Government inquiry to consider scrapping Telstra’s USO

The federal government has asked the Productivity Commission to examine options for overhauling the universal service obligation (USO), including potentially eliminating the subsidy altogether.

The USO currently requires Telstra to provide all Australians a basic telecommunications service, along with access to payphone services, subsidised by the federal government and through a levy on telecommunications providers.

The inquiry’s terms of reference, released today, acknowledge that in the past, ubiquitous fixed-line telephone services have historically been a “fundamental part of Australian society”.

However, a range of factors, including technological innovation, the increased use and sophistication of mobile services, broadband data services (including voice over IP) and the NBN rollout have led to reduced demand for fixed-line voice and payphone services.

Against this backdrop, the Productivity Commission’s inquiry will examine “whether the retail market for relevant services will deliver appropriate outcomes for consumers without government intervention”.

Assuming the commission finds that government policies are still necessary to provide “universal access to a minimum level of retail telecommunications services”, the inquiry will also examine:

• what objectives are appropriate for a USO arrangement or a replacement scheme
• the scope of the services needed to achieve those objectives
• whether additional federal government intervention should be directed towards specific sections of the community, including low income, rural and regional households
• who should bear cost or regulatory burdens from those interventions
• the optimal funding model(s)
• what transitional arrangements from the current USO model are needed.

Any recommendations will also have to consider technological changes, the impact on competition, existing contractual commitments under the USO, approaches taken by other countries, the impact of the NBN, and other government reports.

The final report will be delivered in 12 months following hearings, public submissions, and the release of a draft report.

The inquiry was first flagged in the government’s response to the 2015 regional telecommunications review, which was tabled in parliament in February 2016, and later by Communications Minister Mitch Fifield.

That review highlighted issues such as the importance of mobile service coverage, maximising the benefits from the NBN rollout, and the need to develop consumer safeguards.

Telstra competitor Vodafone has long labelled Telstra's USO subsidy an "unneccessary, wasteful duplication" given NBN's satellite and fixed wireless rollouts. Optus chairman Paul O'Sullivan has also criticised the scheme.

"Vodafone has long advocated for USO reform because we think it’s an enormous missed opportunity that $253 million is spent every year to maintain an antiquated copper network in regional areas which will be connected to the NBN,” Vodafone chief strategy officer Dan Lloyd said.

“If a portion of USO funds was diverted to a permanent Black Spot Programme, as Vodafone and others have suggested, the number of regional areas to receive increased coverage and choice would increase significantly.”