Telstra is likely to lose billions of dollars in funding over the next 20 years if the government backs a recommendation to scrap a requirement on the telco to provide "universal access" to telephone lines and payphones.
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The recommendation is contained in a damning Productivity Commission review of the Telecommunications Universal Service Obligation (TUSO) that would also give other telcos a boost to their bottom line if an industry levy, worth about $200 million annually, is scrapped.
The review found the program outdated and opaque, and predicted it would become largely redundant once the national broadband network (NBN) was complete.
It recommended immediately winding back payphone obligations because "juxtaposed against the extensive coverage of mobile services across Australia, it is difficult to justify the continuation of the payphones [obligation]".
Telstra receives about $300 million annually, including $100 million from the government. In 2015-16 the industry levy collected $218 million, of which $142 million came from Telstra itself.
About $44 million a year goes towards maintaining about 16,800 payphones. The remaining $253 million goes towards supplying standard telephone services.
A Telstra spokesman said it supports several points raised by the commission's thorough report including "whether the ongoing payphone obligation is delivering the best value to Australian consumers and communities".
He noted NBN is not yet operating a truly national network capable of "good quality voice service" that could take on universal obligations.
Privatisation pledge
The TUSO is based on a program introduced during privatisation to ensure Telstra kept providing services such as payphones and telephone connections around Australia at the same price regardless of location. A new 20-year agreement with the government was written in 2011 and helped secure Telstra's co-operation with the NBN project.
The Telstra spokesman added: "The current USO agreement was negotiated in good faith with the Australian government and has been successfully delivering on a policy set by the government. Funding to deliver the USO comes from both industry and government, and Telstra is the single largest contributor of funds."
However, the commission found Telstra's contractual obligations under the TUSO lack transparency and accountability and "the basis for TUSO funding is unclear and disputed".
"In a digital age, the voice-based telecommunications universal service obligation [TUSO] – costed at $3 billion in net present value terms over 20 years and introduced when telecommunications consisted of basic telephones and payphones – is anachronistic and needs to change," the commission found.
"In an age where basic phones and payphones are rapidly becoming outdated, the lack of transparency and accountability makes the continuation of current arrangements difficult to justify from the point of view of those who contribute to its funding."
Presiding commissioner Paul Lindwall said the subsidy for payphones was an example of where the TUSO is "not fit for purpose".
"Times have changed. Technology has rolled on. Pay phone usage has declined markedly over many years ... fewer and fewer calls are made for emergency purposes through pay phones – most are made by mobiles," he said.
However, thousands of Telstra payphones have been converted to Wi-Fi hotspots for its Air network and may survive without funding, he added.
Communications Minister Mitch Fifield said "it is timely for the PC to consider, from a first principles basis, the telecommunications universal service obligation and what services it should support and how it might be structured and funded".
Meanwhile, telcos have been calling for years for a proper review of how the Telecommunications Industry Levy is spent by Telstra.
Old problem
National executive of industry and policy at Macquarie Telecom, Matt Healy, said the TUSO was a "decades-old problem" within the industry, which felt the levy was doing "nothing other than contributing to Telstra's profits".
"[The report] is calling time on the gravy train that Telstra has had in the form of the TUSO payments.
"We will be very happy to stop writing that cheque to Telstra each year for services that the Productivity Commission has finally concluded are no longer needed," Mr Healy said.
Meanwhile, Vodafone's chief strategy officer and corporate affairs director Dan Lloyd said this was the first time anyone had been able to look at what was "happening under the hood".
Vodafone's share of the levy in 2015-16 was $13.5 million, while Macquarie Telecom's share was $542,700.
If the government adopts all the recommendations, it would create "total, fundamental and immediate change", Mr Lloyd said.
"We have always said that we feel we have been funding their mobile [network] rollout.
"And this report has now revealed the mechanism by which that was happening."
The review was commissioned by Treasurer Scott Morrison earlier this year. The commission will hold six hearings in early 2017 before delivering a final report in April.
Telstra's annual $20 million contract to run the emergency call service was not within the scope of the inquiry. The Department of Communications recently announced it was for the first time putting the triple zero service out to competitive tender.
