Telstra strikes a deal on payphones

THE sight of Telstra payphones on city footpaths and in country towns is secure for the next 20 years following a historical shift in the way payphones are funded in Australia.

For the first time, the federal government is paying Telstra directly to maintain its suite of payphones on a 20-year contract worth $40 million per year. But the future of private payphones is less secure.

Few Australians drop coins into payphones on a regular basis - the number of mobile phones exceeds our population - but everyone wants one nearby in an emergency.

Currently there are 35,000 payphones in Australia, according to the Department of Broadband, Communications and the Digital Economy. Telstra owns 18,900 of these and the remaining 16,100 are placed by private businesses in hotels, shopping centres and busy districts.

While calls from Telstra phones have dropped from 113 million in 2009 to 95 million in 2010, calls from private payphones dropped from about 16 million to 9 million in the same period, according to departmental research.

The owner of a private payphone business, who asked to remain anonymous, says the department has over-estimated the number of private phones.

He says there are only 5000 non-Telstra payphones in Australia and that "within two years there will be no more private phones".

"Who is talking about payphones? Payphones are dead now. We have around 500 and are on the verge of taking them out because we are not making any money," he said. He blames a monthly line rental of $40 per month on top of the cost of buying the payphone. Calls no longer covered these costs, but the government had a duty of care to help keep private phones going, he said.

"These phones will disappear unless the Australian Competition and Consumer Commission decide to cap the line rental . . . no [business] is going to install private pay phones."

But the government has focused its attention on Telstra, leaving the private operators to weigh up the viability of their payphones.

The decision to pay Telstra directly helped sweeten last year's historic deal between the telco and the government. And Telstra keeps its brand on payphones, which reinforces its image as the "primary service provider".

Instead of Telstra being subsidised through an industry levy, it now has a commercial contract with a little-known government agency called the Telecommunications Universal Service Management Agency [TUSMA].

Telstra used to receive about $14 million per year for payphones from the industry levy, plus any revenue from calls. But in 2011 the advisory firm Castalia found it cost Telstra between $35 million and $48 million annually to maintain the phones.

The new contract is not linked to inflation and may change depending on the government's demands. Telstra keeps all the revenue but the government can cap the cost of local calls.

"The contract with Telstra runs to 1 July 2032 and covers all of Telstra's payphones . . . TUSMA may enter into one or more additional contracts with Telstra or other payphone providers if it considers this reasonably necessary to meet the policy objective . . . that payphones are to be reasonably accessible to all people in Australia," a department spokesman said.

TUSMA has also contracted Telstra for another $200 million worth or services - to maintain the triple-0 database, handle emergency calls, the National Relay Service for the deaf and dumb , and maintain telephone lines to people in remote locations who are not commercially viable customers.

Telstra used to provide these services under a "universal services obligation" that was part of its licence condition and a legacy from its origin as a government department.

It is now harder for Telstra to remove a payphone that does not cover its costs, but if it does remove a "significant number" of phones over the next two decades the government can renegotiate the contract.

As it stands, Telstra can only remove payphones after considering the "net social benefit to the local community," the surrounding mobile coverage, and whether the phone would be needed in an emergency.

New laws introduced in 2011 allow the government to direct Telstra to re-install a payphone or delay removal, but these powers have never been used.