Local exchange competition, rate restructuring and universal service

Some perceive a dilemma between 'Universal Service' and competition in local telecommunications markets. Universal service objectives have been met primarily by a system of cross-subsidies that keep rates artificially low for some (usually residence) and artificially high for others (usually businesses), Increasingly regulators realize that these subsidies are untenable, but voice concern that cost-based rate restructuring will produce 'rate shock' and lower subscribership, Based on a quantitative analysis, the authors show that rate rebalancing may raise local rates in some cases, but these increases will be more than offset by reductions in intra-LATA toll prices, More importantly, declines in business rates will reduce enduser operating costs, ultimately translating to substantial indirect benefits to all consumers through lower prices for goods and services, (C) 1997 Elsevier Science Ltd.