Efficiency of uniform pricing in universal service obligations

We provide an efficiency justification for the imposition of the uniform pricing constraint in universal service obligations (USO), where USO are defined as a set of constraints imposed on firms belonging to a network industry. In addition to the uniform pricing (UP) constraint, which is an obligation to serve all consumers at an identical price, constraints considered are the coverage constraint (CC), which is an obligation imposed on one of the firms to serve a given segment of the market, and the license constraint (LC), which is a minimum or a maximum coverage restriction that is imposed on entrants. We show that adding the UP constraint to both a CC and a LC leads to an increase in welfare. Our contribution comes from the full recognition of the role of a LC in well-designed USO and we illustrate this role with the particular case of linear demand.