Non-Commercial Services Obligations and Liberalisation

Universal service obligations are common in many of the infrastructure sectors. The obligations are often cited as a justification for limiting entry of new providers because the new providers would cherry-pick the highprofit customers who provide the basis for subsidization of another group of customers. When obligations are beneficial, there are a number of policy traps that can be encountered: Obligations are often poorly defined and not well-focused on the customers who are meant to receive help; Obligations are frequently defined narrowly in ways that disfavour new technologies and cause extensive waste; and financing for the noncommercial obligations can often be raised in more efficient ways than through cross-subsidies and can often be spent on multiple service providers rather than one preferred provider. Falling into these traps can create incentives for over-investment in certain infrastructure technology and under-investment in other technology. This paper provides guidance on the competition problems that can arise from universal service obligations and on some ways to limit these problems. This OECD Competition Committee roundtable was held in October 2003.