Productivity Commission seeks input on regional telecoms subsidy

PC releases issues paper on USO’s future

The Productivity Commission (PC) has begun seeking input on the future of the Universal Service Obligation (USO): A subsidy intended to ensure that Australians in remote areas have access to a basic landline telephone service (a Standard Telephone Service, or STS) and payphones.

The USO is jointly funded by government and an industry levy, with Telstra, which delivers the USO under contract with the government, receiving around $300 million a year.

The USO has been a continuing source of frustration for Telstra’s rivals. Optus last year estimated Telstra had received “subsidies from industry under the USO arrangements that total some $882 Million since 1997”.

Vodafone has condemned the USO as “hugely inefficient” and “obsolete”, particularly given the popularity of mobile phones and the ongoing rollout of the NBN (the telco has pointed to mobile black spot funding as an example of a program that can address the telecommunications needs of rural Australia).

The current USO contract kicked in on 1 July 2012 and involves Telstra delivering the STS until 1 July 2032.

Last year the government’s Regional Telecommunications Review found that the STS is “of rapidly declining relevance”.

“Within the next few years the majority of consumers, and notably those in regional Australia, will not be using voice calls over the PSTN [public switched telephone network], but will be using mobiles, Voice over Internet Protocol (VoIP) and other social media applications, as their primary communication method,” the report stated.

The cost effectiveness of the USO agreement is “questionable” and the current arrangements fail “to target the areas of greatest need or deal adequately with inequality of outcomes in regional Australia”.

The Australian Infrastructure Plan, released in February, argued that the government should look at phasing out the USO.

“[T]he relevance of fixed-telephone services – and this obligation – is declining,” it stated.

“Fixed-line services are gradually becoming redundant. More people are choosing to forego fixed voice services and rely on mobile services alone.”

Treasurer Scott Morrison in April referred the issue of the USO to the PC, with the commission to assess the effectiveness of the current scheme and potential alternatives.

The PC today released an issues paper on the USO and is seeking public input until 21 July.

“The Commission will consider the nature, scope and objectives of a USO, and whether the retail market for relevant services will deliver reasonable outcomes for consumers in the absence of government intervention,” the issues paper states.

“Where reasonable market outcomes are unlikely, the Commission will consider options for government to deliver universal services and the costs and benefits of these interventions from a community-wide perspective.”

The PC's inquiry is due to report by 28 April 2017.