USO reform a step closer with issues paper released

Telstra's USO funding could soon be taken away, with the Productivity Commission releasing an issues paper on whether to replace the outdated system.

The Productivity Commission has published an issues paper for the Universal Service Obligation (USO) reform review, asking for feedback on various issues including a replacement system and funding arrangements.

The Telecommunications Universal Service Obligation Productivity Commission Issues Paper [PDF] was published by the commission on Monday, and suggested several policy options for the government.

Those suggestions included: "Public provision of universal services, including the underlying infrastructure, wholesale, and retail services; funding or subsidising the private sector provision of universal services; funding or subsidising users of telecommunications services -- for example, through welfare payments, tax concessions, welfare payments, price discounts, or controls, or funding to obtain desired services; or removing regulatory impediments to the private sector provision of universal services."

The commission also referred to the mechanisms being used by other OECD countries, noting that Germany relies solely on competition to deliver universal services; Finland has USOs including for broadband funded by its communications regulator, but with limited government intervention; Canada and New Zealand have industry levy-funded USOs; and the Czech Republic has heavy government intervention for providing universal services, funding the costs entirely through the federal Budget.

Feedback is now being sought on the current USO arrangement; other current policies and programs; rationales and objectives for keeping the USO; broad policy options; suggested scope; benchmarking standards for quality of a universal service; the basis for which universal service providers should be determined; any other policy issues; questions of funding; and how it should be implemented and transitioned.

The USO mandates Telstra as the fixed-line phone service provider of last resort and provides it with around AU$300 million each year -- AU$253 million for standard phone services and AU$44 million for payphones -- through AU$100 million in federal government funding as well as a telecommunications industry levy for those with revenue exceeding AU$25 million, including from Telstra itself, which contributes around AU$142 million per annum.

The system is now facing government reform thanks to the Regional Telecommunications Independent Review, which made 12 recommendations on how the government can improve regional access to telco services to leverage connectivity for business, education, health, and personal purposes.

In response to that report, the government acknowledged that the USO is outdated due to the prevalence of mobile services and increased fixed-line competition, and consequently needs to be reviewed.

"Demand for telecommunications services reflects changes in consumer preferences, as well as developments in enabling infrastructure and technologies. Australia has seen a reduced demand for fixed-line voice services, increased use of mobile phones (particularly smartphones), and increased demand for data across all technologies," the issues paper added.

"Mobiles are now the most common means of voice service and internet access, with 32 million mobile services currently in operation compared with 9 million fixed-line telephone services. Uptake of smartphones has grown rapidly, with three quarters of the Australian adult population now owning a smartphone.

"The demand for voice calls has undergone major changes over the past decade. The number of fixed-line originating voice call minutes declined almost five-fold in the 10 years to June 2015, while the number of mobile originating voice call minutes more than doubled over the same period."

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(Image: Screenshot by Corinne Reichert/ZDNet)

The commission said the USO is also being superseded by the rollout of the National Broadband Network (NBN), as well as the government's mobile blackspot program bringing better mobile coverage to remote areas.

"As an open-access data network, the NBN should bring further competition to the retail broadband market as it reduces retailers' barriers to entry. Migration off the copper network will be optional for users outside of the fixed-line broadband footprint. Yet it will still likely increase competition as alternative communications technologies (including NBN fixed-wireless and satellite as well as mobile networks) become available," the commission noted.

"Mobile coverage is also expanding with the rollout of the Mobile Black Spot Programme in regional and remote areas."

As specified in the terms of reference statement published in April, the scope of the inquiry will see the Productivity Commission address the USO's nature, scope, and objectives, and whether the retail market can deliver "appropriate outcomes" in terms of competitively priced ubiquitous access to services without government involvement.

The commission must make recommendations on the appropriate objectives for a USO or replacement arrangement; the scope of services necessary for achieving the identified objectives; whether the government should intervene to provide for the differing needs of low-income, Indigenous, disabled, rural, and elderly users; who should bear the cost of such intervention; the most advantageous funding model; and how to transition from the current USO model to a replacement mechanism.

The Productivity Commission is accepting submissions until July 21, with its final report due on April 28, 2017.

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