Back in 2012, Telstra entered into an agreement with the Commonwealth to provide all Australians with payphones and reasonable access to standard telephone services on an equitable basis. The $300 million a year contract was meant to last for 20 years, but its validity and justification came into question in 2016 thanks to the Productivity Commission review. The Commission recommended that the contract should end in 2020 after the National Broadband Network (NBN) completes the connection of all Australian households.
Telstra’s contract was based on the provisions of the Universal Service Obligation (USO). The government is looking to replace the USO agreement with the Universal Service Guarantee (USG) which tasks all commercial network providers to give Australians access to broadband and voice services.
What is the USO Agreement
Vested in the Department of Communications and the Arts, the USO is a consumer protection scheme that ensures every Australian has access to a payphone and landline telephone irrespective of where they work or live. Telstra, is the telco that was given the responsibility of delivering the USO in 2012 under the Telecommunications Universal Services Management Agency (TUSMA) agreement. In 2014, the TUSMA agreement was renegotiated and some minor changes made which saw it renamed to Telstra USO Performance Agreement (TUSOPA).
In terms of customer service obligations, TUSOPA largely operates in parallel with the statutory-based USO regime which is managed by the Australian Communications and Media Authority. However, there are some additional obligations Telstra is expected to execute under TUSOPA. Some of these include maintaining the legacy copper wire network for regions lying outside the NBN fixed line coverage and playing the role of provider of last resort for standard telephone services using the NBN infrastructure.
Telstra receives a payment of $253 million annually to deliver standard telephone services and an additional $44 million to maintain approximately16,800 payphones each year. In the financial year 2015/16, the telco received $100 million as part of government contribution and $218 million industry levy, $142 million of which was its contribution.
The Productivity Commission Recommendation
The Productivity Commission which is the principal review and advisory body for the Australian government, undertook a 12-month review of the telecommunications Universal Service Obligation. The report which was publicly released on June 19, 2017 recommends among other things that USO be wound up by 2020 because it’s anachronistic and unnecessarily costly.
The review cited the transformation that rapid developments in telecommunications and technology has brought all across Australia. This transformation has placed a huge demand for ubiquitous digital connectivity which calls for policy reform including revising TUSOPA.
Over 99% of Australians have access to mobile telephony and by 2020, all households will have access to the NBN infrastructure which gives high speed voice-capable broadband services. This calls for a reframing of the USO objectives to factor in the emerging realities.
On December 20, 2017, the Australian government gave a response to the USO review report handed over to it by the Productivity Commission on April 28, 2017. Delivered by the minister for communications, the response pointed out the resolve by the Turnbull Government to replace USO with USG.
The Structure of the USG and Its New Mandate
The USG will continue to promote access to payphones and voice services in areas with specific needs such as remote Australia and communities that have no mobile coverage. The following are some of the requirements USG is expected to fulfill.
- Availability of broadband services to all Australian premises on request by 2020 when NBN completes its rollout.
- Availability on request of voice services to 100% of Australian premises.
- Any other proposed service delivery arrangements considered to be relatively cost effective compared to the existing USO contract.
Until these requirements are met, the government will leave the existing USO unchanged. Even after the USG comes into operation, the government will still keep Telstra as a provider for the existing USO services where and when it is appropriate.
According to Telstra, there are more than 600,000 homes, businesses, farms, and indigenous communities in Australia where the delivery of communication services cannot be purely on a commercial basis as suggested by the USG. Despite the fact that Telstra stands to lose close to $300 million in annual revenue, it supports the review and promises to work with both the government and regional stakeholders in enhancing network investments across Australia.
Other telcos including Optus and Vodafone also welcomed the USG proposition and the recommendations of the Productivity Commission saying its time to reform the USO.