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In other way, universal service obligations have practical significance to public service obligations. Firstly, it is an important composition of public service obligations. Secondly, universal service obligations are a set of specific standards which have been accepted internationally. As we know, harmonization of public service obligations is hard difficult in Community level. Through the great achievements in universal service obligations it seems that the development of universal service obligations is a pioneer in harmonization of public service obligations.
3. Rationales for Public Service Obligations
3.1 Economic Rationales
The aim of economic undertakings is to realize the maximization of economic efficiency. Specifically, the goal of increasing efficiency aims to achieve Pereto Optimum with its goal of a state of the economy in which no reallocation of resources could made anyone better off without making someone else worse off. As it generally accepted, in perfect competitive markets the economic result is Pereto Optimum. Nevertheless if the return of an industry is increasing with scale, even competitive markets exist, there will never balance to optimum. Under such circumstance it is more efficient for one firm to serve an entire market than for two or more firms to do so, which is called natural monopoly under traditional economics. This paper will not give more space to disadvantages of natural monopoly. But it should be noticed that these disadvantages lead to governmental regulations and the current administration model has its foundation on natural monopoly.
As regards pure natural monopoly , such as natural monopoly in sectors of water, electricity, and natural gas, is concerned, these sectors are impossible to introduce effective competition, or to introduce it immediately. Although regarded as the great evil in economics coercive monopoly should be allowed to exist in these sectors. So as Professor Tony Prosser said, regulation is not an essentially temporary phenomenon. In practice it is well established as a permanent feature of the landscape of public utilities. The price of natural monopoly is depended on the average cost not marginal cost. Whatever monopolists will pursue monopoly profit, thus to prevent utilities from exploiting their monopolies with high prices, they are regulated by government. Typically, they are allowed a fixed percentage of profit above cost. Subsequently quality control is another element related to price control, which ensures consumers can get reasonable price not at the sacrifice of quality. In addition, the correction of externalities which will affect the true cost of natural monopoly is another rationale for public service obligations. For example, public service obligations provide consumers available to redress mechanism. Otherwise the cost of pursuing redress will not be fully reflected in the costs of the production process but be borne by the public.
Under traditional economics it is impossible or difficult to introduce competition into natural monopoly. However over 70 years passed the traditional concept of natural monopoly which focuses on the cost efficiency of single firm being the sole supplier in a market was evolved into the concept of subadditivity . And subadditivity is an extension of the concept of economies of scale to the multi-product case, which points out the possibility of competition between multilateral rivals and splitting single-product industries regarded traditionally into pure natural monopoly sectors and competitive sectors. This significant economic accomplishment provides remarkable guide to liberalize for authorities in traditional natural monopoly sectors. Moreover it produces another type of public service obligations, liberalization, through seeking to limit the conditions in which monopoly power can distort allocative efficiency. In addition, with the changing technology some former natural monopoly sectors taking on competition such as telecommunication need further liberalization. Therefore account should be taken of this development by public service obligations.
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