Universal Service: Does Competition Help or Hurt?

Abstract

In a general environment of increasing deregulation and promotion of competition in telecommunications markets, the effects of these changes upon the attainment of universal service objectives are coming under close scrutiny. In a rough way, universal service objectives mean that economic authorities would like to promote high telephone densities at affordable prices. Thus, empirical analysis of the effect of competition should evaluate both telephone density and price effects. We show that, when we look at aggregate data, the negative effects of the introduction of competition on telephone density depend on the econometric approach followed. and that.' in the short run. no clear downward pressure on prices results from competition. Hence. the aggregate, country level effects, do not provide a clear answer to the posed question. There is a need for further research that reconciles the endings of microeconometric studies with aggregate data evolution.