Australia and contestable USO provision

Australia provides a unique example of a market where the regulator has attempted to encourage other operators to compete with the incumbent, Telstra, for universal service provision. However, despite several years of the programme, no competitor has ever emerged, indicating that the other operators believed the net cost areas could not support more than one provider.

The goal of the Australian Universal Service Obligation Fund was to encourage competition in under-served areas by licensing other operators to become universal service providers (USPs). Therefore, in 2001, the Australian government announced two pilot projects in regional areas to test new arrangements for competition in delivering universal service (US). The first pilot was located in the south-west of the state of Victoria and in the south-east of the state of South Australia; the second was in the north-east of the state of New South Wales and in the south-east of the state of Queensland.

The pilot areas were divided into a total of 213 US areas that encompassed 52 local government areas. Telstra, as the primary USP, was obliged to offer service to all customers in the contestable areas, but other carriers could also have been approved by the regulator as competing USPs for those areas. The key policy objectives for introducing USO contestability were as follows:

  • Increase consumer choice;
  • Increase benefits to consumers in terms of pricing, service innovation and service quality;
  • Improve infrastructure and regional investment, including employment;
  • Provide more equitable access to USO subsidies; and
  • Reduce the underlying costs of delivery of USO services.

Despite the government’s efforts to create areas with multiple USPs, in 2005 the Ministry for Communications, Information Technology and the Arts declared that Telstra was the only USP and that there was no competition in the provision of US.

Telstra, as the designated USP, must ensure that standard telephone services (STS) and payphone services are reasonably accessible on an equitable basis to all people in Australia, wherever they reside or conduct business. STS prices are regulated. As a result, in high-cost areas, the USP cannot always recover the full cost of its service from the customer.

Losses from the provision of such Universal Service Obligation (USO) services are shared among all telecommunications operators, which are required to contribute to the costs of providing the USO in proportion to their overall share of the telecommunications market. Contribution shares are calculated using an eligible revenue formula.

The regulator, the Australian Communications Authority (ACA), determines those geographic areas – known as “Net cost areas” - for which a USP may claim compensation for its losses. Within 90 days after the end of the financial year, the USP may file a claim to the ACA for a credit based on its claimed net universal service cost for the financial year. Essentially, this is the total cost incurred by the USP to deliver services less the revenues gained in providing such services.

Sources: Sepúlveda, Edgardo and Andrew Dymond. “Relevant international experience, including Australia, as it relates to the India USO proposed Guidelines.” November 28, 2002; Department of Communications, Information Technology and the Arts website:; The Australian Communications and Media Authority website:

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