the types of terminals to be offered under the proposed scheme will involve similar debate over resources. There will always be a dichotomy between emphasis on provision of expensive terminals for the few with very special needs, and the more general supply of much cheaper units for the many. These decisions are part and parcel of any resource management process and need no further elaboration, save to point out that the management group will not be insulated from such realities. Its decisions will have to be reached in a transparent and accountable manner and it will answer to the regulators and to all the interested parties in the diligent pursuit of its duties.


Part D: Regulation and Monitoring

Overall regulation of universal service is likely to remain in the hands of Oftel or its successor in the converging electronic communication environment. Oftel has so far persuaded designated universal service providers that there is no justification for a fund - although at least 4 other EU Member States have set up such funds or are soon about to. With the expected changes in authorisation and licensing, it seems unlikely that the UK can continue to avoid having its own fund and it would certainly be a pre-requisite for this proposed model. It would be for Oftel to decide whether to manage the process in-house or to delegate it to an independent contractor. There are many possible mechanisms, within the framework allowed by the EU Directives.

Aside from the legal regulatory aspects, other interested parties in the process would expect to have their input recognised. These parties might include the universal service providers delivering the facility and the companies contributing to the levy, as well as representatives of the recipients (and potential recipients) of the service. The extent and manner of monitoring by each of these various interests would need to be determined at a very early stage - and each interest group would then have to decide how its input was to be effected.


Part E: The Problems of Intervention

Intervention in a free market inevitably causes problems. Where a system operates to offer certain types of terminal at subsidised prices, no supplier outside the system is likely to enter this market segment. This may result in the subsidised models acquiring an 'institutional' image, especially as there will be little commercial pressure to update them. Old designs with written-off development costs become increasingly cheap to make until the point is reached where their components can no longer be economically sourced. Although the subsidy associated with such products may have been decreasing, at that point a step increase in funding support will be needed - and therefore should have been allowed for in the planning process - in order to catch up with design evolution.

Another kind of problem may be encountered where the subsidised products are new and attractive. Terminals sold at less than cost on the UK market, for example, could be purchased by, or sold on to, citizens of other States where such equipment is either not available or is much more expensive. This would result in a net drain of resources from the UK's universal service fund to other nations not offering similar levels of service. This problem might be avoided by making the subsidised products available only on rental, but this is administratively more expensive than outright sale so part of the benefit of the scheme would be dissipated.

These and other adverse effects of market intervention can be minimised by moving as rapidly as possible to a stage where most mainstream products are accessible and affordable, as a result of the major manufacturers having adopted inclusive design (Design for All) principles. It should be part of the strategy of the management system to encourage manufacturers to move in this direction, or at least not to discourage them by artificially shaping the market. The proposed EU regulatory framework for electronic communications allows of the possibility of competitive tendering for the universal service functions. A form of tendering which favoured moves from subsidised provision (of specific types of terminal) to inclusive mainstream provision would seem to be in the best interests of all parties. However, these points will suffice to show that the function of the management group is both complex and critical, yet it needs to be cost-effective or the operation becomes self-defeating.


Conclusion

There are many possible variants on the model put forward and the objective in setting it out in some detail is to demonstrate the complexity of an apparently simple concept. Many inter-relationships would have to be taken into account if applying a universal service fund for so specific a purpose. That between the universal service providers and the equipment supply industry, and also that between the various groups who would be the beneficiaries of funded universal service, are perhaps the more crucial ones. Nevertheless, provided these various relationships are recognised, there seems to be no reason why a model on these lines should not be made to work.

This model would have to be backed by legislation, to apply this particular universal service principle, to introduce the levy, and to create the management group and the advisory body. However, all of these objects are within the broad scope of EU and UK telecommunications regulation and could potentially be brought into effect by Statutory Instruments rather than primary legislation. There are alternatives, the more obvious ones being the introduction of direct state subsidy for affordable and accessible terminals, and the use of legislation (as in the USA) aimed at equipment manufacturers calling for accessibility in their products. Neither of these possibilities should be ruled out for the future, although both would create conflicts with European law if applied at the national level at the present time. The universal service model is put forward as being the quickest, simplest and arguably the most effective means of making accessible and affordable communications terminals available to people with disabilities.


This paper has been prepared by PhoneAbility and the RNIB Scientific Research Unit, for the purpose of stimulating discussion and debate. It may be reproduced as required, on condition that acknowledgement of the source is made.



June 2001

PhoneAbility contact: Tony Shipley, The Steps, High Street, Moreton-in-Marsh, Glos GL56 0AX. Email: adcshipley@aol.com

 



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