Could USO changes be poisoning the well?

There must be something in the water in Canberra. After years of measured inaction, the Coalition is taking long-overdue steps towards universal broadband and working around Telstra's continued domination -- after 10 years of deregulation -- of the country's telecommunications wholesale markets.

The government will never be able to escape criticism that it's just acting now to buy votes. Nonetheless, Communications Minister Helen Coonan faces an even bigger potential problem if her latest gamble turns sour. This folly is a review of the Universal Service Obligation (USO), that legislatively enforced standard that requires Telstra provide all Australians with telecommunications at least as good as using a carrier pigeon.

Supported by an industry fund established with the initial sale of Telstra and intended to ensure services for Australians in commercially difficult areas, the USO mandates access to a serviceable telephony line, pay phones where deemed necessary, and a basic data service of at least 64Kbps (mandated under the Digital Data Service Obligation, or DDSO).

Given the increasing expectation of multi-megabit speeds, the long-standing DDSO seems positively outdated; judge this by the generally negative reaction to Telstra's saccharine vow to offer a minimum 512Kbps wholesale service at AU$59 for the next 14 years.

If I may inject a bit of perspective: in the UK, where a USO ensures BT and Kingston Communications subsidise phone services for low income earners, the minimum required data service is 28.8Kbps; this was upheld in a review last year.

So, by world standards, our USO of 64Kbps isn't necessarily horrible -- although I would venture that many residents find it hard to get 64Kbps connections when their phone lines have been rendered useless by heavy rains and Telstra's refusal to upgrade its network in many areas.

By announcing a minimum 12Mbps WiMAX wireless service for 100 percent of Australians, Senator Coonan has effectively increased the DDSO significantly. If this program can guarantee all Australians access to such a service -- as the government has promised it would -- even rural customers will be well serviced indeed.

The problem is this: Senator Coonan also announced she would be axing the DDSO, arguing that the subsidies provided under the USO are no longer relevant. "This obligation", she said in the 27 June National Press Club speech where she announced the review, "has been superseded by the Australian Broadband Guarantee -- a guarantee that every Australian can access a much faster broadband service via a government subsidy of up to AU$2,750."

That guarantee, however, is built on a premise of commercially sustainable competition rather than government regulation. That means that Senator Coonan has effectively removed any imperative for Australia's telecommunications carriers to provide any data service, at all; what is provided will be delivered under the assumption that the government's AU$2,750 subsidies will attract enough interest to deliver Australia Connected's target of 100 percent coverage.

If that coverage proves less than achievable, rural Australians will no longer have recourse to the DDSO -- or to any legislation at all.

There's one more problem with this: that 100 percent coverage guarantee is predicated on the use of wireless local loops. WiMAX, the obvious and stated way of delivering these, is great for OPEL but remains shunned by Telstra, which needs to be involved in this game to deliver the best outcome for all Australia. Telstra continues to insist that universal broadband must be fibre-based, but refuses to pay for that fibre.

Senator Coonan is taking a big chance here. There is a major difference between a mandated data minimum standard, and a subsidy-driven free-market approach to providing universal broadband. The DDSO, at least, required Telstra to find a way to provide some sort of data service to all Australians. By eliminating it and putting complete reliance on government subsidies to private operators, the government is putting its entire faith in the belief that it has finally, with Australia Connected, figured out the magic formula.

The commercial market is subject to commercial realities, after all, even with government subsidies. Fingers crossed that axing the DDSO -- and putting the fate of universal data services in the hands of that commercial market -- will deliver the stated objectives.

If not, Senator Coonan's leap of faith -- in a commercial market that has proven less than insatiable when it comes to new infrastructure build-outs -- could leave behind a poisoned legacy that would take the next government years to disinfect. And for many Australians, even a village pay phone could eventually seem like a luxury.