Universal Service Electricity vs.

Telecommunications
Scott Wallsten Twitter: @scottwallsten
30 May 2013 Lima, Per

Why Universal Service/Access?

Telecom Electricity

1. Equity.

2. Political-distributional goals.

3. Positive externalities.

Why Universal Service/Access?

Telecom Electricity

1. Equity. 2. Political-distributional goals. 3. Positive externalities.

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

Progress in Universal Telecommunications Access

(Latin and South America)
110

100
90 80 70 60 50 40 30 20 10 0 Telephone lines Internet users Mobile phones

WHY?

Costs Have Fallen Dramatically in Telecommunications

U.S. Wireless Telecommunications Carriers Producer Price Index

100 95 90

85
80 75 70 65 60 55 50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2002 2005 2008 2010

Rural
Source: World Energy Outlook, various years.

Urban

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?)

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. Discussion of distributional effects part of reforms, not necessarily separate efforts.

If so, perhaps easier to set rules to make ensure effectiveness

Extremely difficult to do so in Telecommunications (in US) Entrenched interest groups prevent it.
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.

http://www.whitehouse.gov/omb/expectmore/summary/10004451.2005.html

If so, perhaps easier to set good rules to make universal service programs effective
Set a budget and stick to it. Set measurable objectives. Design programs in ways that make evaluation Possible.
Even if Im wrong about institutional differences between telecom and electricity, thats just good advice!

Thank You! Gracias!