Universal Service is intended to ensure availability of affordable telecommunications services across an entire country. Telecoms operators in competitive markets are obligated to provide universal service and to contribute to a universal service fund. But this obligation should be shared fairly among provider groups. Sometimes this social obligation gets overreached by regulators to the point that it distorts competition. Satellite service providers, as a group, have an unbalanced obligation to contribute to these funds compared to other providers.

In the past, government-protected monopolies were required to offer telecommunications services to all groups; even those deemed unprofitable like rural customers. This was a trade-off of sorts for being a sole market provider. Today, regulators in competitive markets, like the European Union (EU) and the United States, oblige telecoms providers to maintain a universal service commitment and to contribute to universal service funds.

In the EU, the 2002 Universal Service Directive was enacted to guarantee the availability of basic services to end-users at affordable prices without distorting competition. The Directive established the obligations of public operators as well as end-user rights. Markedly, private operators were excluded from universal service obligations.

In the United States, a universal service fund was created in 1997 in compliance with the amended Communications Act, which stated that all providers of telecommunications services should contribute to federal universal service in some equitable and non-discriminatory manner. Unlike the EU, all U.S. telecommunications providers, public and private, were required to contribute to the fund. Interestingly, almost all satellite service providers are classified as private providers.

The U.S. universal service program is funded by the collection of fees from telecommunications providers as a percentage of qualified revenue. This is where the distortion takes place for the satellite service providers. A wireline telecommunications provider may charge $20 a month for a dedicated phone number. By comparison, a satellite service provider may charge $1,000 a month also for a dedicated phone number. It is true that the satellite service provider might be servicing a location that the wireline provider cannot access. The remote location together with the cost of a dedicated VSAT terminal demands the higher price. Assuming a 16 percent universal service fee, the wireline provider would pay $3.20 monthly compared with $160 for the satellite service provider. The fees are ultimately passed to the end-user, but a provider required to collect high fees might become uncompetitive.

Dedicated data services can also be subject to universal service obligations. Here, larger bandwidths command greater revenues that in turn require larger universal service contributions. Thus, the imbalance in fees becomes more pronounced as satellite provided data services expand.

In the EU, the universal service requirement may be limited to a single narrowband network connection, and may be further limited to a user’s primary location/residence. However, there have been legislative discussions proposing to extend the scope of the universal service connection to broadband services. In the United States, the FCC launched its Connect America Fund with the goal to connect every American with broadband regardless of where they live. However, adding broadband Internet to the universal service basket further increases the potential for unbalance. Again, satellite Internet broadband is by nature a higher priced product than wireline-based broadband like DSL.

The provision of a defined minimum set of services to all end-users at affordable prices is the aim of universal service programs. In most EU countries, the obligation of universal service mainly rests with the incumbent (ex-monopoly) operator. However, as markets become wholly competitive, universal service obligations may be imposed on other operators. Also, different elements of a service provided by operators in different geographical areas may be subject to universal service obligations. In the United States, the universal service obligation rests with private and public telecommunications providers alike. While the maintenance of universal service is a worthy cause, regulators should balance the interest of operators and end-users. Furthermore, certain groups of providers should not be overburdened compared to others.

Raul Magallanes runs a Houston-based law firm focusing on telecommunications law.
He may be reached at +1 (281) 317-1397 or by email at raul@ rmtelecomlaw.com.