UNIVERSAL SERVICE WHICH BENEFIT - WHICH C OST - WHICH FUNDING

The opening up to competition of public utilities, such as telecommuni cations, raises the issue of maintaining and financing the universal s ervice obligation, previously ensured by a monopoly. In this paper a s imple model deals with a welfare and cost analysis of the universal se rvice. It compares two valuations of the private cost; i.e. the reduct ion of the operator profit : the avoidable cost and the budgetary comp ensation. Under the assumptions of the model, the budgetary compensati on is higher than the avoidable cost. The paper scrutinizes different competitive situations. If an entrant can skim up the profitable users without a better technology, the final situation is economically inef ficient as a result of the splitting of infrastructure, even though th e incumbent gets a compensation. When a technological advantage makes entry desirable, network duplication can be avoided through interconne ction and access charges. In order to cover the deficit of the univers al service operator; an universal service fund has to be set up in add ition to access charges.