Economic Policy Forum: Universal Services

Since the end of the 1980s, the liberalisation of market access has become a dominant element in European infrastructure policy. Starting with telecommunications, reforms have now also targeted the postal services, freight and passenger transportation, in order to develop harmonised and competition-based services. These reforms will require the adjustment of regulations in order to safeguard the provision of public policy objectives. Despite structural differences, a sectoral comparison indicates a series of common features: All three sectors are experiencing a gradual market opening, that will allow monopolies to exist only in peripheral segments (especially in network infrastructure). The pace of liberalisation varies across sectors. While the telecommunications sector has been leading the way, a complete liberalisation of the postal services has yet to begin. As far as the passenger short-distance and regional transportation in the public sector is concerned, additional competition is provided by substitutes, i.e., intermodal competition between various modes of carriers (e.g., automobiles, buses, trains, etc.). The introduction of competition requires an adjustment of the regulatory framework in the sectors concerned. Reforms must take into consideration that services that are in the public interest are maintained even under market conditions, i.e., that services that are essential to full social and economic inclusion are provided to everybody at affordable prices. After all, easier market access and increasing competition have caused also public providers to emphasise cost awareness and profitability. In many ways, this is incompatible with the provision of services that adequately serve the public interest, because such services may not be profitable or because prices of services do not cover costs (such as services supplied to peripheral regions, prices set under the aspect of affordability). On the one hand, increasing liberalisation requires a more precise specification of what services are to be supplied in the public interest (e.g., a definition of universal services). On the other hand, the financing of such non-commercial services must be compatible with a market-based economy. At times when such services were provided exclusively or predominantly by public monopolies (through a high share of services reserved for the public domain) cross subsidies were a feasible option. But as competition intensifies it becomes imperative to spread the financial burden resulting from public welfare services across all providers (e.g., universal services financed within one sector) or to allocate the costs to those who order the services (external financing by the Federal Republic or the states). An increase in the number of providers of infrastructure services brings about improvements in terms of prices, quality and the choice available; this applies to general services as well as to services provided (below costs) in the public interest. New mechanisms have been established for finding the best providers of universal services and other non-commercial services. A paradigmatic change from the model of the legally obligated service provider to market-based procurement processes (such as universal services auctions and tenders for contracts of limited duration) is emerging. The sectoral analysis also indicates that liberalisation does not only involve risks but also opportunities for safeguarding the continuity of supplies and the maintenance of a comprehensive supply of non-commercial services. The comparison of various sectors points out the importance of specifying goals within the political process (definition of the range and quality of services). The next step in this process will be to efficiently implement political goals by modifying the regulatory framework as well as by an increased reliance on competitive processes of awarding permits.