Govt moves to phase out Telstra phone subsidy

Govt moves to phase out Telstra phone subsidy

The USO will be replaced with a market-based Universal Service Guarantee

The Federal Government has revealed plans to scrap the Universal Service Obligation (USO) contract arrangement it has with Telstra once the National Broadband Network (NBN) rollout wraps up in 2020.

The Government said it would instead implement a new, market-based Universal Service Guarantee (USG), aimed at ensuring all Australians have access to voice and broadband services, regardless of where they live.

The move comes roughly 12 months after the Government’s Productivity Commission inquiry into the USO found the existing contract with Telstra to be “anachronistic and costly” and should be “replaced by a new framework to reflect changing policy, market and technological realities”.

The USO is one of several government policies used to meet universal service objectives nationally.

As part of the development of the new USG, the Government said it is committed to voice telephony services via its existing USO contract with Telstra until it is replaced with the new USG, which is reliant on the completion of the NBN.

“The Government currently contracts with Telstra to provide the USO until 2032. As new arrangements are developed for the Universal Service Guarantee, the Government will engage with Telstra regarding the provision of the existing USO services,” the Government’s response to the Productivity Commission’s recommendations stated.

Before any changes are made, the USG will need to meet a number of requirements. These include the provision that broadband services are available to 100 per cent of Australian premises, on request, at the completion of the NBN rollout in 2020.

The USG will also be dependent on whether voice services are available to 100 per cent of Australian premises on request. It will also require any proposed new service delivery arrangements to be more cost effective than the existing USO contract, including any transitional costs.

"In line with the PC’s [Productivity Commission's] report, the Government will commence work to establish a future Universal Service Guarantee," the Government's response to the recommendation stated. 

"A Universal Service Guarantee will provide all Australian premises, regardless of their location, with access to both voice and broadband services delivered on a commercial basis by the market in the first instance, and where this cannot be achieved, options will be developed for targeted Government measures," it said

A statement from the office of the Minister for Communications, Mitch Fifield, said that the Government has now commenced work on cost and delivery options to provide for a future Universal Service Guarantee, and will consider the future allocation of the $100 million in annual funding it currently pays into the existing USO contract as part of any change to existing USO arrangements.

When the Productivity Commission released its final recommendations in June last year, it noted that the basis for the Government’s funding for Telstra under the existing USO came to a total of around $3 billion in net present value terms over 20 years to 2032.

It also noted that Telstra’s contractual obligations under the agreement with the Australian Government “lack transparency and accountability”.

The 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.

The Government provides about $100 million of Telstra’s subsidy annually – funding that Telstra could see dry up as the USO is phased out – with the rest coming from an industry levy. However, Telstra appears to be supportive of the move.

"As technology advances, and with the rollout of the National Broadband Network, it makes sense to look at the best way of ensuring people remain connected in the future, in the most efficient way," a Telstra spokesperson told ARN.

"We are supportive of a review and the intent to ultimately create a Universal Service Guarantee (USG), once the NBN is fully rolled out and available to 100 per cent of Australian premises. We agree that voice services must also be available to 100 per cent of premises on request.

"We are open to working with government and regional stakeholders on the reform process. We are also open to redirecting our USO contribution into our ongoing network investment to improve services in regional Australia," the spokesperson said.

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Tags NBNTelstraTelconational broadband networktelecommunciationsUSO


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