Productivity Commission: Time's up for the Telecommunications Universal Service Obligation - Telecoms, Mobile & Cable Communications

On 6 December 2016, the Productivity Commission (Commission) released a draft report on its ongoing inquiry into the Telecommunications Universal Services Obligation (USO) (Draft Report). The Draft Report seriously questions the utility and suitability of the USO and the contractual arrangements that underpin it. It also calls for comprehensive reforms and a renegotiation of the arrangements with Telstra.

BACKGROUND

The USO was introduced in 1999, when telecommunications services were largely delivered to fixed-voice handsets and calls were made over fixed-line copper connections. It was aimed at ensuring that all people in Australia had 'reasonable access' to standard telephone services (STS) and payphones on an 'equitable' basis, wherever they reside or carry on business. The Telstra USO Performance (TUSOP) Agreement (which commenced in 2012) provides the basis upon which Telstra receives payment for performing the USO. It also includes the arrangements for the migration of customers to the nbn" network.

Nowadays, Australian consumers exhibit a strong desire for constant mobile connectivity and high value is placed by businesses and government on digital data. This is reflected in the significant investment made by the Australian government in the nbn" network, with the expectation that all Australian households and businesses will have access to high-speed broadband by 2020.

THE DRAFT REPORT

The Draft Report identifies the current USO arrangements with Telstra as outdated and potentially anti-competitive. In particular, the Commission notes that "as a non-contestable obligation given to one provider and partly funded by other providers, [the USO] effectively stymies competition".¹ It also recommends that the USO be phased out as soon as practicable for reasons including the lack of transparency and accountability of the current arrangements.

The Draft Report recommends that the Australian government should:

in consultation with state and territory governments, review all telecommunications programs that share universal service objectives to improve their efficacy and cost-effectiveness;
reframe the objective for universal telecommunications services to provide a baseline broadband (including voice) service to all premises in Australia once the nbn" network is rolled out; and
introduce legislation clarifying the role of nbn as a universal service provider of wholesale broadband services.

There is a sound basis for the Commission's progressive recommendations given the rapidly evolving telecommunications market, the structural separation of Telstra and the successful roll out of the nbn" network.

It is clear that Government policy is that there should be widespread access to high-speed broadband services. This is what the nbn" network is planned to provide through the capping of wholesale prices across all technology platforms and locations and nbn's standard access obligations. As a result, the objective of universal service could indeed be reframed to provide a minimum broadband service to Australians once the nbn" network is fully rolled out.

However, as the Commission correctly identifies, this is not without complexity:

Firstly, transitioning to a new framework for universal service is complicated by the current TUSOP Agreement, which will need to be renegotiated if the Draft Report's recommendations are implemented.
Secondly, consideration will need to be given as to whether the USO should only be removed once the nbn" network roll out is complete, or whether to commence a staged wind-back of the USO as areas become connected to the nbn" network. The Commission has expressly invited feedback on these matters.

The Commission has called for submissions on the Draft Report by 20 January 2017.

Footnote

¹ Productivity Commission, 'Telecommunications Universal Service Obligation' (Draft Report Overview, November 2016), 7.

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