The impact of universal service obligations and other external and cross subsidies on teledensity in developing countries

by Ramos, Boris G.

The failure to consider the complexity of the regional telecommunication systems in planning has increased the telecom gap between other regions and the rural sectors in the developing countries. Earmarked funds generated by Universal Service Obligations and various types of other direct and cross-subsidies have not helped this situation. This research uses system dynamics modeling approach to understand the complexity of the system and to evaluate how different policies affect telephone densities. It is demonstrated that some of the prevalent policies may be counterproductive. Policy experiments with the model demonstrate that market-clearing pricing implemented with Universal Service Obligations, and a value-added service combination may significantly improve rural telecommunications. 3