The concept of universal service goes back a long way in the UK - long before 1984 when BT was privatised. It provides a safety net by making sure that people who otherwise may miss out can have reasonable access to a basic level of service.
At the moment, BT (and Kingston Communications in Hull) are required to provide universal service. This really means that anyone asking for a basic service can have it at the same price wherever they live. After 1997 this requirement will stay but, with more companies now competing to provide service, and access to the telecoms network becoming more important in people's lives, we need to review how it is defined, funded and delivered.
Universal service brings with it many benefits. For example, as the number of people on the phone increases, so does the value to all customers of being on the network - because they can contact a larger number of people. There are also other benefits - making a phone call instead of travelling reduces pollution and congestion costs, helps combat loneliness and increases security for people living on their own. This means that there is an economic basis for providing telephone services to people who would not be reached in a purely competitive market: regulation is needed to do this.
We have already consulted twice on universal service. This began last December with our publication - "A Framework for Effective Competition". This explored the regulatory action that might be needed to secure universal service in an increasingly competitive market. In the Summer, we followed this with "Effective Competition: A Framework for Action" which built on our earlier proposals and included the possibility of a higher level of service for the education sector. At the same time, the results of a study we had commissioned on costs, benefits and funding of universal service became available.
Responses were very positive. In particular, there was wide support for our proposed universal service definition; the method for calculating costs; the use of an independent Fund; and on introducing competition to provide universal service wherever possible. We have also taken into account the views of consumer groups and the industry given to us at specially arranged workshops in November.
This means we can now move forward with the more specific proposals outlined in this Guide.
We would like your views. Please read the full Consultative Document if you can - it contains the full details on all the complex issues.
While we move forward with our proposals on universal service in the UK we need to make sure they fit in with European developments.
The European telecoms market will be liberalised from 1998 and policies are being developed in the lead up to this. There will be regulations to ensure that countries in the European Union have competitive markets by then and that universal service - broadly defined as a basic level of voice telephony - is available for customers at affordable prices. Each country may set up a Universal Service Fund to achieve this.
We are reassured that the proposed European regulations across the range of universal service issues set out in this Guide are broadly in line with our proposals for the UK. We are also encouraged that the European Commission is likely to confine its regulatory input to general principles, leaving National Regulators some flexibility in working out detailed arrangements to suit their circumstances.
If you have any comments or observations on the developments in Europe we would like to hear them.
In defining universal service we use three policy principles. These are geographical accessibility which means access to the same service on the same terms throughout the UK; affordability which means services at prices that customers can reasonably afford; and equal opportunities which means opportunities for those with special needs to have reasonable access to services. These principles have been fully supported during our consultation process.
In applying these principles, we want the costs of universal service to be shared fairly between operators, with clear and visible funding arrangements that are kept as simple as possible.
The definition we proposed in "Effective Competition: Framework for Action" was "affordable access to basic voice telephony or its equivalent for all those reasonably requesting it, regardless of where they live". While this had the support of all respondents, we also suggested that a higher level of basic service might be needed for the educational sector or public access points. Since then discussions with government and the educational community have indicated growing support for this idea. We have therefore decided to change the definition to reflect that different levels of basic service may be needed for different groups.
Our proposed definition of universal service is now:
"Affordable access to basic telecommunication services for all those reasonably requesting it regardless of where they live"
(Note - universal service only deals with availability of basic services. The geographic availability of other services is better dealt with under Oftel's powers to prevent undue discrimination.)
It follows that the level defined as "basic" would depend on which customer group we were considering. The customer groups which we suggest are :
The key issues on which Oftel is now seeking your views are:
We think that all customers should be able to receive the services provided by a modern, digital line. The analogue (non digital) exchanges which currently serve around 15% of the population are due to be replaced by modern digital exchanges by the end of September 1997. This will leave only 0.5% of the population (mostly in remote rural areas) on early digital exchanges which provide most, but not all, of the modern digital services.
We believe that itemised billing and selective call barring (which would allow people to prevent outgoing calls to certain types of number on request) should be free for residential customers to help people control their telecoms costs.
We also believe that operators should have to offer residential customers outgoing calls barred (but still allow emergency and operator calls) at a small charge as an alternative to disconnection for existing bad debt (but not for fraud). This should help BT to reduce its very high level of disconnections (currently running at around 60,000 - 70,000 per month). This will be good for both operators and customers as the person would stay on the phone while the operator would be able to recover the debt gradually and still receive income from incoming calls.
We found widespread support for reasonable access to Public Call Boxes as part of universal service. In particular, there is some concern that less commercially attractive sites such as poor inner city areas and remote rural villages should not lose their public payhones.
We are therefore suggesting a definition of basic telecommunications for all customers along the lines of :
" individual access to the telecommunications network via switches capable of providing voice telephony; free services of itemised billing and selective call barring; an outgoing calls barred service for residential customers as an alternative to disconnection for existing debt; and reasonable access to public call box services "
Oftel would welcome your views on this definition.
The aim of universal service is to ensure that everyone can have access to basic telecoms at a price that they can afford. For some people, this means special services at special rates.
Without a phone people cannot easily contact social services, educational and employment bodies or leisure outlets. Over 91% of UK households are on the phone, but this leaves about 2 million homes without service. Most of these would like to be connected but cannot afford it.
We are therefore considering how to make telephone service easier to afford. The "unphoned" tend to be amongst the poorest households in the UK. To some extent, the problem will reduce
as companies compete with each other to get new customers and offer them special tariffs. But we are not yet convinced that on its own this will be enough to solve the problem.
At the moment, BT has to provide a special scheme for low users. The current "Light User Scheme" (LUS) gives people with low call bills a rebate on their line rental. It is the only alternative to the standard tariff for BT's residential customers who make a modest amount of calls. But the scheme is not well targeted: there are a lot of less needy customers who benefit from it and almost two-thirds of the poorest households in the UK are not eligible to join.
We want BT to introduce alternative measures to help low income households get on the telephone. Such schemes could be offered by other operators as well as BT. And if they imposed a real cost to any operator then these could be met from the Universal Service Fund (see later).
There are a number of options:
Option 1 - A "Basic Service" Fixed Sum Package
Customers would get a line and could make 999 calls; operator and freephone numbers; plus a limited number/value of outgoing calls. For this they would pay a low fixed monthly sum in advance, to go towards the costs of providing the line and call costs.
Option 2 - "Lifeline" Service
This would be similar to Option 1 but would only provide an outgoing calls barred service at very low cost. This would be literally a lifeline to allow access to 999 calls (and operator services), plus the ability to receive incoming calls.
Option 3 - Pay as you Go
Customers would have an outgoing calls barred service (except for 999 calls and operator calls) until they paid a sum of money (say £5) into a credit account which they opened with their operator. They could pay at a retail outlet such as a Post Office or by post. Outgoing calls of any type would be allowed if the account was in credit. Call charges for this scheme would be higher to compensate for there being no fixed charge.
Option 4 - The Chargecard Scheme
Customers would get an outgoing calls barred service (apart from 999 and operator calls), and their phone would be programmed with a chargecard number. The cardholder would pay in some money, say £5, into their account at a retail outlet such as the Post Office. They could then make calls from any phone using their chargecard number. The call tariff could be similar to a public call box tariff.
Oftel would welcome your views on these options or other alternatives which might help to achieve affordable access to basic telecoms service.
We believe that disabled people should be able to share in the benefits of modern telecoms services. There are over 7 million people in the UK with a mental or physical disability and this group is growing as the population ages.
Many of these customers' needs can be met by services which are already available. These include free directory enquiries; large print, braille and talking bills; equipment with amplifiers or inductive couplers to help people with hearing aids; cordless phones for those with mobility problems; large button phones for people with limited use of their hands or failing sight; a priority fault repair scheme to safeguard against disconnection; and better designed payphones.
Awareness of these services, however, tends to be low. So we are encouraging BT and other operators to market their services better and to recognise that this is a large market.
Perhaps three quarters of a million elderly customers still have hard wired phones with old fashioned dials. They cannot use community alarm systems or textphones. The lack of modern push button 'tone' dialling prevents them from using a range of supplementary services. All the people still with hard wired phones are long-standing BT customers. The current charge to upgrade is £30. We are urging BT to modernise these old installations free of charge.
The Disability Discrimination Act 1995 has recently become law. The first results of the Act should take effect in December 1996 but will not have much immediate impact on disabled telecoms users. Eventually, further rules will come into force, requiring all companies providing services to provide extra aids and services so people with disabilities can use them, so long as any extra costs are reasonable.
We expect operators to respond positively to their new obligations under the Act. In the meantime, it is important that Oftel takes action to protect disabled peoples' access to telecom services.
We believe that, as a first priority, the new universal service arrangements should focus on people with profound hearing loss or serious speech impediment. This is because this group is at a serious disadvantage when making phone calls.
BT currently has to provide a relay service for textphone users (Typetalk). The service is delivered by the Royal National Institute for Deaf People (RNID) and largely paid for by BT. Any deaf person with special textphone equipment can use this service. The equipment costs around £200, although Local Authority Social Services Departments fund about 90% of them.
BT also offers its own customers a Textphone Users Rebate Scheme. This offers a rebate of 60% of call costs to users who are deaf or who have difficulty speaking, because calls made by textphones take much longer to complete than comparable voice calls.
The Typetalk text relay service currently has 15,000 customers yet the potential market is probably as large as 100,000. Expanding the current service to cover 100,000 would cost around £20-25m p.a. Offering the text users rebate to these customers would cost around £5m p.a.
We propose as a starting point that the level of universal service for deaf or speech impaired people should be:
The net costs that operators incurred in providing these services would be met from the Universal Service Fund.
Oftel invites comments on this proposal.
There has been some debate recently about the economic and social benefits arising from a higher level of telecoms service to schools and perhaps other "public service" customers such as libraries, hospitals and job centres. Discussions suggest that priority should be given to offering school age children (5-16) the earliest chance to learn the skills needed for the new "Information Society". This would cover some 30,000 maintained primary, secondary and special schools. We believe that if the education sector, the telecoms industry and the government agree, and the costs of delivering advanced services are not too great, universal service arrangements could be introduced to achieve this.
Comments are invited on Oftel's proposals to define maintained schools for 5-16 year olds as a class of customer eligible for a higher level of service.
Multimedia services would allow students and teachers to use interactive teaching methods. A wide range of audio and visual data would be available. It would also allow for distance learning and shared learning with students on different sites pooling their ideas.
Some of the advanced facilities are not in fact telecoms services. But key areas such as broadband/wideband connection, access and usage tariffs, and external network links, which could form schools' basic service level, are services which Oftel could ensure were offered to schools throughout the UK at affordable rates.
Once a universal service level was agreed, any operator would have to offer the same terms to all schools in its area. It would have to make sure that rural schools were served on equal terms with urban schools. There will need to be discussions with other public and commercial bodies to ensure that schools can benefit from a full package of services and support facilities.
Oftel welcomes views on what the level of service should be for schools, and whether this should vary by different types of school. Comments are invited on how any other "superhighway" needs could be met.
We want to see schools getting a specified minimum level of service at reasonable cost. Where local competition exists, operators could compete to deliver service to schools. This should lead to affordable tariffs, designed with customers' needs in mind.
Operators and Oftel would rely on schools informing them about their tariff preferences, for instance, the balance between fixed and variable charges. Schools need predictable, controllable charges. Their fixed budgets might be better suited to fixed monthly or quarterly payments, covering both access and, to some extent, usage.
Oftel welcomes comments on the preferred tariff options for schools.
We would like to see some competition between operators when serving schools. There are broadly two ways in which this could be done.
One way is through a "Schools Tariff" which would offer service to schools at a discounted rate approved by Oftel or the Universal Service Funding Body (see later). The package and tariff could differ according to the type of school. Operators who provided the service package at the "Schools Tariff" could get payments from the Universal Service Fund.
Another way would be to give schools a credit or "Virtual Voucher" (say £1500 to £2000). They could use this to get money off defined services. Operators providing service to schools could claim back the voucher from the Fund - as long as service was provided at a tariff that was approved by Oftel or the Funding Body. Serving schools at those prices would only cover their costs.
We currently favour the voucher approach. A "Schools Tariff" would involve Oftel or the Funding Body dictating exactly what services and tariffs should be available to schools, thereby giving them limited opportunity to make their own choices. And, if the tariff involved mostly fixed payments, there would need to be limits on how much the schools could make use of the service in order to limit claims on the Fund. The voucher scheme would give the benefit directly to schools and allow for more tariff and service choices. There would be no need to limit use of the services.
Oftel welcomes views on how service to schools could be delivered competitively at prices which schools can afford. Your opinions on whether and, if so how, schools should be grouped are also invited.
We have already carried out work to estimate the current costs to BT and Kingston of providing universal service.
The method was to identify:
Before taking into account the benefits of universal service, the cost of serving "uneconomic" areas and customers is roughly £60-£90m. This consists of £9-21m for uneconomic areas and £49-£68m for uneconomic customers. After benefits, the net cost falls to £4-£40m, consisting of £4-9m for uneconomic areas and £0-£31m for uneconomic customers. Before benefits, the cost of public payphones is about £14m and the cost of Typetalk is about £5m. We believe that the benefits of public payphones could reduce the net cost to zero.
Until we get better data from BT and Kingston we cannot provide more accurate estimates of cost, but we believe they are relatively low - about 0-0.5% of total telecoms revenue. We strongly believe that there are benefits to the universal service provider that should be taken into account in calculating the net cost of universal service. There are a number of ways in which BT, Kingston, or any other universal service provider might receive commercial benefit from providing universal service and we plan to do more work to come up with firm results.
During our consultation process, the proposal to set up a Universal Service Fund was widely supported. But it was felt that the overall costs of providing universal service would have to be large enough to justify it. We think that the net universal service costs, including our proposals for schools, will be less than £100m p.a. This is small relative to total industry revenues, but, we believe, large enough to justify setting up a Fund.
Who should manage the Fund ? The options are either for Oftel or for a neutral industry-funded body to do it. We favour a neutral third party body. We would set the service definitions, costing methods and other rules which the Funding Body would follow. That Body would apply the rules and calculate payments in and out of the Fund. Oftel would deal with appeals if there were any disputes over payments.
Everyone agrees that universal service funding arrangements should be as clear as possible. The Funding Body would publish an Annual Report giving full details of payments made by contributing operators and the basis for them. It would also publish details of payments made from the Fund, to whom, and what they were for. Information submitted would be open to inspection by other contributors, subject to commercial confidentiality. The Funding Body's accounts would be independently audited.
Oftel invites comments on the idea of setting up an independent Universal Service Funding Body to administer the Universal Service Fund.
We believe that contributions should be in proportion to basic telephone related revenues. This implies that BT, Mercury, cable operators, local delivery operators, cellular operators and others with individual Telecoms Act licences - would contribute to the Fund. Revenues from broadcast entertainment services and interconnect payments should be excluded from revenue - this means that the contribution of BT (which is a net supplier of interconnection services) would be based upon the sum of its revenues from line rental and calls and its net sales of interconnection (ie. the difference between what it earns from other operators when they use BT's network and what it pays to them for using their networks).
We think this approach shares universal service costs simply and fairly across the industry. We believe that the contributions implied by this approach would be less than 1% of total telecoms industry revenues.
The Funding Body would make payments from the Fund to operators who incurred a net loss as a result of delivering universal service to customers according to Oftel's methods for assessing this.
Services eligible for payment from the Fund could include:
Public call boxes are not included in this list. Our current view is that neither BT nor Kingston incur a universal service cost as a result of delivering these services. If they disagree, then further information will be required to demonstrate that this is not the case.
We intend to use a fairly simple procedure which relies upon the fact that most of any net costs for residential uneconomic customers would be for customers on schemes which replace LUS.
Operators could "Pay or Play". They could either pay their share into the Fund or offer a special package or packages on terms like those provided by BT and agreed by Oftel. If customers choose to take service from the other operator, that operator would get a payment from the Fund. We think that this will help lead to choice and better service for universal service customers.
Some remote rural areas in the UK are costly to serve. While the precise location of these areas won't be known until further data is provided by BT, once it is available then any real net cost of serving these areas could be met from the Universal Service Fund.
We want to encourage competition for the provision of universal service in "uneconomic" areas to improve service levels and give customers a better deal.
We therefore plan to investigate trial franchising arrangements. This would involve selecting perhaps two "uneconomic" areas and offering BT the option to continue delivering service, but without any support from the Fund. If BT declined, service for the area would be put out to competitive tender. The operator requiring the lowest subsidy to provide universal service similar to BT (Oftel would monitor service quality) would deliver universal service to that area for, say, ten years. If nobody bids, BT would continue to be the universal service provider and would receive a subsidy from the Fund.
Oftel would welcome comments on these proposals for "pay or play" and on trial franchising arrangements in uneconomic areas.
Services for textphone users are funded largely by BT. If it is agreed to extend the services available for deaf people, then there are two choices. The current arrangements could continue, but be extended so that the 15,000 current customer base was expanded nearer to 100,000. The rebate scheme would also need to be extended to customers of any operator. BT would continue to fund Typetalk and the Text Users Rebate Scheme as they do now.
Alternatively, contributions to meet the costs of providing a text relay or equivalent service, net of benefits, could be shared across the industry. If this was preferred then there may be a good case for competitive tendering, in order to improve efficiency and effectiveness.
Comments on the preferred approach are invited.
We think that a Pay or Play arrangement, similar to that for uneconomic residential customers, could be used. For example, if there was a voucher scheme, schools would be able to use their voucher to get a discount. The voucher value would be paid to the operator from the Fund. We would need to allocate voucher values across schools, perhaps on the basis of size and type, and ensure that operators were offering tariffs which only covered their costs and no more.
We welcome comments on this approach or invite suggestions on any alternatives.
In a fast moving marketplace like telecommunications we need to ensure that the level of universal service is kept under review. We also need to keep a close watch on European developments.
Telecom services will evolve over time with technological innovation and with changing social and economic circumstances. If, as this happens, some customers become unduly disadvantaged, then we will consider upgrading the universal service level.
We propose to keep univeral service under review by way of four key criteria :
When the new universal service arrangements are up and running, we shall need to monitor achievements. To help in this, we will study penetration and churn rates across the country. We will collect data by geographic area, socio-economic group and operator. We will also monitor the uptake of services by disabled customers and any take up by schools of a higher level of service.
It may be better in future for an independent group to be set up to advise the Director General on how universal service should be monitored and reviewed. He has already asked the Consumer Panel, set up for the purposes of the Price Control Review, to do this in the short term. If the Panel is to assume a fuller role for this in future then it may be a good idea to broaden its membership.
Comments and views on the criteria for reviewing universal service and the idea of a Consumer Panel with broadened membership to advise the DG are welcomed.
You can also comment on anything else that is contained in either of the Consultative Documents "Pricing of Telecommunications Services from 1997" or "Universal Telecommunications Services".
The Consumer Panel comprises:
Moira Black - Chairman of the English Advisory Committee on Telecommunications and previously a partner at Price Waterhouse;
John Hughes - Chairman of the National Consumer Council's (NCC) Economic Policy Committee and former member of the NCC;
Stephen Locke - Director of Research and Policy at the Consumers' Association and Executive Member of the Bureau of European Consumer Unions;
Richard Thomas - Director of Public Policy at Clifford Chance and previously Director of Consumer Affairs at the Office of Fair Trading; and
Courtenay Thompson - Chairman of the Northern Ireland Advisory Committee on Telecommunications and former member of the Northern Ireland General Consumer Council.
1. The Price Control Review Consumer Panel ("the Panel") is established by the Director General of Telecommunications under S.54(3) of the Telecommunications Act 1984.
2. The remit of the Panel is to :
(a) consider the issues that arise in the Director General's review of the control of BT's prices for the price control period commencing in 1997;
(b) advise the Director General on the implications of these issues for residential consumers in the UK;
(c) seek to ensure that the interests of residential consumers are properly taken into account in the review process;
(d) seek to ensure that residential customers receive a fair share of the benefits of the future price control regime; and
(e) advise the Director General on: the appropriate level of universal service provision from 1997; the associated funding and delivery arrangements; the process by which delivery should be monitored; the criteria and processes by which the level of universal service should be reviewed over time; and on whether a separate universal service Advisory Group should be formed.
3. The Panel will meet as and when necessary from September 1995 - July 1996. It will receive administrative and other support from Oftel's Consumer Affairs Branch.
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