Network spillovers as an alternative efficiency argument for universal service policy

Abstract

The universal service policy concerns the increased penetration rate and affordable tariffs for the voice telephony service. Much has been argued about the economic validity of the universal service policy, but the consensus has yet to come. This paper seeks the role of the universal service policy in the long-run perspective within the framework of recently developed endogenous growth theory. A ubiquitous telecommunications network increases the flexibility of production. This in turn leads to improved factor productivity and stimulates the long-run growth of national economy. The society values network expansion more than the private firms do, due to the network spillover effect. Universal service policy may be understood as a policy option by the government to make firms internalize this spillover effect of a telecommunications network and obtain dynamic efficiency. ©