Three independent reports to be presented to the Federal Government this week reveal that the high subsidies demanded by Telstra for the provision of rural and remote telephony services cannot be justified.

Telstra, as the dominant carrier, provides services to remote Australia under the Universal Service Obligation (USO). All other carriers must contribute to the costs - in Optus' case, tens of millions of dollars. The exact amount of these contributions has been in dispute for several years. Stephe Wilks, Director Regulatory and Public Affairs for Cable & Wireless Optus, said the company was pleased the reports vindicated its position.

"The findings of the three reports support a USO cost of lower than $256 million, the amount at which the Government capped the USO earlier in the year while these reports were being prepared.

"Telecommunications services, wherever they are supplied, must be affordable and effectively delivered. It is simply not good enough to pour millions of dollars into antiquated and eroding copper networks when more efficient technology is available. People in remote Australia are entitled to have access to a broader array of services, delivered over better technology, at a lower cost.

"For several years we maintained that the costs claimed by Telstra for the provision of a universal service were far too high. At one stage last year Telstra claimed the USO should be as high as $1.8 billion. Telstra has only recently acknowledged the significant role of new technology and admitted that there are better ways of providing services.

"The three reports support our view that the USO for the next two years should be set at $256 million, a realistic and affordable figure that takes the availability of new technology into account. This will also provide a much needed period of certainty as arrangements are put in place to allow all carriers to effectively compete to provide USO services directly," Mr Wilks said.

Editors note:

The USO is an obligation to ensure telephony services are built and maintained for Australians in unprofitable areas - particularly in rural and remote Australia. Telstra is currently the only carrier authorised to provide the USO. All other carriers are required to contribute to the cost of the USO by paying Telstra an amount based on their share of the telecommunications market.

In recent times Telstra has claimed that basic infrastructure and maintenance costs have gone up more than seven times the amount of previous estimates. These ambit claims lead to a review by the Australian Communications Authority (ACA). The three reports are part of that review.

The reports will help the ACA determine the cost of the USO for 1998/99 and 1999/2000. The three reports looked at the Weighted Average Cost of Capital (WACC), the value of Ubiquity and appropriate USO Technology.

The WACC Report, prepared by Allen Consulting, determined the capital cost of funding the USO. The report says that the WACC should be set at 7.2 percent for 1998/99 and 8.5 percent for 1999/2000 - two percentage points below the 1997/98 figures, saving more than $100 million each year.

The report on Ubiquity was prepared by Ovum Consulting. It examined the benefits derived by Telstra being the universal service provider. These benefits include Telstra being able to present itself as ubiquitous, the volume on its network and the resultant brand recognition. These benefits are estimated to be worth between $79 and $130 million in 1998/99 and between $80 and $131 million in 1999/2000.

The Technology Report by Gibson Quai, examined what technology inputs should be used in the USO model. Gibson and Quai's recommendations on technology reduce the USO by $196 million.

It should be noted that, because the technology inputs and the WACC are related, any reduction in technology cost inputs means changes to the WACC have less impact on overall costs.

With the Gibson Quai technology inputs the proposed changes to the WACC move the model to about $30 million.

For more information:
Stephen Woodhill
Cable & Wireless Optus
Phone: (02) 9342 7850