Dump Telstra's USO: Productivity Commission

Telstra could lose billions in government payments if Canberra decides to back a Productivity Commission recommendation to scrap the universal service obligation (USO).

The commission today released its draft report [pdf] on the USO, following an eight-month inquiry into the requirement that Telstra provide all Australians a basic telecommunications service.

Telstra is subsidised to the tune of $297 million a year to provide the service. The federal government pays $100 million towards the subsidy, and rival telcos are required to pay the remaining $197 million as an industry levy. 

Telstra's current USO contract, signed in 2011, runs for 20 years. Alongside supplying fixed-line voice services, the arrangement requires Telstra to maintain around 17,500 payphones.

But the Productivity Commission has labelled the scheme "anachronistic" and said it would become mostly redundant once the NBN is fully rolled out.

It also criticised Telstra's contractual USO obligations as lacking transparency and accountability, arguing the basis for the funding was "unclear and disputed".

It was only able to estimate the cost of supplying a fixed-line voice service under the USO at between $250 and $2800, and payphones at between $2500 and $50,000 per phone per year.

"In an age where basic phones and payphones are rapidly becoming outdated, the lack of transparency and accountability makes the continuation of current arrangements difficult to justify from the point of view of those who contribute to its funding," the draft report states.

The commission said the NBN could provide a baseline broadband and internet-based voice service to all Australian premises once the project is complete.

In areas where the NBN may be inadequate - like in the satellite footprint - "specific social programs" would be more effective than "large-scale government interventions" like the USO, it said.

"Even though universal access to a minimum level of telecommunications services remains important, the weight of evidence suggests that the [USO] is no longer fit for purpose," the Productivity Commission said.

"These arrangements no longer serve the best interests of the Australian community.

"The commission therefore recommends that the [USO] be phased out as soon as practicable."

The recommendation will be music to the ears of other telcos, who have long complained about being forced to subsidise the USO and 'contribute to Telstra's profits'.

Optus and Vodafone have argued that the scheme is wasteful duplication alongside the NBN, and that Telstra is being overpaid for the service.

Earlier this year Infrastructure Australia said USO funding should be moved away from fixed-line to mobile services, and the government's own regional telecommunications review suggested the USO be replaced with a new consumer communications standard.

"Basically, Telstra – the most profitable telco in the developed world – gets a big, fat cheque from competitors every year, no questions asked, and no one can account for either how it is spent or why it is needed," Macquarie Telecom spokesperson Matt Healy said today.

“Competitors and consumers have a right to be disgusted they continue to fund a program so irresponsibly designed and managed that no government could possibly defend it."