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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.
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