The importance of Universal Service
1.1 The concept of universal service is based on the premise that telecommunications services now play such a fundamental role in our society that all people, whoever or wherever they are, must have access to a certain basic level of telecommunications facilities and services if they are to participate fully in modern society. The concept of universal service is well established in the UK, having been a feature of telecommunications service since long before BT was privatised. It provides a safety net - ensuring that people who may otherwise miss out get access to a basic level of service. It is also a dynamic concept and one which will evolve over time.
1.2 The provision of universal service in telecommunications has important economic externality benefits which are not captured in the prices charged for telecommunications services. These externalities arise from the twoway nature of communications between telecoms network users which is not present in the same way in the networks of other services. As new customers join the network, the value to all customers of being on the network increases because they can - either actually or potentially - access a larger number of other users. Operators may have no incentive to offer service to customers who are unwilling or unable to pay for the standard costs of provision, and may have no reason to take into account the additional benefits to existing users. Overall economic welfare, however, is higher if service is provided to these additional customers. There are, therefore, circumstances in which it is appropriate to provide support to some customers whose costs of service provision exceed the cash revenues that they generate.
1.3 Other externalities arise from the fact that telecommunications as a means of communication can provide an alternative to other services such as transport, thereby avoiding the costs of pollution and congestion. More generally, there may also be benefits from access to a telephone in cases of emergency and in helping to reduce crime. Again, there is no incentive for providers of telecoms services to take these benefits into account when providing service - even though they may contribute to overall economic welfare.
1.4 Apart from in Hull, the obligation to provide universal service in the UK falls largely upon BT in the form of licence conditions. This reflects BT s historical position as the largest provider of telecommunications services and its inheritance of the preprivatisation network. As liberalisation in the telecoms market brings in an increasing level of competition, BT s position as the Universal Service Provider will be subject to increasing scrutiny. However, it is clear that, for the present, the burdens (and the advantages) of being the Universal Service Provider remain with BT.
1.5 In Hull, the Universal Service Provider is Kingston Communications. Oftel is conducting a separate review of the regulatory arrangements for the provision of telecommunications in the Hull area and is not proposing changes to Kingston s licence in this document.
Oftel's objectives
1.6 Oftel has developed its objectives with regard to universal service policy during the course of previous rounds of consultations. These objectives are:
Consultation so far
1.7 Oftel is now embarking on its fourth stage of public consultation on universal service. Oftel began consultation on universal service in December 1994 with a wide ranging consultative document entitled A Framework for Effective Competition which examined the development and future direction of the UK s regulatory structure. This discussed, inter alia, the regulatory intervention which might be needed to secure universal service in an increasingly competitive environment.
1.8 In July 1995 Oftel published Effective Competition: A Framework for Action. This developed the issues raised in the first consultation, taking into account the many responses that were received, and raised the possibility of a higher level of service for certain groups such as schools, colleges and libraries. This document was complemented by the simultaneous publication of The Costs, Benefits and Funding of Universal Funding in the UK, a study carried out by consultants on Oftel's behalf.
1.9 In its most recent Consultative Document on this subject, Universal Telecommunications Services (December 1995), Oftel'suggested a list of basic services which should be available throughout the country. Oftel proposed to establish a funding mechanism to enable payments to be made from public network operators and to those operators who incurred a net loss from the delivery of universal service. Oftel also consulted on the application of the universal service concept to provide special services for disabled users and for educational establishments. Oftel received nearly 200 responses to the Consultative Document as well as feed back from industry and consumer representatives at its workshop in February 1996.
1.10 Over the summer of 1996 Oftel ran five working groups comprising consumer and industry representatives to look at schemes for increasing telephone penetration, text relay/text rebates, competitive delivery of universal service, disconnections and selective call barring, and universal service funding arrangements. In addition, Oftel organised a combined industry/consumer workshop in September 1996 where further feedback was received.
1.11 Oftel also set in train further work on the costing of universal service and on public call box provision. The Consumer Panel (see Note 5), consisting of five experts chosen for their ability to represent residential consumers interests, agreed to an expansion of its terms of reference to cover universal service and has advised on the preparation of this document.
1.12 Oftel has considered the various representations made and has produced the revised proposals set out in this Consultative Document.
Timetable
1.13 Oftel is working to the following provisional timetable for the implementation of the universal service arrangements discussed in this document:
Structure of this document
1.14 Chapter 2 discusses the level of universal service which is appropriate at present and identifies three areas for improvement on current levels of provision.
1.15 Chapters 3, 4 and 5 take each of the three identified areas, discuss possible ways forward and make proposals for action.
1.16 Chapter 6 presents the results of Oftel's analysis of the cost of universal service provision and Chapter 7 discusses how such costs might be funded in the future.
1.17 Chapter 8 looks at the question of providing telecoms services to disabled people in the context of the Disability Discrimination Act.
1.18 Chapter 9 briefly describes developments in European Community legislation relating to universal service.
1.19 Chapter 10 presents Oftel's conclusions.
1.20 Each Chapter concludes with a number of questions. Responses are welcome on all aspects of the document, but the questions may help respondents to focus on the key issues. A complete list of the questions can be found at the end of the Summary.