Digital Divide: The End of Equality? Three generations of "Universal Service" Current situation and mechanisms Issues with "3rd generation" Universal Service Defining the digital divide A new rationale for Universal Service?

Three generations of "Universal Service" First generation: Vails vision Second generation: "a phone in every home" ( s) Third generation: '96 Act (section 254)

First generation: Vails vision –"One system, one policy, universal service" –Constructed primarily by the competitive marketplace –Debate about the merits of interconnection network fragmentation as Universal Service problem: Universal Service = Unified Service Willis-Graham act 1921 exempts telcos from antitrust, so they can unify the system

Second generation: "a phone in every home" ( s) –Universal service as a "telephone in every home." –Comms Act 1934 "...to make available, so far as possible, to all the people of the United States, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges." –1960s: principle worked into rate base (through separation of interstate and intrastate rate structure) –AT&T revisionism throughout the divestiture debate real issue was long distance competition, not universality. Two "myths": –universal service support had a statutory basis in the 1934 Communications Act. –widespread household telephone penetration depended upon maintaining cross-subsidies to local access rates. 1970s, penetration was already between 85%-90%

Third generation: '96 Act (section 254) –Section 254 created...to clearly articulate the policy of Congress that universal service is a cornerstone of the Nation's communications system. This new section is intended to make explicit the current implicit authority of the FCC and the States to require common carriers to provide universal service. (committee report on bill) –No longer confined to traditional telephone "evolving level of telecommunications services" any telecommunications service that is subscribed to by a substantial majority of residential customers –"quality services should be available at just, reasonable, and affordable rates." –Subsidizes telecommunications access and usage by schools, health care facilities, and libraries

Current Mechanisms Who Pays for the Universal Service Fund? –In the past, only long distance companies paid fees to support universal service. –Starting in 1998, "all telecommunications carriers that provide service between states, including long distance companies, local telephone companies, wireless telephone companies, paging companies, and pay phone providers." How much? –Telecommunications companies must pay a percentage of their interstate end-user revenues to the Universal Service Fund –current contribution factor Q4'02: %

Current Mechanisms Who receives funds –Eligible Telecom Companies i.e. "Carriers of Last Resort" (ILECs) –targeted grants Programs (USAC run) –High Cost Program –Low Income Program –Rural Health Care Program –Schools and Libraries Program

Issues with 3 rd gen. Universal Service (Rosston) Assumptions –Market mechanisms insufficient –Local access must be subsidized to become affordable –Possible to identify a "universal" service –Deregulated telecommunications can be reconciled with subsidies

Challenges to these assumptions Facts about Phonelessness. –Assumption that price of local telephone access is the key to widespread affordability. =>Tax long distance usage in order to subsidize the monthly line rental. –But studies find: –price of basic local service was not the most important factor. –Rather: unpaid toll bills,deposits, installation fees, and call control issues. –2/3 to 3/4 of households without telephone service have had service in the past but were unable to keep it. –Low-income families are usually disconnected because they run up large bills for long distance tolls, collect calls, and/or credit card calls and fail to pay them.

Untargetted subsidies –Cross-subsidy lacks a means test. –Ski cottages in Aspen –But: requiring means test and application means you need awareness of the benefits: Catch-22 Access has become heterogeneous. –Voice service was simple, homogeneous, and uniform. –No longer: Access can be provided by a two-way pager, a debit card, a traditional fixed voice telephone, a fixed or mobile computer in the home, a shared terminal in a public space, etc –How to define the "new" universal service. –How much bandwidth and what features and functions will it involve? –Will it include Internet and other data communications, cable as well as telephony, wireless as well as wireline?

Transparency and Competitive Neutrality. –Two key objectives make subsidies "explicit" rather than "implicit," competitively neutral. –Law starts from good intentions: complete overhaul of universal service support that succeeded in making all subsidies transparent, portable, and competitively neutral would benefit everyone. –Politics of "universal service" make these goals elusive.

Conclusion: schizophrenia Encourage new entry against incumbent monopolies. But competition also tends to eliminate subsidies and drive rates toward costs. Traditional embedded subsidies are as politically popular as ever Politicians want to be both "pro- competition" and "pro-universal service." The Telecommunications Act of 1996 embodies this contradiction.

Falling Through the Net: Defining the Digital Divide More Americans than ever have access to telephones, computers, and the Internet. At the same time, there is still a significant "digital divide" separating American information "haves" and "have nots." (NTIA: Falling through the Net)Falling through the Net

What is at stake? –Democracy: inclusive forum for debate –Education: teaching infrastructure (schools and libraries) –Economic: network marketplace –Economic: transformation of work and info divide

Is there a new rationale for universal service? equity (It is the fair thing to do) justice (It is the right thing to do.) competitiveness (It is key to success with other services) self-interest (It is an excellent market) Universal design: digital curb-cuts –static –dynamics innovation as result of variety of experimentation breadth is key (internet vs. interactive TV)