Special tariffs to promote fixed telephony penetration: reflections from the UK experience during the 1990s

The liberalisation of the telecommunication sector has dispossessed regulators from the use of cross-subsidisation in order to achieve the universality goal. In a liberalised context, special tariff schemes represent one possible policy tool in order to increase the penetration rate. This paper focuses on the UK fixed home telephone network and analyses LUS and InContact tariff schemes adopted by British Telecom (BT) in the 1990s. Both schemes turned out to yield unsatisfactory results. This paper, after reviewing past literature on telephone access demand, uses an econometric approach to test whether such schemes were properly targeted to suit the characteristics of "un-phoned" households. The empirical analysis points out that some important socio-economic factors, rather than simply low income, are the major drivers of non-connection. The failure to take into account these and other factors discussed in the paper, has significantly contributed to the poor results of the two special tariff schemes. In this context the UK experience provides a useful basis for discussion on the validity of policies aimed at promoting network good adoption via the introduction of special tariff schemes.