USO facing government review thanks to regional telco report

The USO, which provides government funding for the maintenance of fixed-line services, is outdated and needs to be reviewed, the government has found.
Written by Corinne Reichert, Contributor

The Australian government has tabled its report responding to the Regional Telecommunications Independent Review, recommending that a review be undertaken of the oft-criticised Universal Service Obligation (USO) -- but adding that it has already addressed a large swathe of the National Broadband Network (NBN) concerns.

The Regional Telecommunications Independent Review Committee had tabled its report on regional telecommunications services in Parliament in October, making 12 recommendations on how the government can improve regional access to telco services to leverage connectivity for business, education, health, and personal purposes.

The 12 recommendations included establishing a Consumer Communication Fund (CCF) in place of the USO; managing demand and prioritising traffic on the NBN satellite service; increasing the flexibility of NBN satellite services for retail service providers and providing data usage alerts; extending the NBN fixed-wireless footprint to reduce satellite customer numbers; upgrading public safety networks; providing better information on the NBN rollout and technologies being used; and reporting further on regional telco availability and affordability.

In the government's response [PDF] on Tuesday, it identified the USO as a major issue for regional telecommunications.

The government acknowledged that the USO -- which mandates Telstra as the fixed-line phone service provider of last resort and provides the telco with hundreds of millions of dollars each year for the installation and maintenance of fixed-line services -- is outdated thanks to the prevalence of mobile services, and consequently needs to be reviewed.

"The current consumer safeguard regime is increasingly outdated, given the evolution of the telecommunications markets, including the rollout of the NBN," the report says.

"Current concepts and interventions reflect a fixed-line voice telephony environment delivered through a vertically integrated Telstra, which provides access to its wholesale networks to other carriers."

According to the government, the USO and the Customer Service Guarantee (CSG) in reality regulate both service delivery and infrastructure provision, which could create issues for retail service providers once the NBN has been rolled out.

"In that environment, fixed-line connections and availability required under the USO and CSG will rely on RSP and NBN cooperation, processes, and systems," the report says.

"There is also a question of whether a service delivery obligation is required at all if a regulatory obligation is imposed on NBN to provide the infrastructure required for service delivery."

The government pointed out that telco services are no longer delivered solely by fixed-line infrastructure.

"A review of current regulatory arrangements will need to look at both what remains relevant in the future from the existing regime, but also what new issues consumers may face and whether, and how, regulation needs to be applied to mitigate them."

Vodafone Australia welcomed the news of a USO review, saying it was "long overdue".

"We are delighted the government has formally acknowledged the current USO arrangements need a robust and rational review," Vodafone chief strategy officer Dan Lloyd said.

"In the digital age, the USO is largely the equivalent of a horse-drawn carriage. Many elements of the USO are not only obsolete, but distort competition, restrict innovation, and subsidise the incumbent player at the expense of consumers.

"Vodafone has long advocated changes to the USO, which hands AU$253 million to one player each year to maintain an outdated copper network in regional areas which will be connected to the NBN.

"We agree strongly with the Regional Telecommunications Report's findings that a substantial part of USO funding would be better spent on modern telecommunications technology, such as mobile, and that increased telecommunications competition is needed in regional and rural areas."

A report last week by Infrastructure Australia similarly recommended that the USO be redirected from fixed-line services to mobile.

"Diverting funding to provide better mobile coverage in the regions will support greater use of new technologies that rely on smartphones. This could involve introducing a technology-neutral USO to support mobile services, in conjunction with existing programs," the Infrastructure Australia report said.

"A major barrier to increased coverage in regional areas is the cost of fixed-line transmission -- otherwise known as backhaul."

To achieve this, NBN should work with the federal government and the business community to create a framework for low-cost backhaul, Infrastructure Australia said.

Telstra, however, argued that an overhaul of the USO would "undermine the strong investment incentives delivered by the highly competitive mobile and backhaul markets".

While the government said it is "premature" to determine funding and regulatory arrangements for the telco retail industry now, it has asked the Productivity Commission to review this, and will also consider advice from the Bureau of Communications Research (BCR) on the non-commercial losses predicted from constructing and operating NBN satellite and fixed-wireless services.

In relation to NBN's satellite and fixed-wireless services, the regional communications report had recommended that the fixed-line footprint be expanded and satellite services made less restrictive in terms of data caps. The government pointed out that it has already addressed this.

In December, NBN announced an increase in data allowances for customers on its satellite service, upping its offering to 150GB per month plus 50GB extra for distance education students, having freed up satellite capacity by moving 40,000 premises to its fixed-wireless or fixed-line networks.

The government added that NBN is finalising an "improved" fair use policy for satellite customers; researching content caching management solutions; and looking into allowing distance education users to use a second port with a separate data allowance.

NBN launched the first of its two AU$620 million Ka-band satellites in October, with commercial services to launch in April. The second satellite is planned for launch later in 2016.

The two new satellites will enable high-speed broadband access for remote areas and will replace the interim satellite service, which has seen so many sign-ups that broadband speeds for satellite customers slowed to a crawl.

The new satellite service will cap each IP address' usage to prevent capacity being outstripped by demand again.

"We will institute a new stringent fair use policy to ensure a minority of very heavy users cannot crowd out the majority," Communications Minister cum Prime Minister Malcolm Turnbull said in March last year.

Deena Shiff, director of the Regional Telecommunications Independent Review Committee, argued last year that it is unfair to criticise heavy users of satellite services, as it is their only link to broadband, while those living in urban areas can spread their usage over several plans and internet access points.

"A satellite user is going to be paying a lot more. In practice, where there's choice of offerings, clearly, you will shop around for the best offer and you will optimise your usage between Wi-Fi, VoIP, fixed, and mobile. And that opportunity simply doesn't exist for a lot of regional users," she said.

"When people talk about data hogs on satellite, it's a bit offensive because they rely so much on communications for their basic needs, and also their business use and their consumer use within a homestead is really sitting within the one plan, so they tend naturally to be above the average users."

Given that satellite is a finite service, the fair use policy is necessary, NBN has argued. Once the policy is combined with the data-usage notifications that RSPs are required to give customers under the Telecommunications Consumer Protections Code, the government said service shaping over satellite will be reduced.

Also on the topic of the NBN, the report recommended that the project's infrastructure ought to be better leveraged; the government said it is already doing so through implementation of the mobile blackspots program.

"It is the government's policy under the Mobile Black Spot Programme to encourage carriers to consider co-location of infrastructure on NBN fixed-wireless towers," the government explained in its response on Tuesday.

"The cost of delivering improved mobile coverage can be reduced by co-locating mobile antenna equipment on existing NBN infrastructure, and mobile network operators have proposed a number of co-location sites for the rollout of Round 1 of the program."

The first round of mobile blackspot funding was opened in December 2014, with Telstra and Vodafone securing AU$185 million in government funding to build or upgrade 499 mobile towers across Australia.

In total, Telstra will build out 429 cell towers, while Vodafone builds out 70, with the full rollout to be completed within three years.

The government announced the second round of its mobile blackspot program in early December, providing a further AU$60 million to bring better telecommunications coverage to regional areas.

In addition to this, NBN is formulating a cell site access product that will also leverage its infrastructure.

"This product is designed to operate wherever the NBN has a fibre footprint using a dedicated fibre link taking mobile (voice and data) traffic from the mobile operator's tower back to the related NBN Point of Interconnect, where it can connect with the mobile operators' backhaul services," the report says.

The review had also suggested that NBN and the Department of Communications provide more information on the technologies being used and timing of the rollout locations. The government countered that its three-year corporate plan already does so to a sufficient degree.

The Coalition's so-called multi-technology mix NBN aims to cover 20 percent of the Australian population with fibre to the premises (FttP); 38 percent with fibre to the node (FttN), fibre to the building (FttB), or fibre to the distribution point (FttDP); 34 percent with hybrid fibre-coaxial (HFC); 5 percent with fixed wireless; and 3 percent with satellite services.

According to NBN's construction plan, HFC will be delivered to approximately 3 million premises and fixed wireless to more than 540,000 premises, while it expects around 200,000 to 250,000 premises to be connected by satellite services.

However, the company has so far refused to break down its FttN, FttB, FttP, and FttDP numbers within the specified 5.6 million premises to be connected via one of these technologies.

"To disaggregate these would reveal NBN's strategic business direction to potential infrastructure competitors, and are therefore commercial in confidence," the company said during Senate Estimates in response to questions asked by former Communications Minister Stephen Conroy and Labor Senator Anne Urquhart.

The government also said the recommendation for more benchmark data on the availability and affordability of broadband data and voice services had already been answered by the establishment of the BCR.

The BCR last month launched a Data Lab presenting statistics on the uptake and usage of internet services in Australia as well as a semi-frequent podcast, aiming to bring information on policy and activities to a greater number of people.

The website includes graphs and charts on household communications expenditure between June 1995 and June 2015; key economic indicators for the communications sector; numbers of fixed and wireless subscriptions over the last five years; internet subscribers by advertised download speeds over the last five years; the volume of data downloaded between June 2010 and June 2015; the percentage of people country-by-country using the internet over the last decade; the 2015 Top 10 ICT Development Index countries; and the demographic profile of online copyright infringers and non-infringers.

Lastly, while the committee recommended that public safety agency networks be upgraded, the government said this was already addressed by a research report published last month.

The Australian government released its report into allocating spectrum to law-enforcement and emergency services in January, recommending that public safety agencies use commercial networks and spectrum without government intervention.

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