|
Current Issues
The Telecommunications Universal Service Obligation (USO)
E-Brief: Online Only issued 26 September 2000
Dr Kim Jackson, Analysis
and Policy
Social Policy Group
This brief describes recent policy developments concerning the telecommunications
Universal Service Obligation (USO) and provides access to documents, legislation
and Internet sites dealing with the subject and related issues.
Section 9 of the Telecommunications
(Consumer Protection and Service Standards) Act 1999 states that the
object of the USO is to ensure that:
- the standard telephone service; and
- payphones; and
- prescribed carriage services; and
- digital data services
are reasonably accessible to all Australians on an equitable basis, wherever
they reside or carry on business. The section also states that the USO
should be fulfilled as economically as possible and that any losses involved
in its provision should be shared among carriers.
The Act gives the Minister the power to designate a universal service
provider with primary responsibility for delivery of the USO. Telstra
is the current universal service provider, although the legislation allows
the Minister to declare two or more carriers as universal service providers,
or regional service providers, with appropriately limited responsibilities.
The Telecommunications
(Consumer Protection and Service Standards) Act 1999 restated in a
single Act the range of safeguards for telecommunications consumers that
were contained in the Telecommunications
Act 1997 and the Telstra Corporation
Act 1991. These safeguards include:
- The Universal Service regime;
- The National Relay Service (this provides the deaf or hearing impaired
with access to a standard telephone service). In June 1998 it was announced
that the contract for provision of the National Relay Service was awarded
to the Australian Communication Exchange (ACE). Information on the Service
is available from the ACE web site.
- The Customer Service Guarantee (CSG). The CSG was introduced by the
Telstra
(Dilution of Public Ownership) Act 1996 as an additional safeguard
for consumers. The CSG provisions were re-enacted in the Telecommunications
Act 1997 and essentially provide for the Australian Communications
Authority (ACA) to determine performance standards for carriers.
These standards relate to such matters as connection and fault rectification
times and the keeping of appointments with customers. If a carrier fails
to meet a standard then it is liable to pay compensation to the customer
in accordance with a scale determined by the ACA. Further information
is available from this ACA site.
- The Telecommunications Industry Ombudsman
(TIO) scheme. This requires providers to enter into a scheme which allows
the TIO to investigate and make determinations about complaints by consumers.
- The price control arrangements for Telstra and continued access to
untimed local calls.
The Telecommunications
Legislation Amendment Act 1999 repealed the provisions of the Telecommunications
Act 1997 and the Telstra Corporation Act 1991 that were re-enacted
in the Telecommunications (Consumer Protection and Service Standards)
Act 1999. It also contained provisions to promote competition in the
telecommunications sector and to require the Australian Competition and Consumer Commission
(ACCC) to monitor and report on telecommunications charges and Telstra's
compliance with price control arrangements.
Further information on the role of the Commission is available from this
ACCC page.
The Telecommunications
(Universal Service Levy) Amendment Act 1999 and the NRS Levy
Imposition Amendment Act 1999 contained amendments consequential upon
the shifting of the USO and National Relay Service to the new Act.
On the 10 May 2000 the Government introduced the Telecommunications (Consumer
Protection and Service Standards Act) Amendment Bill (No.1) 2000 to enable
the Minister to determine a universal service provider's net universal
service cost (NUSC) for up to three years in advance, and to give carriers
some certainty about the universal service regime that would apply if
they won the tender to extend access to untimed local calls in remote
Australia. The Bill was the subject of a Report
by the Senate Environment, Communications, Information Technology and
the Arts Legislation Committee. The Bill was passed, with the House
agreeing to Senate amendments relating to the level of ministerial discretion
and the compulsory information requirements.
On the 29 June 2000 the Government introduced the Telecommunications
(Consumer Protection and Service Standards) Amendment Bill (No.2) 2000
and the Telecommunications
(Universal Service Levy) Amendment Bill 2000 to implement policy decisions
announced on the 23 March 2000. See this section for more details of these
decisions.
Funding for the USO is based on the net universal service cost (NUSC)
for a financial year. Telstra is required to submit a claim to the ACA
for the NUSC on the basis of a formula of 'avoidable cost minus revenue
foregone'. This is equivalent to Telstra's operating and capital costs
(including the opportunity cost of capital) for the loss-making services,
less any revenue it may have received for those services.
Following a lack of agreement between the carriers concerning Telstra's
NUSC claim for 1993-94 a new costing model was developed by Bellcore International
and accepted by the carriers (Telstra, Optus and Vodaphone) and approved
by the ACA in October 1998. For 1993-94 a negotiated amount ($230 million)
was agreed to by the carriers. For 1994-95 to 1996-97 the NUSC was derived
from the 1993-94 figure with adjustments for inflation. Using the new
model, Telstra submitted a claim to the ACA for a 1997-98
NUSC of $1828 million, compared to the previous year's cost of $252
million.
In October 1998 the Minister issued a
press release indicating that the 1997-98 NUSC would be subject to
the agreement of the carriers and failing this, would be capped by legislation.
This action was taken "in order to provide the industry with the
necessary degree of certainty" while the ACA examined the Telstra
claim. The Minister also requested the ACA to review USO costing and assessment
arrangements with particular reference to:
- the impact of the 1997-98 USO assessment on competition in the industry;
- the most appropriate method for calculating the NUSC in future; and
- the appropriateness of the NUSC model.
In February 1999 Optus claimed that it could reduce the cost of the USO
to $178 million by using satellite technology to deliver the standard
telephone service. However, it declined to confirm that it would tender
for the USO on this basis if given the opportunity. In April 1999 the
ACA released the final versions of two
consultants reports which recommended using input values that would
reduce Telstra's NUSC claim to $600 million.
The Telecommunications
Laws Amendment (Universal Service Cap) Act 1999 received Royal Assent
in June 1999. It fixed the cost of the NUSC at $253 million for 1997-98
and the two following years (with allowance for inflation). However, the
legislation also gave the Minister the power to determine different amounts
for 1998-99 and 1999-2000 if circumstances changed. Such determinations
would be disallowable instruments. This legislation was the subject of
a report by the Senate Environment, Communications, Information Technology
and the Arts Legislation Committee, which can be obtained from this Senate
page.
On 22 October 1999 the ACA released its final assessment
of the 1997-98 NUSC at $548 million. This was the amount that would
have applied in the absence of the cap. The significant difference between
the amount claimed by Telstra and the final assessed amount was mainly
due to the ACA's view that the USO would be most efficiently supplied
using a mixture of cable, terrestrial radio and satellite technologies.
In comparison, Telstra used only cable and one radio solution in its claim.
Adjustments were also made to other values in Telstra’s claim, principally
to the opportunity cost of capital, switching and operating costs. The
NUSC amount is highly sensitive to such adjustments, as minor changes
in these values will significantly vary the NUSC amount.
In November 1999 the Minister requested the ACA to provide advice on
factors relevant to estimating the NUSC for 1998-99 and 1999-2000. The
ACA reported in
January 2000, and on the 23 March 2000 the Government announced
that the NUSC for 1998-99 and 1999-2000 would be increased to around
$280 million in line with the advice from the ACA. The ACA's estimates
took into consideration the impact of the USO funding mechanism. Without
this, the NUSC estimate would be around $120 million higher.
On the 20 August 1999 the Minister released a discussion
paper and called for public submissions to a review of the arrangements
for funding the USO from the year 2000-01. The Minister stated that the
uncertainty generated by the Telstra claim illustrated the need for arrangements
that provide greater certainty about funding requirements. The review
is also intended to ensure that future funding arrangements are compatible
with any changes to the way that the USO is delivered, including by tendering.
The review will be conducted by the Department of Communication, Information
Technology and the Arts (DCITA), which will report on the following matters:
- the best method for calculating the cost of the USO;
- who should fund the cost of delivering the USO; and
- the scope for improvements in the administration of USO funding arrangements.
Thirteen submissions were received in relation to the review. These can
be obtained from this DCITA page.
In April
1999 the Minister released a public consultation paper and invited
telecommunications carriers to express interest in tendering for universal
service obligations. While it was stressed that this invitation did not
represent a commitment to establish a competitive selection process of
any particular sort, the government has pointed to the potential benefits
of competitive selection, including:
- containing the USO cost;
- transparency and certainty in USO requirements and costing;
- improving USO performance and compliance;
- encouraging new entrants to service regional areas.
The Minister stated that the Government believed that carriers other
than Telstra may be able to deliver a more competitive and efficient USO
through use of satellite or wireless local loop technologies.
On the 23 March 2000 the Government announced
a number of significant policy decisions concerning the USO. These
included the introduction of competition in the delivery of the USO. This
would first take the form of two regional contestability pilots, to be
finalised following consultation with the States, Territories and stakeholders.
On the 23 August 2000 the Government
announced the areas to be covered by the contestability pilots. These
were:
- the Greater Green Triangle of south-west Victoria and south-east South
Australia, expanded to include the Central Goldfields and Greater Bendigo;
and
- north-east New South Wales and the Queensland Downs, stretching from
Kempsey in New South Wales, inland, to Caloundra Shire in Queensland.
The Government also stated that arrangements for the two pilots should
be in place by the end of 2000, with competing universal service providers
able to seek approval from that time.
On the 10 May 2000 the Government introduced the Telecommunications (Consumer
Protection and Service Standards Act) Amendment Bill (No.1) 2000. The
legislation included provisions to give carriers some certainty about
the universal service regime that would apply if they won the tender to
extend access to untimed local calls in remote Australia. This measure
is part of the 'social bonus' from the partial privatisation of Telstra.
The Bill was the subject of a Report
by the Senate Environment, Communications, Information Technology and
the Arts Legislation Committee. The Bill was passed, with the House
agreeing to some Senate amendments.
An extensive range of material concerning the untimed local calls tender
can be obtained from this DCITA
page, including information briefs, media releases, a consultant's
report and a fact sheet.
On the 29 June 2000 the Government introduced the Telecommunications
(Consumer Protection and Service Standards) Amendment Bill (No.2) 2000
and the Telecommunications
(Universal Service Levy) Amendment Bill 2000. This legislation would
enable the introduction of competition in the provision of the USO.
The Communications Law Centre has published a research
paper, Tendering for Universal Service Provision by Rodney
Maddock. This paper was commissioned as part of the research project ‘Mapping
Future Directions for Communications in Rural and Regional Australia’
being undertaken by the Communications Law Centre in collaboration Optus
Communications Pty Limited and the National Farmers’ Federation under
the Australian Research Council’s ‘Strategic Partnerships with
Industry - Research and Training’ program.
Other papers on this subject that are available on the Internet include:
Both of these papers were presented at the Communications Research Forum
of September 1999 organised by DCITA.
Section 27 of the Telecommunications
(Consumer Protection and Service Standards) Act 1999 requires a universal
service provider to lodge a Universal Service Plan (USP) outlining how
it intends to fulfil the USO. Each plan must be approved by the Minister.
Under section 39 the universal service provider must take all reasonable
steps to ensure that the Plan is complied with, although the Act does
not provide for penalties for non-compliance.
A copy of Telstra's Universal Service Plan can be obtained from this
page.
Although Telstra's USP was approved in May 1998,
the Minister also indicated that the ACA would conduct a review of the
Plan. This review was released in March 1999. It recommended:
- the amendment of the USP to require the provider to offer interim
phone services by satellite where appropriate;
- updating of the USP to reflect current arrangements for the provision
of equipment to people with disabilities;
- that the USP contain more specific targets for the provision of payphones,
a three day objective for repairs to remote telephone services and a
commitment to a monitoring and reporting regime.
A copy of the review can be obtained here.
In April 1998 the Minister directed the
ACA to inquire into whether a digital data capability should be incorporated
into the USO as a prescribed carriage service. The ACA reported to the Minister
in August 1998. Its major conclusions were that:
- making Integrated Services Digital Network (ISDN) available on demand
to 100 per cent of the population would be prohibitively expensive;
- a combination of ISDN to 96 per cent of the population and an asymmetrical
64 kilobits per second (kbps) satellite service to the remaining 4 per
cent would provide a digital data capability at minimal additional cost;
- the lack of ISP points-of-presence in many rural and remote areas
significantly affected the price of Internet access in those areas.
In April 1999 the Government announced
that it would amend the USO to provide that a digital data service of
at least 64 kbps is available to all Australians. For the 4 per cent not
receiving a 64 kbps ISDN service on demand, a broadly comparable satellite
service would be provided. Consumers would be reimbursed 50 per cent of
the cost of the necessary satellite receiving equipment. This subsidy
would be funded by the telecommunications industry as part of modified
universal service levy arrangements.
The Government introduced amendments to the Telecommunications (Consumer
Protection and Service Standards) Bill 1998 and the Telecommunications
(Universal Service Levy) Amendment Bill 1998 then before the Senate to
give effect to these decisions from 1 July 1999.
Although the partial privatisation of Telstra has not altered its responsibilities
with regard to the USO, a number of measures associated with the sale
of an additional 16.6 per cent of Telstra (up to 49.9 per cent) have social
implications. The Telstra
(Further Dilution of Public Ownership) Act 1999 provided for the additional
sale. It also required Telstra to ensure that at least two of its directors
have experience in the communications needs of regional areas and that
$250 million from the sale be allocated to the National Heritage Trust
of Australia Reserve. The legislation also provided for a "social
bonus" from the proceeds of the further sale. The elements of the
social bonus are as follows:
- rural transaction centres ($70 million over 5 years);
- extended access to untimed local calls ($150 million over 3 years);
- meeting the telecommunications needs of people in remote island communities,
isolated island communities or the Australian Antarctic Territory ($20
million over 3 years);
- Internet access for people in rural or regional areas ($36 million
over 3 years);
- mobile phone coverage along highways ($25 million over 3 years);
- a Television Fund to enable improved television reception, to extend
coverage of SBS television, and to support a New Media Unit to be established
within the SBS ($120 million over 5 years).
There is an extensive range of material
on the social bonus available from this DCITA page.
The ACA is required to monitor and report each year to the Minister on
all significant matters relating to the performance of telecommunications
carriers. The Telecommunications
Performance Report 1998-99 is the most recent of these reports. It
contains chapters on the Customer Service Guarantee, the USO, industry
codes and standards, and many other matters. The Commission also publishes
quarterly Performance Monitoring
Bulletins on quality of service issues in the telecommunications industry
and Special Reports on various subjects. Special Report No.5 (March 2000)
The Universal Service
Obligation - Payphones examined Telstra's payphone service and concluded
that there were grounds for concern with the carrier's performance.
In September 1999 the ACA began an investigation into Telstra's performance
under the Customer Service Guarantee and the USO. This was prompted by
Telstra's poor performance in connecting new services for certain customers.
The report identified a number of factors responsible for this performance,
including:
- inadequate infrastructure;
- deficient records; and
- poor work practices and procedures.
The ACA will monitor Telstra to determine if remedial actions have been
effective and performance has improved. A media release on the subject
and the report itself are available from this page.
On 19 March 2000 the
Minister announced the establishment of an independent inquiry to
assess the adequacy of telecommunications services. This was in line with
an election policy commitment to have such an inquiry before any further
privatisation of Telstra beyond the current 49 per cent. The inquiry was
chaired by Mr Tim Besley AO, and reported on 30 September 2000. The report
and related documents can be obtained from this page. The Minister has also issued
a press
release containing a summary of the report's recommendations.
The Australian Competition and Consumer
Commission is required to monitor and report on prices paid by consumers
for telecommunications services. In April 2000 it published Telecommunications
charges in Australia 1995-99. A press
release on the report is also available.
On the 23 March 2000 the Government
announced a number of significant policy decisions concerning the
USO. These included:
- the introduction of competition in the delivery of the USO. This would
first take the form of two regional contestability pilots, to be finalised
in June 2000 following consultation with the States, Territories and
stakeholders. Telstra will be required to continue to operate in the
pilot markets, but would be compensated for its increased commercial
risk. This means that no consumer will be forced to give up their Telstra
service unless they choose to move to a new service provider.
- The responsibility for paying for the USO to be extended to include
carriers and service providers who earn more than a prescribed amount.
- An increase in the NUSC for 1998-99 and 1999-2000 to around $280 million
p.a. (see section on 'Costing the USO' above).
- The USO to be costed in advance for a period of up to three years,
with the ACA to begin work immediately on costings for forward years.
On the 29 June 2000 the Government introduced the Telecommunications
(Consumer Protection and Service Standards) Amendment Bill (No.2) 2000
and the Telecommunications
(Universal Service Levy) Amendment Bill 2000 to implement some of
these policy decisions.
On the 23 August 2000 the Government
announced the areas to be covered by the regional contestability pilots.
These were:
- the Greater Green Triangle of south-west Victoria and south-east South
Australia, expanded to include the Central Goldfields and Greater Bendigo;
and
- north-east New South Wales and the Queensland Downs, stretching from
Kempsey in New South Wales, inland, to Caloundra Shire in Queensland.
For copyright reasons some linked items are only available to
Members of Parliament.
|
