Telcos saved from USO levy increases

The Federal Government has agreed to cover the additional costs of amended universal service agreements with Telstra for at least two years, temporarily allaying concerns that telcos could be slugged with higher industry levies to fund the difference.

Under the $2 billion in contracts signed with Telstra this week, the Government agreed to pay the telco $290 million annually for 20 years to continue providing standard telephone, payphone and emergency phone services.

The Government will establish and fund a new USO body, the Telecommunications Universal Service Management Authority (TUSMA) - previously called USO Co.

A chief executive and advisory board would be appointed, with reporting lines directly to the communications minister.

When first announced, the Government committed $50 million in funding to TUSMA for each of its first two years and $100 million a year in ongoing funding, with additional costs met through a consolidated industry levy that required all carriers to pay a contribution through the media regulator.

AAPT and Optus were among telcos to rail against the use of a levy last year.

The Communications Alliance also argued against the levy on the basis that high fixed costs would force operators to raise prices.

Conroy confirmed today that the Government would meet the additional USO costs for two years as part of the transition to the new arrangements.

He did not provide a guarantee beyond that.

"This is so contributors to the industry levy, except Telstra, will not face an increase on the aggregate funding of the contribution," he said.

Any changes to additional funding would be reviewed during the first two years of TUSMA's operation, according to Conroy's office.

Carriers had paid a total $160 million in the 2007-08 financial year to fulfil universal service and national relay service obligations.

An independent assessor estimated the cost of meeting the USO and payphone services was between $250 million and $310 million during 2009-10 financial year, potentially leaving a gap of $100 million or more between the industry levy and interim TUSMA funding to meet Telstra's obligations.

It was unclear if levy contributions would change significantly in coming years, as the Government had in May proposed to exempt carriers with annual revenue of less than $25 million - the vast majority of the industry - from making them.

TUSMA money

Funding for TUSMA would also be used toward researching migration of "public interest" services such as traffic lights and public alarms to the fibre network.

This would likely include consultation with Telstra and third parties to develop requisite technologies.

Despite the binding 20-year contract, a review of the USO scheduled for 2018 also included provisions for the USO to potentially be taken up by a carrier other than Telstra.