USO should be wound up by 2020: Productivity Commission

The ubiquity of mobile and NBN coverage, and the lack of a systemic affordability problem means the USO is no longer required and should be dumped by 2020, the Productivity Commission has recommended.
Written by Corinne Reichert, Contributor

The Australian government's estimated telecommunications spending

The telecommunications Universal Service Obligation (USO) should be wound up by 2020, as it is no longer necessary thanks to the ubiquity and falling costs of mobile and fixed-line broadband services, according to the Productivity Commission's final report.

The Telecommunications Universal Service Obligation Productivity Commission Inquiry Report [PDF], tabled by the Australian government on Monday, called the current USO "anachronistic and costly", and recommended that the government wind it up by 2020 given 99 percent of the population has access to mobile broadband, and 100 percent will be covered by the National Broadband Network (NBN) by then.

"For the vast majority (more than 99 percent) of premises, the combination of the NBN and mobile networks is likely to meet or exceed minimum standards for universal service delivery. As such, the TUSO is no longer needed," the commission stated.

"The Australian government should wind up the telecommunications universal service obligation by 2020 ... the fundamental roadblock posed by the opaque contract with Telstra, and the surrounding legislative architecture, should be addressed promptly and systematically."

The 20-year USO contract -- which mandates Telstra as the fixed-line phone service provider of last resort, giving the telco hundreds of millions of dollars each year for the installation and maintenance of fixed-line services -- is facing government reform thanks to the Regional Telecommunications Independent Review.

Signed by the Labor government back in 2012, the USO currently costs the government around AU$100 million per year, with AU$200 million funded via a levy on telcos.

In total, the Productivity Commission estimated that the government is spending AU$1 billion annually on universal telecommunications, not including the NBN: AU$611 million on telephone allowance; AU$253 million on the standard telephone service USO; AU$48 million on the mobile blackspots program; AU$44 million on the payphone USO; AU$29 million on programs to support digital inclusion; AU$22 million on the emergency call service; AU$22 million on the national relay service; AU$17 million on voice-only customer migration; and AU$5 million on remote Indigenous telecommunications programs.

The commission also "tenatively" estimated that the USO involves an annual subsidy of standard telephone services of between AU$250 and AU$2,800 per standard telephone USO service, and between AU$2,600 and AU$50,000 per payphone USO service.

With the removal of the USO, "targeted intervention" from the government should occur in any areas that do not have sufficient mobile coverage and are reliant on NBN's oft-criticised satellite service -- amounting to around 90,000 premises -- with the commission recommending that mobile operators work with the Australian Communications and Media Authority (ACMA) to identify these.

The commission recommended that to address such market gaps, the government should use competitive tendering to deliver targeted baseline voice USO services in an independent, transparent, and technologically neutral process.

The government should also establish a funding program with competitive tendering for community telecommunications projects possibly using payphones, mobile charging stations, or public Wi-Fi, the commission recommended.

"Programs to address these gaps should be flexible, allow for community input, and facilitate informed consumer choice," the commission said, adding that they ought to be funded from general government revenue -- meaning the "ultimate removal" of a telco industry levy -- with NBN to provide the government with information on what cost USO reform could potentially have on it.

In order to utilise the NBN and mobile networks for the majority of premises, the commission said the ACMA should be tasked with requiring NBN to publicly report regularly on the reliability of its networks and access technologies.

To this end, the role of NBN must be clearly defined through legislation; the government should monitor retail presence on the NBN and contract via competitive tender one or more RSPs to service any geographic areas where it is lacking; the NBN Act should be amended to ensure that the Productivity Commission's review occurs regardless of whether it is privatised; and an independent evaluation of the mobile blackspots program should be commissioned by the government prior to the third funding round.

In transitioning to the new arrangements, the government should commence negotiations with Telstra in order to terminate the standard telephone service USO and payphone USO contracts, as well as amending the Telecommunications (Consumer Protection and Service Standards) Act and related legislation to ensure Telstra's statutory USO obligations are also terminated.

Following this, the government should assess its data requirements for future payphone and standard telephone service USOs, with the ACMA and the Australian Competition and Consumer Commission (ACCC) to gather any necessary information from Telstra.

By mid-2018, the federal government should consult with state and territory governments on a "stocktake" of all telco programs to improve cost efficiency, as well as collaborating on an audit of all existing telco infrastructure such as fibre networks in order to use and expand these.

The Regional Telecommunications Review should be delayed from its 2018 due date until the NBN rollout has been completed, but the government should "proceed with its foreshadowed review of the telecommunications consumer safeguards framework once technical baseline standards are defined", according to the recommendations.

Overall, the government should update its USO objective and baseline to include reliable, intelligible, and technologically neutral broadband and voice services at all premises to be applied once the NBN rollout is complete, the commission said, adding that the ACMA should also review and adjust this baseline regularly.

Calling the USO review "long overdue", Communications Minister Mitch Fifield said the Department of Communications has established a USO Taskforce to look into the commission's recommendations.

"Targeted consultation will be undertaken over coming months to inform the government's response," Fifield said.

"Any changes to the USO regulatory environment and contractual arrangements will be implemented in a constructive, careful, and considered manner, and will be mindful of the particular needs of regional and remote communities, industry, and other stakeholders.

Fifield said that government would be introducing a statutory infrastructure provider obligation on NBN through legislation, and will establish a Regional Broadband Scheme to help fund NBN's fixed-wireless and satellite networks.

The Productivity Commission had in December produced its draft report, which stated that the USO should be phased out as the government's 20-year contract with Telstra lacked accountability.

"Telstra is not required to report on the number of non-commercial services or on the costs of any telephone service it supplies," the report said.

"Effectively, every fixed-line customer of Telstra is treated as a telecommunications USO customer, irrespective of whether the service is commercial or not."

This followed the government releasing a terms of reference statement detailing the process by which the funding and regulatory arrangements for the USO will be reviewed in April 2016, with an issues paper published by the Productivity Commission a year ago.

Telstra had said in October that there was "absolutely no chance" the government would remove the USO at the conclusion of its review.

"While it is easy to ... pontificate about alternative network solutions and contestability, the reality is that many people in the bush still want guaranteed access to a fixed landline," Telstra group director of Corporate Affairs Tony Warren said at the time.

"With the composition of the current federal Parliament, I see absolutely no chance at all that the government will remove the USO any time soon."

Rival telco Vodafone Australia has been calling for an end to the USO for years, saying the AU$300 million in government and industry funding should instead be spent on such initiatives as the mobile blackspot program.

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