USO ReformProfessor Reg Coutts

COMMSDAY ConferenceMelbourne, 5th October 2016

Telco Subject Matter Expert

Presented byProfessor Reg Coutts

Introduction – post Africa trip!

State of Communications in 2016 Fixed telephone (STS) declining Fixed broadband (Internet, OTT and media) Mobile (Coverage 93%, broadband, Facebook)

Proposal for Change Dismantle the current USO (re the ‘STS’) Establish Universal Service Fund (USF) Designate NBN to be the core infrastructure Provider of ‘essential service’ of last resort

Start USO Reform ‘Journey’ NOW History of the ‘STS’ (from 1991)

Fixed telephone service for every ‘premise’ Carrier pre-selection capability Customer Service Guarantee (the CSG) Telstra the monopoly USO (subsidised) provider

Reality in 2016 Fixed telephone in decline Fixed broadband roll out to all ‘premises’ (ie NBN) Mobile service to most Competitive supply expected!

Observations on Demand Increasing diversity of ‘essential’ service

Mobile service substitution for PSTN phone service• Service to the person NOT the premise

Broadband (mobile and fixed) the new norm• Internet is passé with the young• Is Facebook the PSTN of the new generation?

Mobile and fixed are complementary!• 90% of the data load carried on underlying fixed network

Broadcast media consumption changing• Netflix is an intermediate stage

Observations on Supply Infrastructure

NBN and mobile networks• NBN fixed wireless and satellite CAN provide a fixed service• Telstra can no longer be the monopoly USO supplier• Media via separate broadcast infrastructure contested!

Convergence is here! Media and telecoms regulation

• Current media regulatory focus unsustainable• Increased global cooperation and agreements

New focus? • Big data and privacy

USO Reform Recommendations(based on research funded by Vodafone)

1. Establish a Universal Service Fund (USF)

2. Designate NBN as the Universal Infrastructure Provider

3. Phase out the current USO by Telstra

4. Use USF to bolster mobile coverage and choice

5. Broaden range of ‘essential open public access’ to substitute for payphones (eg WiFi)

Current Reform Progress? 2015 Regional Telecommunications Review

Key points (selected) – “Mobile coverage – the next frontier”

• A more granular approach to determining the cost and benefits will be needed in deploying

• More attention to achieving target outcomes with high social and economic benefit

• More use can be made of NBN infrastructure• Consumer Communication Standard – a challenge!

Key synergy with my recommendations• Establish a Communications Communications Fund• Better leverage of NBN investment• Co-invest to extend mobile coverage

Metrics for a Future USO (vs Current USO)(proposed by Review)

Technology neutrality - NO Fixed cellular does not qualify (no carrier pre-selection)

Contestability – NO Attempted in 1995

Transparency – NO How many USO services are there?

Economic efficiency – NO WAY Sustainability – YOU MUST BE KIDDING

Current Reform Progress

Productivity Commission Review Issues paper – 7th June 2016

• Contract with Telstra

Submissions to the PC – 58 listed – 28th August 2016 Draft Report – December 2016

Government’s Timetable? The Department’s view – NOT TILL 2020

Observations on USO Reform to date! Australia’s USO regime in 1991 was a global ‘lead model’ The policies of successive Governments to ‘reform the USO’

since about 1995 to date have been appalling The current USO in the light of the last 10 years in particular

is: Unfit for purpose (as noted by the ACMA) High ongoing cost impost of $250 million on Government and industry The current ‘service’ subsidised under the USO is of ‘rapidly declining

relevance’ (as noted in the 2015 review) Highly distortionary impact on industry competition land scape