The government has announced another review of the USO and how it should integrate with the NBN. Improved reach, new technologies and more competition are possible, but how will the government overcome the 20 year agreement the former government signed with Telstra? Telstra can play a big part in an improved USO, but so can NBN Co. The potential outcomes are discussed in Business Spectator this week.

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The Coalition government is putting its weight behind a broad public debate about the provision of the Universal Service Obligation (USO) and its a discussion that has perhaps not received the attention it deserves as our telecom landscape undergoes a fundamental change. 

The man leading the initiative is the Parliamentary Secretary to the Minister for Communications and former Optus executive, Paul Fletcher, who was on point at an Australian Communications Consumer Action Network (ACCAN) forum held in Sydney last week.

Speaking at the forum, Fletcher emphasised the need for a discussion around how the USO can be delivered in coming years, what services should be included in the USO and to address some of the “murky” outcomes delivered by the last USO review carried out by the Labor government.

Naturally, Fletcher was scathing of the former government’s last review of the USO, held in 2012, and the conveniently timed twenty year contract with Telstra for USO provision that would effectively put the USO into a holding pattern. 

"Under the contract Telstra would continue to do essentially the same things it was already doing; it would continue to receive broadly the same amount of money from the rest of the industry for doing them; but it would in addition receive $100 million a year that the government would now pay in each year," Fletcher said.

"Prior to the contract, the USO subsidy had been approximately $145 million per annum, of which approximately $50-$60 million per annum came from Telstra’s competitors. After the contract, the USO cost was now determined to be $270 million – and there was now to be an additional $100 million a year being paid from taxpayers."

"These elaborate arrangements presumably assisted Broadband Minister Conroy to land a deal with Telstra on the NBN," he added.

In what appears to have been a response in 2011 to Telstra’s demand for certainty around provision of the USO and how it might be affected by the National Broadband Network (NBN) the former government changed the USO funding model, providing an initial $100 million over two years ,commencing in 2012, with a commitment for $100 million for the remainder of a twenty year contract for USO provision that it entered into with Telstra.

What this means is that for many Australians in regional and remote areas Telstra is responsible for providing a USO telephone connection using copper, radio frequency links or satellite and NBN Co is responsible for providing a subsidised broadband connection.

The potential for service delivery duplication between the USO and NBN was one of the “murky” outcomes that Fletcher identified as a significant problem if the USO was to be provided for a reasonable cost.

The former government’s review determined the provision of the USO over the NBN should be based on the principals of:

• Ensuring continuity of basic universal service outcomes for consumers, taking into account the government’s policy of maintaining reasonable access to a standard telephone service through the existing copper customer access network.
• Facilitating a transition to greater competition
• Recognising the costs of delivering the services and implementing cost-effective arrangements
• Achieving timely, transparent and definitive outcomes
• Implementing arrangements that do not impose undue financial and administrative burdens

Another key concern according to Fletcher was the creation of the The Telecommunications Universal Service Management Agency (TUSMA) that was established to enter into and manage contracts and grants to ensure:

• all Australians have reasonable access to a standard telephone service (the USO for voice telephony services)
• payphones are reasonably accessible to all Australians (the USO for payphones)
• the ongoing delivery of the Emergency Call Service by Telstra (calls to Triple Zero '000' and '112')
• the ongoing delivery of the National Relay Service
• continued availability of untimed local calls for customers outside standard zones, and
• that appropriate safety net arrangements are in place to support the continuity of supply of carriage services during the transition to the NBN.

The government’s decision, taken in mid-204, to fold TUSMA back into the Department of Communications was described by Fletcher as the first step on a path to improving USO provision and to fully consider how the USO and NBN is to be provided competitively into regional and remote communities.

Legislation to achieve the shift of TUSMA’s responsibilities to the Department of Communication is now before the Parliament.

Internal subsidy on its way out 

Fletcher announced at the forum that an upcoming review NBN funding models for regional and remote areas would mean that the current internal cross subsidy employed by NBN Co would be replaced in 2017 with a new model that might include a transparent external industry subsidy.

"The government’s immediate priority is developing our plans for transparent, pro-competitive funding of loss-making NBN services in regional and remote Australia to replace the current hidden cross-subsidy, based on the Bureau of Communications Research study. Options include, for example, a transparent contribution from operators of high-speed metropolitan broadband networks (including NBN Co itself), or a contribution from a wider industry base, and we will consult further with interested parties before taking any decisions," Fletcher said.

There is a need for a broad debate of what consumers want from the USO and the NBN and if there are opportunities for infrastructure sharing, new approaches for the delivery of basic services; and whether a competitive environment can be created that reduces the cost of USO provision.

The forum had speakers from government, telecommunications industry and community organisations that were in general agreement on many aspects of the discussion; the NBN would alter consumer perceptions of what can and should be available, infrastructure sharing should occur, that the government’s digital transformation necessitated broadband access being added to the USO and that existing services in regional and remote Australia needed a major upgrade, though this was being achieved in some areas as mobile networks expand.

In response to a question about the ongoing state funding for mobile network blackspot removal that is provided to Telstra, which does not have a good record of infrastructure sharing with its competitors, and why this funding is not being provided to NBN Co, Fletcher stated that the government’s planned $100 million black spot program had the requirements towers built using the program’s funding had to be open to all of the mobile network providers, that backhaul had to be provided at competitive rates and that NBN Co would be encouraged to participate.

A rethink of USO and how it will integrate with the NBN is timely as there can be no doubt that the current situation is unworkable moving forward, but there are no quick fixes for regional and remote areas and over reliance on mobile networks is not likely to meet the need for reliability and resiliency.

ACCAN and the telecommunications community has taken the important step to put the USO back onto this government’s agenda and there appears to be a great deal of goodwill to find a workable solution that better integrates with the NBN but only time will tell if there can be a lasting solution found.

Mark Gregory is a Senior Lecturer in the School of Electrical and Computer Engineering at RMIT University.