Equity justifications for universal service obligations

Equity is often invoked as a possible justification for the imposition of universal service obligations (USOs). However, no previous analysis supports a formal link between equity and USO. In this paper, we describe the extent to which the imposition of USOs in oligopolistic network industries can meet the objectives of an inequality-averse regulator. We show that USOs can be used for equity purposes provided that the regulator is able to control the competitive structure of the industry. We also show that the uniform pricing constraint, which is an obligation to offer the same price conditions to all consumers, is welfare-enhancing but rather surprisingly, it does not necessarily improve equity.