Government to can landline subsidy scheme

The federal government has acknowledged that the Universal Service Obligation (USO) scheme, which guarantees all Australians have access to standard landline telephone services and payphones, is “increasingly outdated”.

The USO was subject to a Productivity Commission inquiry that concluded the scheme was “anachronistic and needs to change” because of the increasing use mobile and online communications and should be wound up by 2020, when the NBN rollout is scheduled to be completed.

The government revealed today in its response to the inquiry that will move to replace the USO with a Universal Service Guarantee (USG).

The USG “will provide all Australian premises, regardless of their location, with access to both voice and broadband services delivered on a commercial basis by the market in the first instance, and where this cannot be achieved, options will be developed for targeted Government measures,” a statement issued by the federal government said.

“A Universal Service Guarantee will also ensure access to payphones or equivalent community voice services in targeted areas with specific needs, for example in communities with no mobile coverage or in remote Australia.”

The USO is currently delivered through a government contract with Telstra. The scheme has been a sore point among the telcos’ rivals, who see it as an unfair and archaic subsidy.

Under the 20-year USO contract signed in 2012, Telstra receives close to $300 million a year. A report released earlier this year by the Australian National Audit Office (ANAO) concluded that key aspects of the contract “do not reflect value for money principles.”

“In particular, the contract’s term of 20 years with a fixed annual fee based on 2009–10 costs does not reflect the demonstrated decline in demand for standard telephone and payphone services over the relevant period,” the ANAO report stated.

The government said today that when developing a USG scheme, it would consider a number of issues including how to provide voice services to households located within NBN’s satellite footprint. NBN’s satellite broadband service is not considered appropriate for voice services due to latency.

The government said it would also assess the potential impact of a USG on NBN’s costs — a source of concern to NBN — as well as whether Telstra should cut the number of payphones currently delivered under the USO.

The government said that the new USG arrangements, including transitional costs, would need to be more cost effective than the USO.

“The Government currently contracts with Telstra to provide the USO until 2032. As new arrangements are developed for the Universal Service Guarantee, the Government will engage with Telstra regarding the provision of the existing USO services,” the government said.

“The Government has now commenced work on cost and delivery options to provide for a future Universal Service Guarantee, and will work with industry stakeholders and representatives of regional and remote Australia in this effort. Further updates will be provided in 2018.”

The move to replace the USO was applauded by Vodafone, which has been a vocal critic of the scheme.

“We congratulate the federal government for finally handing a death sentence to the outdated and anti-competitive USO,” said the telco’s chief strategy officer, Dan Lloyd.

“It is encouraging that steps are being taken to move towards a fair universal service model to deliver the telecommunications services regional Australia wants, needs and deserves.

“We are keen to work with the government on competitive options to provide reliable voice services throughout the NBN satellite footprint.”

However, the telco said that it was concerned that Telstra would continue to receive funds under the USO arrangements while the NBN rollout continued.

“We are very concerned that Telstra will continue to receive nearly $1 million per day for another three years,” Lloyd said.

“Government figures show that Telstra has already shut down around half of the copper and payphone services it is supposed to maintain under the USO.

“Based on those figures, that’s effectively close to half a billion dollars in taxpayer and industry funding Telstra should be paying back.”

Optus’ vice president of regulatory and public affairs, Andrew Sheridan, welcomed the announcement of the new USG scheme.

“We recognise the importance of a safeguard that ensures all Australians have access to voice and broadband services, regardless of where they live,” Sheridan said.

“However, as today’s announcement recognises there is a clear opportunity to develop a more targeted scheme that is better suited to today’s dynamic digital environment.”

“We also look forward to working with government on a modern Universal Service Guarantee that can better meet consumer needs where commercial solutions are not available,” he added.

Telstra has been approached for comment.