The Government’s Productivity Commission has said that the telecommunications universal service obligation (TUSO) is “deficient” and should be wound up by 2020.
The TUSO funding arrangement, which was introduced in the 1990s, sees Telstra receive a combined total of around $297 million worth of subsidies per year, from both public and private funding, to maintain fixed line voice services and public payphones.
Reinforcing its draft report published on 6 December, the Government’s Productivity Commission - an independent Commonwealth agency – said in its final report, dated 28 April and released publicly on 19 June, that the arrangement is out of date and needs to be scrapped.
“In addition to its declining relevance, the telecommunications universal service obligation (TUSO) has serious deficiencies,” the Productivity Commission said. “It is a blunt instrument with a one size fits all approach to universal service provision.
“Telstra’s contractual obligations under the agreement with the Australian Government lack transparency and accountability. The basis for its funding (a total of around $3 billion in net present value terms over 20 years to 2032) is unclear and disputed,” it said.
Further, the Productivity Commission asserted that the TUSO does not harness solutions that could be more cost effective in meeting genuine community needs and expectations.
As a non-contestable obligation upon one provider and partly funded by other providers, it effectively stymies competition, the Commission said.
At the same time, the Australian Government “did not demand transparency and accountability of Telstra” when it imposed the arrangement.
“It is evident that Telstra’s active fixed retail voice services have declined from over 8 million to under 6 million services in the past decade,” the Commission stated. “The proportion of these services that could be considered non-commercial is unknown.
Meanwhile, the Productivity Commission recommended that the Australian Government should, in consultation with state and territory governments, conduct a stocktake by mid-2018 of all telecommunications programs that share universal service objectives, with the aim of rationalising such programs and improving their efficacy and cost effectiveness.
“The Australian Government should also work with State and Territory Governments to audit existing telecommunications infrastructure — including fibre networks — with a view to using and expanding these networks efficiently,” the Commission said.
As a replacement for the standard telephone service USO, the Commission recommended that the Australian Government should introduce a competitive tendering arrangement for the delivery of baseline voice services where, within the National Broadband Network (NBN) satellite footprint there is inadequate mobile coverage, and it is feasible to do so.
As a replacement for the payphones USO, the Commission said, the Australian Government should establish a funding program for a form of community telecommunications, which may involve payphones, that targets communities in areas where there is a market gap.
The Australian Government should also re-frame the objective for universal telecommunications services to provide "baseline" broadband and voice services to all premises in Australia, having regard to the accessibility and affordability of these services, once NBN infrastructure is fully rolled out, the Commission recommended.
Further, the Commission suggested that, to contain costs to the broader community, this baseline should be set to meet the basic needs of most Australians in the majority of circumstances.
The Australian Government should also task the Australian Communications and Media Authority (ACMA) to require the company behind the NBN, nbn, to report regularly and publicly on the reliability of its networks, the Commission recommended.
It is understood that Telstra could see billions of dollars in federal funding dry up if the Productivity Commission’s recommendations are taken on board.
The USO contract Telstra currently has with the government was signed in 2011, and is costed at $3 billion in net present value terms over 20 years from its commencement in 2012.
Of the estimated $297 million combined total in subsidies Telstra receives per year, the government provides about $100 million, and the rest comes from an industry levy, of which Telstra itself also contributes.
Telstra receives $44 million from the government annually to maintain around 17,500 public payphones under the arrangement.
However, it is also the largest single contributor of funding to the USO, with an annual contribution of around $140 million.