The Government has indicated it will axe the Telecommunications Service Obligation levy that compensates Telecom for servicing uneconomic customers, replacing it with a new “telecommunications development” levy that will help pay for its $300 million initiative to improve rural broadband. Communications Minister Steven Joyce said the change would not effect Telecom's obligation to provide landlines at rates capped by inflation and unmetered local calls. The cost to Telecom of servicing uneconomic customers has been estimated by the Commerce Commission at about $70m a year. All major telcos, including Telecom, pay their share. But Mr Joyce said the method used to calculate the TSO did not take into account the benefit Telecom derived. "By counting both the costs and the benefits of the TSO it is likely that the TSO levy will reduce to zero for the foreseeable future," he said. The Government would look to raise $50m a year from the new telecommunications development levy for the next six years. The Government would fund the first $100m of its rural broadband initiative to roll out fibre to rural schools and fast broadband to 80 per cent of rural households, with the remainder met by the levy.