Discussion Papers

Lorenz Nett, Werner Neu

Bestimmung der Kosten des Universaldienstes
Nr. 187 / August 1998

Summary

In this paper we discuss the main conceptional aspects which have to be considered determining the costs of universal service. We start by presenting the actual legal framework both on the European level as well as the relevant paragraphes of the
German telecommunications act and the universal service ordinance. These expositions demonstrate the scope of universal service. In addition we give a short outlook on the future development of what may become part of universal service obligation in the telecommunications market.

The provision of public pay phones and access of customers to the national network from a fixed location are the main service elements of universal service which may lead to a justified compensation for the universal service provider. Keeping this services in mind we present the procedure to calculate the direct costs of universal service which comprises the calculation of avoidable costs as well as revenue foregone. To determine the avoidable costs of universal service several problems have to be solved. As such are the appropriate cost standard, the adequate depreciation methodology, treatment of sunk costs, how to calculate long-run incremental costs, how to identify unprofitable customers or uneconomic areas. These topics will be discussed. Subsequently we give a list of the elements which are part of revenue foregone. Since telephone calls have a reciprocal character, the elimination of double counting is a relevant issue. We sketch a methodology which allows to eliminate such kind of double counting.

The universal service provider benefits from several indirect effects brought about by this status: Enhancement of corporate reputation is surely not a marginal effect. In contrast we will derivate that ubiquity and access to full range of telephone usage data only play a minor role for the incumbent’s profit. Life cycle effects refer to the effect of basing a decision on the net present value (NPV) of the business proposition in question. The implication of life cycle effects on the current difference between costs and revenues will be another topic.

The debate on emergency call centers, directory services shows that these elements of universal service can be expected to be voluntarily provided by several network operators. As an immediate consequence these services cause no universal service costs. Finally we will argue why access deficits, pension liabilities as well as network modifications for the provision of services to users with disabilities and users with special needs should not be part of universal service costs.

The expositions make it obvious that the calculation of universal service costs is a complex and difficult task. Therefore, such a calculation should only be untertaken if universal service costs are considered as being non-negligible.

Only German language version available.

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