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Tuesday, 7 February 2012
Page: 96


Mr TURNBULL (Wentworth) (20:18): The three bills before the House all relate to the universal service obligation. The USO is the government imposed requirement that central communications services, including standard telephones services in homes and business and public payphones, be accessible to all Australians on an equitable basis—that is, that they can obtained on reasonable terms at an affordable price everywhere in Australia.

The bills also affect two other communications services which are intimately related to the USO but not formally part of it. They are the provision of the triple 0 emergency call service across the nation and the national relay service, or NRS, which delivers voice equivalent services to Australians who are deaf or who have a speech or hearing impediment by translating voice to text or text to voice.

The very existence of the USO underlies the importance of telecommunications services in our economy and our society. It is difficult to imagine a world without ubiquitous access to the ability to speak to and listen to someone in another place in real time. It is a miracle of technology, but it is central to our economy and to the way most of us live our daily lives and interact with one another. So ensuring that people who in an entirely unsubsidised and unfettered market might not receive this access on the same terms as most of us—people in remote areas of the country where providing basic services is uneconomic or people with disabilities who cannot use the standard types of services offered—can in fact receive affordable access is an absolutely legitimate and, indeed, critical function of government and has been for many years.

At present, Telstra has responsibility for delivering most of the USO, reflecting its status as the former monopoly public telecommunications carrier. Telstra is required by regulation to provide standard telephone services and public payphones on an equitable basis. In return, it receives most of the proceeds of two industry-wide levies that apply to it and to other licensed carriers. The levy directly related to the USO raises about $145 million a year. A separate levy related to the National Relay Service raises about $15 million a year against annual costs of about $17 million to provide the NRS under the current contract with a private sector provider.

Telstra has argued for more than a decade that the net payments it receives from the USO levy—that is to say, the net payments it receives from the levy less the payments it contributes as a carrier to the levy—do not cover its own net costs in providing the USO. This has been a contentious matter in the telecommunications industry for years and one only has to look at the submission from Optus to the Senate committee that is considering this bill to see how trenchantly and indeed cogently Telstra's competitors argue that it really should be providing this service for no consideration at all—or very little consideration. In any event, this contentious issue depends on whether the relevant costs are calculated for a new provider of the USO having to start from scratch or an existing carrier with a network whose original costs have long since been recovered.

Mr Paul Paterson of Castalia, the independent expert the government commissioned earlier this year to consider this question, largely agreed with Telstra, concluding that the company's net costs in providing the USO aggregated with the cost of the NRS and public payphones were in the order of between $250 million and $300 million. That was the conclusion of the Castalia report.

The broader context that is important to note here is that the current arrangements were designed at a time when Telstra was the vertically integrated operator of the only telecommunications network in Australia. As we all appreciate, that is no longer the case in today's more open and competitive telecommunications market. In the ownership of the core network, this has not been the case for some years. Of course, this government, with its profligate, irresponsible, unanalysed $50 billion NBN, is trying to make a key part of the market less open and entirely uncompetitive—that is, the local access network, the so-called last mile of connections between residences or business premises and local exchanges. This is one of the cases where Australia is unique in the world, leading the world in creating government monopolies in telecommunications. Everywhere else, governments are trying to promote facilities based on competition and promote private sector investment in telecommunications infrastructure, but not in Australia. The government is creating a massive government owned monopoly. But still, as the NBN is rolled out prior to the next election, it means there is another part of the network where Telstra will no longer be the sole player. In fact, Telstra has agreed to gradually decommission its legacy copper customer access network and its hybrid fibre coax network and migrate customers to the NBN as the latter is rolled out. So the need to change the way the USO is currently provided is, in large part, a response to the NBN.

But, even without the NBN, there is merit in shifting the basis of the USO from a regulatory requirement imposed on Telstra, where its true cost is opaque and only partly funded by transfers, to a more transparent contractual arrangement where a chosen tenderer will provide the service at an agreed price funded in full from direct transfers. Such a shift would be theoretically appropriate given the changing structure of the industry and would be entirely consistent with the economic values of our party.

However, after all, in numerous areas of public policy over the past 20 or 30 years embedded cross subsidies or intrusive regulations designed to achieve public interest outcomes have been replaced by more transparent and more honest contractual arrangements where the true cost of achieving a policy objective is clearer and there is competition to deliver it. We in the coalition have vigorously criticised Labor's NBN for its decision to equalise wholesale broadband prices in the cities and in the bush via an embedded and opaque cross-subsidy rather than a transparent transfer. We are absolutely agreed that there should be an equivalence in the cost of accessing broadband across Australia, but we do not believe that that equivalence should be at the cost of stamping out competition right around the nation and certainly should not be at the cost of stamping out competition in those areas in the cities where competition is very feasible and would occur were it not for the anti-competitive policies and practices of the NBN and this government.

In our public policy principles, it would be inconsistent to criticise measures that make the true cost of the USO clearer and ensure that they are fully funded. Likewise, we have no objection to replacing two separate industry levies for the USO and the NRS, the national relay service, with a single levy. Greater simplicity and less administrative overhead are always useful guiding principles when raising revenue. Alas, as we have come to expect with this Labor government, attempts to rationalise public policy or adhere to sensible economic principles are almost always botched by inept execution and failures to observe due process by this government. And so it is with these bills, where we have several very serious concerns. We question the decision to create an entirely new bureaucracy, the Telecommunications Universal Service Management Agency, TUSMA, to assume responsibility for the USO where there is an existing regulator, ACMA, with the same responsibilities. Yet again, this is the case of this government unthinkingly expanding the number of quangos.

As we have indicated on many occasions, we are dubious about Labor's determination to impose the one-size-fits-all NBN on every part of the country without regard for either cost or fitness for purpose. In the case of the USO, this manifests itself as the absence of any independent review mechanism to ensure basic services delivered over this costly new government controlled monopoly are at least comparable in price and quality to those services delivered on the existing network. Most of all, we are concerned that the good public policy of moving to a direct and transparent subsidy for the USO and putting it out to tender has been sullied, avoided and eliminated by the incredibly poor public policy of entering into a pre-emptive 20-year contract where Telstra will continue to provide the USO as retailer of last resort. Frankly, I think we can all understand that this is, in truth, simply part of the very generous consideration required to gain Telstra's consent to the deal it agreed with the NBN Co. last June. On the issue of bureaucracy, I note that TUSMA is just the latest quango from a government that has undeniably achieved world's best practice in the creation of quangos. It will have annual administrative overheads of $5 million. ACMA already has around 40 staff with direct responsibility for the USO and it will be ACMA that will continue to collect the industry levy that pays for the services which TUSMA will oversee under the proposed regime. Therefore, the first amendment, which my colleague the member for Cowper will move, will require that the new administrative overheads of TUSMA be offset by a commensurate reduction in the existing administrative overheads of ACMA. As the bill is set out, TUSMA will have the responsibility to enter into service contracts or provide grants to ensure delivery of the USO in accordance with standards and benchmarks set by the communications minister and this parliament.

Starting from 2014-15 the TUSMA bills will allow the communications minister progressively to release Telstra from its existing regulatory USO responsibilities as satisfactory contractual agreements replace it in some areas. In areas where the NBN has been deployed, Telstra will become the retail provider of last resort, as opposed to the network provider. All contracts, service agreements and grants to implement the USO will be managed by TUSMA. TUSMA will also be responsible for ensuring voice-only customers are transitioned smoothly onto the NBN. These arrangements are all very well should the NBN continue in one form or another; but the government's one-size-fits-all approach to fixed-line communications, where any alternative infrastructures are to be wiped out either by contract or by statute, and the as yet untested nature of the NBN itself, leads us to an additional and second amendment—which the member for Cowper will also move—which provides for an independent review of whether USO services provided over the NBN are equivalent to those that exist today. Before the existing USO obligations on Telstra can be relaxed, the review would have to report back confirming that new services using the NBN are equivalent in all key respects to existing services—equivalent in price, equivalent in quality, equivalent in availability and equivalent in convenience. This is a very good mechanism for offering a further level of protection to rural and regional telecommunications users and therefore should be something our friends the regional Independents should consider very carefully indeed. We would encourage them to support this amendment because the beneficiaries of the amendment would be their constituents.

The review would be required to be conducted by someone with expertise in rural and regional communications, recognising the importance of service quality for the largest group of consumers who depend on the USO arrangements. The amendment specifies the review cannot be carried out until there are at least 10,000 voice-only lines in operation on the NBN, a figure which surely must be achieved quite soon, given that the NBN Co.'s 2011-2013 corporate plan confidently states there will be 137,000 customers using the NBN fibre network by June, five months from now. Given that around one-third of fixed line customers at the moment are voice only, reaching this benchmark should present no impediment.

Our third major area of concern is that, having made the decision to move to deliver the USO and the NRS by contractual arrangement rather than by regulation, the government has jumped into a 20-year contract with Telstra without a proper competitive tender, or any other recognisable element of due process, at a rate of $290 million a year. This contract covers the USO standard telephone service, the USO payphones and the emergency call service. In reality, as we all know, this deal, which has a value to Telstra of around three-quarters of a billion dollars in 2010 terms, is simply part of the consideration for the deal with NBN Co. finalised in June and currently under consideration by the ACCC. That deal is no doubt very favourable for Telstra, which will collect something like $50 billion over the next 35 years. But it is not as attractive for taxpayers and broadband consumers.

In the sweep of that complex and costly deal, providing Telstra with a long-term contract to deliver the USO, at an annual value in about the middle of the range suggested by the independent experts' report, is far from the most questionable element. In reality, it is not clear whether any other provider could have efficiently delivered the USO, given the government's commitment to continue to use fixed lines rather than explore other technical possibilities. Nonetheless, there has once again been a complete absence of due process. The NBN was undertaken without any cost-benefit analysis, notwithstanding the government's pledge prior to coming into office that there would be no major infrastructure projects funded by the Commonwealth without a cost-benefit analysis. Just as they failed to do that important piece of homework before they undertook the NBN, here they have created some legislation which allows for a transparent contractual process for delivering this important service but then have completely ignored it and entered into a deal where there is an obvious lack of competitive neutrality. The arrangement with Telstra has been negotiated at the same time as, and as a subset of, a much larger multibillion dollar deal, so there can be no confidence that the price that has been concluded is one that would have arisen from a competitive process. Why couldn't the government have undertaken a transparent, competitive tender? They seem to be incapable.

I see that my colleague the member for Chifley on the other side of the House is paying close attention to this. He may well say that a competitive tender would have resulted in the same outcome. It may well have done so—who knows?—in which case, there would be some genuine public confidence in it. This is where the government, time after time, wounds itself by failing to undertake basic due process. It does not take much more time, but it certainly results in an outcome that has integrity, that is transparent and that people can then have confidence in. While Telstra may in all probability be the only realistic provider of this service, in the absence of a tender we will never know.

In conclusion, this legislation is yet another example of what is a defensible set of policy ideas bungled, compromised and debased in the execution—something at which this government has shown itself to be a master. Again and again its failures of due process undermine whatever administrative or policy reform objectives it has. We in the coalition support many of the principles embodied in these bills, as I have described. But we have grave reservations about their translation from principle to practice. The failure of due process once again has debased the objectives of policy.