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PC News - August 2017

The Telecommunications Universal Service Obligation

The Commission’s inquiry into the telecommunications universal service obligation (TUSO) found that the TUSO is no longer fit for purpose. Given technological and market developments the Government’s policy objective should be revised.

Market gaps and particular user needs should be addressed via the National Broadband Network and mobile infrastructure instead of the provision of fixed line services.

What is the TUSO?

The TUSO was introduced in the 1990s to provide all Australians with ‘reasonable’ and ‘equitable’ access to a premises-based telephone service and payphones. At the time, telecommunications centred on basic telephones and the sector was being deregulated.

The Australian Government entered into a 20-year contract (concluding in 2032) with Telstra to deliver the TUSO. Under the contract, worth $3 billion in net present value terms, Telstra receives around $300 million annually from the Government ($100 million) and industry ($200 million).

The TUSO has problems and is past its use-by date

Today, consumers are shifting from fixed-voice telephony – the key focus of the TUSO – to mobile services and broadband data use. Service providers are also increasingly providing telecommunications for all media (data, video and voice) simultaneously. These changes are making payphones redundant.

The TUSO takes a one-size-fits all approach with no contestability in universal service provision, making it out-of-sync with technological and market developments.

Telstra’s contract also suffers from a lack of transparency and accountability. As a consequence, the basis for TUSO funding remains unclear and disputed.

Even so, consumers in regional and remote Australia with no access to mobile services see their landline or an equivalent service as critical, particularly in times of emergency. But the weight of evidence suggests that TUSO costs are likely to be greater than its benefits.

A new universal service objective…

The objective of a universal telecommunications service needs to be modernised – to provide all premises a baseline broadband and voice service that is sufficiently accessible and affordable. Technical baseline standards should be set to meet the basic needs of most Australians.

To do so, the complex mix of regulatory and contractual settings governing voice and broadband service quality needs to be streamlined.

For wholesale providers, baseline standards could be specified under the Government’s proposed legislation that aims to guarantee access to wholesale broadband infrastructure and services. At the retail level, the Government could modify existing consumer protection codes to implement retail baseline standards that complement these wholesale standards.

…will largely be met by the NBN and mobile infrastructure…

The sizable public investment in NBN infrastructure will provide high-speed (voice-capable) broadband to all premises (on request) across Australia by 2020 – of a better quality, for the most part, than what has been available.

Australians are also well served by mobile networks, with over 99 per cent of people having access to mobile services (and to a slightly lesser extent, broadband) where they live.

Increasingly, broadband will be the main medium for voice services. For the vast majority (more than 99 per cent) of premises, having both the NBN and mobile networks is likely to meet or exceed minimum standards. Given these considerations, the TUSO should be wound up following the full rollout of the NBN (expected to be in 2020).

… with targeted intervention to address market gaps and particular user needs

Targeted intervention will better address remaining market gaps in telecommunications availability, accessibility and affordability. The Commission estimates that up to 90 000 premises within the NBN satellite footprint will have inadequate mobile coverage.

And groups including people with disability, people in remote Indigenous communities, some older people, and people who are homeless are also likely to have particular user needs. Programs to address these gaps should be flexible, allow for community input and facilitate informed consumer choice.

Their costings should be transparent and subject to competitive tendering where this is possible.

Despite increasing affordability of telecommunications, some people on low incomes may find it difficult to afford these services without targeted government support. Where required, this could be provided through the existing transfer system.

Key trends in the Australian telecommunications sector

  • A shift from fixed to mobile services. This figure shows the number of annual voice call minutes made from fixed and mobile services from June 2005 to June 2016.
  • Payphones increasingly redundant. This figure shows the number of payphones by provider and the number of calls placed at Telstra payphones from June 2004 to June 2016.
  • Exponential growth in data usage. This figure shows the number of payphones by provider and the number of calls placed at Telstra payphones from June 2004 to June 2016.
  • Becoming relatively more affordable. This figure shows real price indexes of key services including telecommunications from 2006 to 2016.

    Data sources: see Productivity Commission 2017, Telecommunications Universal Service Obligation

Summary of the Commission’s key recommendations*

  • A new policy objective with a baseline (minimum standard)

    The Government should wind up the TUSO by 2020, in time for the full NBN rollout. It should then focus
    on meeting a modernised policy objective – to provide all premises a baseline broadband and voice service that is sufficiently accessible and affordable. But developing a technical baseline will need more work.

  • Identifying gaps outside of what the market delivers

    To identify any remaining gaps around what the market delivers, regulators should work with mobile network operators to identify where coverage is inadequate in the most remote NBN ‘satellite footprint’. nbn (the Government company delivering NBN infrastructure) should also report on its network reliability.

  • A targeted approach to addressing these gaps

    Any remaining gaps in availability, accessibility and affordability of voice and broadband are likely to be small. The Government should design targeted programs rather than a universal service obligation to address these gaps. The programs should be funded from government revenue, meaning the current industry levy can ultimately be removed.

    The Government should also collect data from Telstra and NBN to build a robust evidence base for
    negotiating transparent and coherent policies.

    * A complete list of the Commission’s findings and recommendations is available in the final report overview.

Telecommunications Universal Service Obligation

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