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Universal service fund: Conforming to international standards

Daniel Olejnik
PhD in economics


The decision of the National Commissionthat carries out governmental regulation in the field of Communication and Information (NCRCI), from 12.07.2012 № 347 "On Amendments to the Plan for the preparation of draft regulations for 2012" scheduled a series of measures to ensure universal access for consumers to telecommunications networks and the provision of publicly available telecommunications services of standardized quality throughout Ukraine at state-regulated tariffs. Chairman of the standing commission "current regulatory environment" of the Public Council NCRC, Doctor of Economics, Professor Daniila Oliinyk talked about feasibility and need to create the Fund of universal service and universal service provision on the territory of Ukraine

One of the first questions that were submitted for a public hearing of the recently established permanent committee "current regulatory environment," was the question of the range of services that should be attributed to the universal services, value of such services and the draft Law "On Amending Certain Laws of Ukraine due to the establishment of the Fund of publicly available telecommunications services. " Now this issue has assumed greater importance because Ukraine as a member of the World Trade Organization (WTO) has defined universal service obligations in the context of social development. One of the conditions is that universal access will be onerous and determined through state regulated tariffs.

What is the basic property of universal service?

– First, it is to connect consumers on their request to the public telephone network at affordable prices. To date, this requirement is limited to a single narrowband network connection at the main place of residence of end users and does not apply to integrated services digital network (ISDN). Connection to the public telephone network must provide voice communications and data transfer at a speed required for access to online services. Modern technology can provide high-speed data transmission for the USO. This factor is extremely important for regions where traditional telephone network remains relatively weak, so there is a need for improved communication and bringing it to a level that would support sufficient speed for Internet access.

But in many places, especially in rural areas, even a usual high-quality telephone service remains a dream, let alone the internet …

– Unfortunately, statistics show that approximately 50% of the telecommunication fixed-line networks in rural areas is outdated. To carry out its full modernization, the state will require significant financial resources. According to various sources, the amount ranges from $ 1 billion to a dozen billion. Calculations show that if the cost of updating equipment and networks is charged directly to subscribers, they just will not afford such a burden. Therefore, we note that the provision of universal service to consumers requires considerable financial resources that can be included in calculating the cost of obligations according to international standards. Obligations to be imposed on the provider regarding the supply of standard telephone connection indicate, essentially, that determination of the type of standard telephone connection regulates the nature of the obligation and amount of funds for reimbursement for the provision of universal service.

That is why the task of the regulatory body is that it must determine the most effective and appropriate way of ensuring the implementation of universal service and implement appropriate mechanisms for financing the cost of the various elements of these services. If costs are reimbursed through tax, allocation between them should be based on objective and non-discriminatory criteria in accordance with the principle of proportionality. I think that the regulatory body of the state - NCRCI - should be able to finance the cost of different elements of universal service through a variety of funding sources with minimal deviations from market prices.

 How can this be done?

– Over the past four years we have witnessed an impressive growth of social networks, wide distribution of smartphones and tablet computers, as well as a paradigm shift: before ICT were considered a luxury, but now they are essential driving forces of social and economic progress. Trends in wider use of alternative services in Ukraine require adjustment of regulatory interpretation of universal wireless access and the introduction of the principle of technological neutrality.

The range of technologies depends primarily on national characteristics, ie the geographical and topographical characteristics, the degree of proliferation of cable and satellite television, the need for regional television, the use of radio spectrum. Also, the amount depends on the technology of digital television, which is used to replace the analog service and depends on the range of so-called digital dividend (additional services of ground broadcasting, mobile multimedia applications, mobile communications, new services in the system of wireless broadband, broadband Internet access in areas that are not yet provided with land lines, etc.).

This requires the development and implementation of improved standards of infrastructure and compression that enable faster data transfer rate of 1 Hz than existing systems, harmonization of radio frequencies and so on. Prospects for the latter are determined first of all by terms and measures for coordination of the transition from analog to digital technologies. Regional Radiocommunication Conference held in 2006, contained an appeal to complete this transition before 17 June 2015. In Europe, many countries discontinued analog broadcasting before 2012. This is one of the main issues that the government should solve in the near future.

Another important task is a reasonable price, which may involve setting common tariffs irrespective of location or special tariff options for the needs of people with low income. Affordable price, in terms of users, is associated with their ability to manage and control their costs. To avoid confusion and ensure transparency of financing, NCRCI should first define the format and method of pricing the USO, and to determine, inter alia, the quality of service parameters.

Any calculation of the cost of universal service provision should be carried out in accordance with the calculation of costs and revenues, such as intangible benefits resulting from the provision of universal service and displaying the cost through the use of tariffs. In this context, intangible benefits mean that the assessment in terms of value of indirect benefits should be removed from the direct financing, the obligation to provide universal service to determine all costs.

Telecom operators or providers should make calculation of the cost of provision of universal service as the difference between the value of the network for the enterprise, designed to provide universal service, and companies not burdened with the universal service obligation. Covering the cost of financing obligations of the network to provide universal service requires obtaining by designated operators or providers of compensation for the services they provide under noncommercial conditions. And one of the mechanisms for reimbursement of cost by all users in a transparent way by means taxes and levies is cost recovery through public funds. Such a mechanism is provided for in Art. 21 of Directive 2002/22 / EU of the European Parliament and of the Council of 07.03.2002 on universal service and users' rights in relation to electronic communications networks and services (hereinafter - Directive). Timing mechanism, based on the public fund, shall use transparent methods of obtaining contributions to prevent risk of double taxation.

Ensuring a balance between the benefits and privileges regarding the provision of universal service, on the one hand, and the obligations and liabilities of the other, causes the creation in Ukraine of a public fund such as the Fund of universal service.

Was in this case international experience of implementing public funds studied in order to establish the best options in Ukraine?

– World experience of such funds indicates positive steps towards implementing an effective mechanism of public communications services of consumers in remote and disadvantaged regions and elimination of the "digital divide" and promoting an accelerated development of telecommunications infrastructure. International Geography mechanism of universal service covers more than 40 countries across Europe, Asia, North and South America, Australia and Oceania. In this case most successfully the system of universal service functions in countries such as the U.S., Australia, France, Canada, Brazil, India, New Zealand, Chile, South Africa.

For the first time the term "universality" was used in the Constitution and Convention of the International Telecommunication Union in 1992, which entered into force in Ukraine on 4 August 1998. Depending on the regulatory framework in each country, the system of universal service has its normative concept of universality (Table 1).

Table 1

The definition of "universality" in various countries

Name of the country

The definition of "universality"


Verbal access to the public telephone network with the ability to make and receive calls, access to emergency services, access to a telephone operator services, access to directory services, access to long-distance communication


Services of a separate subscriber line with a tone dial with the ability to connect to the Internet through a line of low-speed data access to emergency services, access to a telephone operator services, access to directory services, access to long-distance communication


Verbal telephony (suitable as well for fax and data transmission), payphones, reference services, access to emergency services, special services for customers with disabilities


Basic telephone service, including access to local, long distance and international lines, public payphones, special services for the disabled, reference services


Access to the public telephone network via fixed network connection, adapted also for fax machines, access to emergency services, access to directory services, public payphones


Standard telephone services, including verbal telephony, failing to use verbal telephony (physical disadvantages of a subscriber) - type of communication equivalent to verbal telephony (eg teletype); payphones


Telecommunication services using payphones, services of data transmission and access to the Internet using public access points


Connection of terminal equipment to public telecommunications networks (universal access), fixed telephony services within the zone of numbering (local), calling the emergency services directory services and communication via payphones, except services provided using wireless access.

Source: an electronic resource www.proIT

All these countries have developed regulatory legal framework for functioning of the system of universal service, which is based on the mechanism of legal regulation which combines methods and forms by which the normativity of law is translated into the ordering of social relations of that specific country which considers its own national interests. The principles of transparency and compensation resulted in the successful implementation of access to universal service through universal services funds in the U.S., Canada, France, Austria, India and other countries.

Historically, in some countries the system of cross-subsidies is used (eg in the U.S.) combined with charges for lack of access, but eventually the state opted for Universal Service Fund (USF). Its convenience is independent management not associated with communication operators that are public agencies, transparent financing; neutrality regarding players on the market, target financing of specific recipients of subsidies, directing subsidies for unprofitable services.

Universal Service Funds may be formed by means of both direct funding from general government revenues and contributions from communication operators; proceeds from the privatization of telecommunications operators and distribution of frequency range; fee received by operators. They can also be financed by international organizations dealing with development of telecommunications.

As international practice shows that the success of the USF depends on how the mechanisms of creation of such a fund, the allocation of resources will be made taking into account all the nuances and peculiarities of the market. But the main question is how to better achieve the goal of universal access of the population to a standard telephone service in the context of maintaining the competitive environment in the industry, coordination of industrial policy network deployment with the policy of accessibility and taking into account various technologies and outdated networks.

However, the question arises as to the implementation of universal service in Ukraine. Here it is necessary to develop several areas. First, market reforms should be introduced in the telecommunications sector. It is necessary to determine the obligations regarding mandatory services, regulatory measures are taken. It should also pay attention to the possibility of cross-subsidization, to determine charges for lack of access, ie the difference between costs and revenues from access services and so on. Here it is important to study the international experience of creation and functioning of special universal service funds.

Ulf Peherson, vice president of Ericsson AB (Sweden), in the report "Development of broadband access: social and economic aspects" at the forum, held in Kyiv, offered to support the practical use of fund of universal service or other specialized funds in Ukraine as an effective mechanism to ensure public access to universal services. Unfortunately, now we have differences regarding the base from which to collect the duty and contribution to FUP to cover the costs of the USO.

The Directive provides for independent audits or assessments of data on the effectiveness of a universal service obligations. The question arises: how is calculation of the cost of universal service obligations performed and what parameters should be measured during independent audits?

– We can answer it only having a full understanding of the universality of such telecommunications services. Currently we are witnessing changes in the sectors of our industry, under the influence of the financial crisis new approaches follow new trends. To fully exploit the potential of new technologies, Ukraine should pay particular attention to policies to support the development of telecommunications services and networks. Information and communication technology (ICT) is one of the most important factors in promoting economic growth and employment, expanding competition in the telecommunications market and, consequently, overcoming "digital exclusion", both social and geographical, by providing innovative services starting with perfectly and newer interactive television broadcasting and to mobile communications and wireless broadband Internet access.

In my opinion, the basic principle in the development of government policy on universal access to telecommunications should be reasonable and affordable price of the service, which would provide a minimum level of service and reflect current standards of quality. In addition, telecommunication services should be technologically neutral. The sources of funding of universal access policy should be determined. And in the context of the above said creation of FUP will be appropriate.

The company "Ericsson" in 2011 together with the consulting firm Artur D.Little conducted a study of the relationship of broadband penetration (hereinafter - broadband) and GDP growth. Studies have shown that a 10% increase in broadband leads to a growth rate of 1%. Every thousand of broadband connections creates 80 jobs. For example, in Sweden, a country with a high penetration of broadband, its ten percent growth increases GDP by 0.57% and creates 91 thous. jobs.

Decree of the Cabinet Ministers of Ukraine of 09.06.2006 № 316-p approved the concept for the development of telecommunications, but so far there is no National Broadband Plan for a defined period (2020) which would concern the increase of broadband Internet access throughout Ukraine, and the so-called road map for achieving affordability and maximum utilization of broadband consumers. According to iKS-Consulting, in Ukraine as of 31.12.2009 the number of broadband subscribers (private and corporate) was 2.3 million, of which nearly 2 million people are home users. The penetration rate of broadband in Ukraine reached 11.2% of total households.

In 2011 the total number of subscribers of broadband Internet already exceeded 6 million. However, it should be noted that in countries with higher levels of Internet access 71% of the population uses the services. It also shows the potential for market development of public telecommunications services and universal access.

What should one consider when using universal service?

– When considering the scope of the universal service, NCRCI should look at the importance of giving the consumer any service that goes beyond the minimum balance, and create additional costs associated with providing these functions, including costs associated with competition (from pricing below cost) and by raising taxes or fees to fund these opportunities. For example, service on data transmission in terms of universal service gives preference to users because it creates opportunities for data transmission. For some users, this service will increase their social inclusion (e-mail), for others it will create business opportunities (facsimile services).

When considering options regarding the various universal service obligations (for example, data rate), NCRCI must clearly take into account their impact on the social component, and track changes by international observations (eg, statistical data from the Organisation for Economic Cooperation and Development (OECD ). Expanding broadband network will allow more people to use new online services such as e-commerce, e-banking and e-education. Competition in the market will increase, and the result, as it is expected, will be the formation of Ukrainian information society and bridging the "digital gap."

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