USO Funding Mechanisms in Australia

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USO Funding Mechanisms in Australia

• Asia Pacific Telecommunity
• Symposium on Universal Access and Service
• Hanoi, February 2004
• Australian Communications Authority
• Mark McGregor
• Email mark.mcgregor_at_aca.gov.au
• Telephone [phone]

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USO Funding and Subsidy Arrangements

• Those in industry that benefit from the USO are
  required to contribute to its cost in an
  equitable manner.
• Arrangements have been developed to be consistent
  with the legislation of the day

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Discussion

• Who receives funds under the universal service
  regime in Australia
• History of the USO funding and subsidies
  arrangements in Australia
• History of the NUSC costing model project
• Current arrangements for determining USO
  subsidies
• Current arrangements for digital data costs

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Who receives funding under the universal service
regime

• Telstra as the universal service provider for the
  standard telephone service and payphones receives
  USO subsidies from industry
• As special digital data service providers,
  Telstra and Hotkey, can claim rebates given to
  customers for equipment required to receive a 64
  kilobit per second asymmetric digital data
  service via satellite
• Telstra receives no funding for its provision of
  the general digital data service obligation (a 64
  kilobit per second digital data service via its
  existing terrestrial infrastructure

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History of funding and subsidy arrangements in
Australia

• Pre competition Telstra (then Telecom) was the
  government monopoly provider. Telstra provided
  100 of funding
• Limited competition (1991-1997) The three
  carriers funded the USO based on timed minutes of
  traffic. USO costs in 1993-94 set at 230
  million and indexed to inflation.

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History of funding and subsidy arrangements in
Australia (2)

• Open competition (1997-2000) Legislated formula
  for calculating Net Universal Service Cost
  (NUSC). In 1997-98 the ACA calculates the NUSC
  by using the Bellcore economic costing model.
  Industry funded NUSC based on concept of eligible
  revenue.
• Currently Changes to legislation (in 1999) mean
  that there is no longer a formula for calculating
  USO subsidies.

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History of the NUSC costing model project -
Overview of NUSC principles

• avoidable costs take into account operating
  expenses, depreciation and opportunity cost of
  capital
• revenue foregone takes into account local,
  incoming and outgoing revenue in net cost areas

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History of the NUSC costing model project

• Initial costing model built in 1988
• AUSTEL and carriers agreed to review this model
• Bellcore commenced work in Sept 1996 building a
  new model and finished in October 1998 (the
  Bellcore model)

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The basis of the Bellcore model

• Assumed best-in-use technology and production
  practices
• Based on revenue data for
• Local calls
• Long distance
• International
• Mobile
• Payphones
• Net cost areas

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Current arrangements for determining USO subsidies

• Part 2 of the Telecommunications (Consumer
  Protection and Service Standards) Act 1999
• Different processes for determining USO subsidies
  and digital data costs
• No legislated formula for determining USO
  subsidies
• Minister determines USO subsidies based on ACA
  advice
• USO subsidies may be determined for up to 3 years

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USO subsidies

• The Minister has determined subsidies up to and
  including the 2004/05 financial year based on ACA
  advice.
• Subsidies are determined separately for the
  Standard, Pilot and Extended Zone Areas and for
  the provision of payphone services
• ACA advice based on principles of the Bellcore
  model that has industry agreement

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Map of extended zones
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Determined USO subsidies
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History of USO Subsidy Amounts
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Digital data costs

• Unlike USO subsidies there is a legislated
  formula for determining DDSO subsidies
• Special DDSO has an industry funded equipment and
  installation rebate of up to 765
• Telstra and Hotkey submit claims for the number
  of special DDSO services installed
• The ACA reviews and assesses these claims

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Digital data cost assessments
Telstra was the sole SDDSO provider until
2001-2002. In 2002-2003 Hotkey provided 9
services for a digital data cost of 4,368.44.
These figures are included in the above table.
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USO Fund administration

• The legislation introduces the concept of
  eligible revenue to apportion the USO subsidies
  and digital data costs amongst carriers.
• The legislation defines eligible revenue in terms
  of an ACA determination
• To define eligible revenue, the ACA has made the
  Telecommunications Universal Service Obligation
  (Eligible Revenue) Determination 2003
• These issue are discussed in greater detail in an
  up coming session.

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• Thank you