Telecommunications universal service obligation

• Rapid developments in telecommunications technology are transforming the ways in which people live, work and play. These are also profoundly affecting how telecommunications service providers run their businesses.
• In a digital age, the voice based telecommunications universal service obligation (TUSO) — costed at $3 billion in net present value terms over twenty years and introduced when telecommunications consisted of basic telephones and payphones — is anachronistic and needs to change. People's preferences for ubiquitous connectivity, their seemingly insatiable appetite for data and the high value of digital data to businesses and governments generally provide a strong case to revise Australia's universal service policies.
• The sizable public investment in National Broadband Network (NBN) infrastructure is planned to provide universal access to high speed broadband services to all premises across Australia by 2020 — at a quality that is far superior to what is currently available. By design, the pricing strategy adopted by NBN Co Limited will see wholesale prices capped across all its technology platforms and across all locations, thus significantly narrowing the digital divide across rural, regional and urban Australia.
• The existence of the NBN means that the objective of universal service can be reframed to provide a baseline (or minimum) broadband service to all premises in Australia, having regard to its accessibility and affordability, once NBN infrastructure is fully rolled out. This encapsulates access to both the internet and voice services as the internet will increasingly be the medium for voice communication.
  • While NBN infrastructure will deliver a high quality voice service over fixed line and fixed wireless networks, there is a question about the adequacy of NBN services as a baseline service in pockets of the satellite footprint, particularly given the high dependency on the network in areas where there is no mobile coverage (affecting up to 90 000 premises).
• To the extent that there are any remaining availability, accessibility or affordability gaps once the NBN rollout is complete, current trends and existing policy settings suggest that these are likely to be small and concentrated, and amenable to specific social programs rather than large scale government interventions such as the TUSO.
• Any further government intervention should harness markets while closely targeting particular user needs. Government intervention should also reflect the complementary role of mobile services. In this context, the Mobile Black Spot Programme should be recast to enhance its cost effectiveness.
• To avoid adverse impacts on competition, the costing of government programs to address any gaps should be made transparent and subject to competitive tendering processes where feasible. The narrowly targeted scope and small scale of the programs under the Commission's proposals tips the balance towards funding from general government revenue as opposed to an industry levy.
• Transitioning to a new framework for universal service is likely to be complex. The long term contract that the Government has with Telstra and the surrounding legislative architecture present key hurdles that will need to be carefully addressed to ensure that the benefits of timely reform outweigh the costs of unravelling existing arrangements.
• As part of this process, the Government should proceed with its planned review of telecommunications consumer safeguards as a matter of priority. It should also address any consequential amendments to the existing regulatory framework relating to universal service provision.

A new approach to telecommunications universal services

The Productivity Commission is recommending a modernised and forward-looking approach to the subsidy and support arrangements that form universal telecommunications services in Australia.

The current Telecommunications Universal Service Obligation (TUSO), which ensures all Australians may receive fixed-line voice services, is outdated and should be replaced by a more targeted approach that recognises the substantial public investment in the National Broadband Network (NBN), expected to be fully rolled out by 2020.

In its draft report on the TUSO released today, the Commission points to the rapid evolution of Australia's telecommunications environment, including the shift in consumer preferences to broadband and mobile communications, as the impetus for recommending reforms to the voice based TUSO, which is fast becoming outdated.

'In a digital age, the current obligation — requiring Telstra to provide all Australians with access to basic fixed line telephones and payphones — is anachronistic and needs to change,' said Commissioner Paul Lindwall.

'Once rolled out to all Australians, the NBN will be the foundation on which a future broadband based telecommunications universal service policy should be built. A completed NBN, which provides broadband and voice services to all Australians, will make the current TUSO obsolete,' said Commissioner Paul Lindwall.

The Commission is proposing that the TUSO be replaced with a universal service policy objective to provide a baseline or minimum broadband (including voice) service to all premises in Australia, having regard to its accessibility and affordability, once NBN infrastructure is fully rolled out.

For vulnerable members of the community who may have difficulties accessing NBN services or a mobile phone service, the Commission is urging the Government to adopt a policy approach that closely targets their particular needs instead of providing a blanket 'one-size-fits-all' solution, as is currently the case under the TUSO.

The Productivity Commission received the terms of reference from the Government in April 2016 and will present its final report on this inquiry to the Government in April 2017.

Public hearings for this inquiry will be held in January and February of 2017 in Sydney, Melbourne, Launceston, Dubbo, Cairns and Port Augusta. More details on hearings can be found on the Productivity Commission website.

Chapter 1 provides relevant background to the study.

Chapter 2 provides an overview of the evolving landscape of telecommunications.

Chapter 3 reviews and evaluates the current TUSO against a number of criteria.

Chapter 4 identifies other government programs that are broadly designed to meet telecommunications universal service objectives.

Chapter 5 examines the considerations that should frame a new telecommunications universal service policy objective.

Chapter 6 assesses the extent to which the market and NBN might address the various dimensions of universal telecommunications services.

Chapter 7 considers some policy options to address any 'gaps' identified in chapter 6.

Chapter 8 discusses the relative merits of alternative funding models for telecommunications universal service policies.

Chapter 9 canvasses issues and options associated with transitional arrangements.

The following appendices support the analysis in the main body of the report.

Appendix A outlines the conduct of the inquiry, including consultations undertaken and submissions received.

Appendix B provides further information on the NBN.

Appendix C presents an overview of approaches to telecommunications universal service policies in OECD countries.

Appendix D touches on the relative affordability of NBN services.