Universal Service Electricity vs. Telecommunications Scott Wallsten 30 May 2013 Lima, Per Why Universal Service/Access? 1. Equity. 2. Political-distributional goals. 3. Positive externalities. TelecomElectricity Why Universal Service/Access? 1. Equity. 2. Political-distributional goals. 3. Positive externalities. TelecomElectricity Possible externalities in electricity: Positive if affects sewerage. Negative from additional generation. Historically In principle: Monopoly provider. Used cross-subsidies to fund un-economic areas. In reality: Used to justify suppression of competition. Poor job of providing service to poor/rural. Telecommunications Mobile phones Telephone lines Internet users Progress in Universal Telecommunications Access (Latin and South America) WHY? Costs Have Fallen Dramatically in Telecommunications U.S. Wireless Telecommunications Carriers Producer Price Index Fast Technological Change Monopoly May Not Have Been Stable Prices tended to be high relative to costs. Telecom may never have been a natural monopoly. Key: Good Timing! Pressure for reforms, desire to join WTO. Incumbents and experts in 1980s: there will never be a mass market for mobile phones. Incumbents happy to stick with land line cash cow.... and allowed private entry into worthless industry. (Ooops!!) In Telecom, Universal Service Programs Largely NOT Responsible for Improvements Electricity Progress in Universal Electricity Access Share of Population With Access to Electricity in Latin America Source: World Energy Outlook, various years. WHY? Reforms (privatization, regulation) the negative effects of layoffs and higher prices were more than offset by increased access for poor consumers, enhanced service quality, and changes in public finances that benefited poor people more. Kessides, Ioannis N. The Impacts of Electricity Sector Reforms in Developing Countries. The Electricity Journal 25, no. 6 (July 2012): 7988. Electricity Disadvantages Technological change slower (even in generation). Prices historically (often) too low relative to costs. Certain parts remain natural monopolies. (But leaves some scope for cross-subsidies). Hypothesis: Different Institutions and History Affect Universal Service Programs in Electricity Relative to Telecom Telecom Has Conventional Best Practices For Universal Service Despite Lack of Effectiveness Where Did Universal Service Originate? Electricity Does Not Have Ma Bell Historical Baggage (with respect to universal service) Is my hypothesis correct? Maybe, maybe not. (maybe my next paper?) Discussion of distributional effects part of reforms, not necessarily separate efforts. Possible Institutional Differences and Advantages For Electricity Less institutionalized universal service programs allow more flexibility. Variety of funding mechanisms. Ability to focus on specific projects rather than ongoing support. If so, perhaps easier to set rules to make ensure effectiveness The [universal service] program lacks measures and goals to assess performance. The program does not measure the impact of funds on telephone subscribership in rural areas or other potential measures of program success, nor does it base funding decisions on measurable benefits.Extremely difficult to do so in Telecommunications (in US) Entrenched interest groups prevent it. If so, perhaps easier to set good rules to make universal service programs effective Set measurable objectives. Design programs in ways that make evaluation Possible. Set a budget and stick to it. Even if Im wrong about institutional differences between telecom and electricity, thats just good advice! Thank You! Gracias!