Network Competition and the Provision of Universal Service

As providers of basic infrastructure services, telecommunications providers have traditionally been required to provide services and to serve customers that would not provide a reasonable return on investment in an unregulated marketplace. Today there are still important telecommunications policy goals that are unlikely to be achieved through competition alone. A successful transition from monopoly to competition requires the development of new mechanisms for achieving these goals that do not impede competition in services and in geographic areas where it would otherwise be feasible. This paper examines the problem of providing basic telephone service to low income households in urban areas large enough to support two or more competing providers of telephone service. It shows that there are plausible circumstances under which, even without public support, low income households unwilling to pay the cost of connection to the public network will still be provided service by telephone companies who want to make them available to other subscribers willing to pay more. This can happen if there is a mechanism that allows service providers to accurately distinguish me and high income subscribers. Copyright 1995 by Oxford University Press.