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The impact of Universal Service Obligations and International Cross-subsidies on the dispersion of telephone services in developing countries


  • Ramos, Boris
  • Saeed, Khalid
  • Pavlov, Oleg


This paper re-evaluates the telecommunication policies often applied to create regional dispersion of services in developing countries. We observe that failure to consider the complexities of the regional telecommunication systems in creating policies and investment strategies has increased the telecom gap between urban and rural regions worldwide. In particular, the teledensities of rural telecommunications in developing countries have remained very low in spite of support through universal service obligation fees and cross-subsidization from international services. As traditional methods for economic analysis and modeling have failed to identify mechanisms that improve telephone dispersion in these countries, we use a system dynamics modeling approach to deal with complexities of the situation in order to evaluate how Universal Service Obligations (USOs) and International Cross-Subsidy (ICS) policies affect telephone densities. We demonstrate that these policies may be counterproductive due to the structure of the telecom system itself. We also show that, when market-clearing pricing is combined with USOs once the urban telephone density reaches a minimum threshold, the dispersion of rural telecommunications can be considerably improved.

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  • Ramos, Boris & Saeed, Khalid & Pavlov, Oleg, 2010. "The impact of Universal Service Obligations and International Cross-subsidies on the dispersion of telephone services in developing countries," Socio-Economic Planning Sciences, Elsevier, vol. 44(2), pages 57-72, June.
  • Handle: RePEc:eee:soceps:v:44:y:2010:i:2:p:57-72

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    References listed on IDEAS

    1. Madden, Gary & Coble-Neal, Grant & Dalzell, Brian, 2004. "A dynamic model of mobile telephony subscription incorporating a network effect," Telecommunications Policy, Elsevier, vol. 28(2), pages 133-144, March.
    2. Carlos A. Primo Braga & Emmanuel Forestier & Peter A. Stern, 1999. "Developing Countries and Accounting Rates Reform : A Technological and Regulatory El Niño?," World Bank Other Operational Studies 11499, The World Bank.
    3. Ros, Agustin J. & Banerjee, Aniruddha, 2000. "Telecommunications privatization and tariff rebalancing: evidence from Latin America," Telecommunications Policy, Elsevier, vol. 24(3), pages 233-252, April.
    4. Peha, Jon M., 1999. "Tradable universal service obligations," Telecommunications Policy, Elsevier, vol. 23(5), pages 363-374, June.
    5. Gasmi, F. & Laffont, J. J. & Sharkey, W. W., 2000. "Competition, universal service and telecommunications policy in developing countries," Information Economics and Policy, Elsevier, vol. 12(3), pages 221-248, September.
    6. Cain, Paul & Macdonald, James M, 1991. "Telephone Pricing Structures: The Effects on Universal Service," Journal of Regulatory Economics, Springer, vol. 3(4), pages 293-308, December.
    7. Goussal, Darío M. & Lezcano, María Sandra Udrízar, 2000. "Network decompensation and regional imbalances in rate reform processes: a case study in South America," Telecommunications Policy, Elsevier, vol. 24(8-9), pages 669-698, September.
    8. Kayani, R. & Dymond, A., 1997. "Options for Rural Telecommunications Development," Papers 359, World Bank - Technical Papers.
    9. Laffont, Jean-Jacques & N'Gbo, Ake, 2000. "Cross-subsidies and network expansion in developing countries," European Economic Review, Elsevier, vol. 44(4-6), pages 797-805, May.
    10. Bjorn Wellenius, 2002. "Closing the Gap in Access to Rural Communications : Chile 1995-2002," World Bank Publications, The World Bank, number 14058.
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    Cited by:

    1. Nakamura, Akihiro, 2013. "Retaining telecommunication services when universal service is defined by functionality: Japanese consumers' willingness-to-pay," Telecommunications Policy, Elsevier, vol. 37(8), pages 662-672.


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