Towards a Sustainable Institutional Arrangement for USOs in China : Current Status, Support Mechanisms, and Regulatory Governance

The telecommunications industry in China has been experiencing drastic restructuring and exponential growth over the last two decades. Digital divides, however, are now broadened among various groups, particularly between urban and rural areas. These divides pose an impediment to the goal of a harmonious society as well as the Communist Party of China’s recent ideology of building “Socialist New Villages.” This paper starts with a brief account of the current status of universal service regulation and the unique circumstances surrounding China. This paper next explores what seems to be a sustainable institutional arrangement for universal service obligations (“USOs”) in China in the aftermath of China’s accession into the WTO. Solutions to policy questions regarding support mechanisms, regulatory governance, and the government’s role in each are identified. The paper concludes that the uniqueness of China’s circumstances requires a similarly unique solution to the USO issue. While a universal service fund (“USF”) has been a standard and successful mechanism elsewhere in the world, it is probably currently unsuitable for China. Instead, a regulatory approach featuring a “non-subsidy” policy can serve both interim and long-term goals, and a regulatory governance system featuring a “joint-committee” with members from various stakeholders can be one key solution to addressing coordinative and agency problems