Practice Advice on Program and Service Delivery
Universal Service Obligations (OECD)
Summary Advice: Non-commercial service obligations are frequently cited to support the argument that an enterprise should receive a government-protected monopoly over potentially competitive services.1 The argument is that, without entry restrictions, competitors would cream-skim the profitable services and bankrupt the incumbent by leaving it with only the unprofitable services. The OECD concludes that incumbent enterprises should receive protection from entry in order to continue financing the non-commercial services.
Main Points: Non-commercial service obligations are present in a variety of industries in OECD member states. They are particularly common in industries that were once state-operated enterprises. However, policy towards non-commercial service is still highly variable. This note suggests that:
- Non-commercial service is often still possible in a liberalized regime. Payments to provide non-commercial service can be made via explicit subsidies.
- Unprofitable services may be less common than is alleged. In some instances, non-commercial service providers with an option to request subsidies have chosen not to do so. Contracting out of inefficiently provided tasks may substantially reduce inefficiency.
- Barriers to competition erected to preserve cross-subsidization should often be eliminated. Eliminating these barriers will ensure that competition will lead to more efficient production processes.
- The costs and benefits of non-commercial services should be reviewed regularly for existing non-commercial services and estimated prior to the introduction of any new service.
- Non-commercial service rules should not generally select a government-preferred provider (there can sometimes be competition to provide the non-commercial service) either explicitly or implicitly.
- Current service designations should be re-evaluated in light of current and future technology. Basic telephone service, for example, should not be defined in terms of fixed wire service but rather in terms of service that provides access to the telephone network, as mobile or satellite service may.
- Compelling evidence should be required to buttress any claim that competition has no role in sectors in which competition is possible.
Source: OECD Universal Service Obligations (2003) Policy Roundtables, OECD at http://www.oecd.org/daf/competition/sectors/45036202.pdf (accessed 08 March 2013).
Page Created By: Matthew Seddon on 08 March, 2013. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.