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Environment and Communications Legislation Committee
Telecommunications (Regional Broadband Scheme) Charge Bill 2017 Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017

GALLAGHER, Mr Bill, General Counsel, Corporate Affairs and Telstra Wholesale, Telstra

SHAW, Mr James, Director, Government Relations, Corporate Affairs, Telstra

Committee met at 18:00

CHAIR ( Senator Reynolds ): It being 6 pm, I declare open this hearing of the Senate Environment and Communications Legislation Committee in relation to the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and a related bill.

This is a public hearing, and a Hansard transcript is being made. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all evidence to be given in public, but, under the Senate's resolutions, witnesses have to right to request to be heard in private session. It is important that witnesses gave notice if they intend to ask to give evidence in camera. In addition, if the committee has reason to believe that evidence given may adversely hurt a person, the committee may also direct that the evidence be heard in private session.

If a witness objects to answering a question, the witness should the state the grounds upon which the objection is taken, and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, the witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

I remind everybody in this room, including myself, to ensure that their mobile phones are switched off or turned to silent. On behalf of the committee, I would like to sincerely thank all of those who have submissions and who have sent representatives here to appear before us. Given that we do have a very short time frame for each of the witnesses, I will ask that you keep your opening statements, given we have your submissions, to five minutes or less, and I will cut you off after five minutes.

I welcome Mr Bill Gallagher and Mr James Shaw from Telstra. Information on the protection of witnesses and evidence has been provided to you, correct?

Mr Shaw : Yes.

CHAIR: I now invite you to make a brief opening statement.

Mr Shaw : Thank you. Telstra appreciates the opportunity to give evidence to the committee on these bills. We broadly support the three policies enacted by the bills and we congratulate the minister and his department on bringing the underlying concepts to fruition. We also have some comments and observations that we believe could improve the operation of the legislation when enacted.

We support the statutory infrastructure provider, or SIP, regime because it will give customers guaranteed access to a fixed infrastructure connection capable of supporting superfast broadband and voice regardless of where they live or work. With an eye to the future, we propose the minister's powers to designate a SIP be moderated by a requirement to consider NBN the primary SIP nationwide, and appoint only SIPs that have contractual relationships with the government to service an area.

We welcome the requirement for carriers to notify the ACMA when they are the SIP for an area, to ensure there is clarity about which carrier has infrastructure responsibility. But we ask that the time frame for notifications which must be made to the ACMA be made consistent for all carriers.

Telstra supported the concept of the rural broadband subsidy when it was first proposed because it supported a level playing field for NBN and underpinned the provision of regional and rural broadband infrastructure. But the scope of the RBS has since been broadened into a general industry tax applicable to networks which have never posed a competitive threat to NBN, including enterprise networks, and we propose that this change be reversed.

As drafted, the legislation imposes a complex formula for liability, combining the loosely defined concepts of premises, local access line and designated broadband service. We propose instead that the levy apply simply to services in operation for networks within its scope. The concept of services in operation, or SIOs, is well understood in the telco sector. We propose delaying the start date of the RBS by one year to 1 July 2019 and increasing the levy amount to cover 2018, if that's thought to be necessary. We make that proposal based on the complexity of the IT bill that is required to implement the RBS.

Under the legislation, Optus's networks are exempt from the RBS where they are due to be decommissioned; whereas Telstra's are only exempt where they are due to be transferred to the NBN. We would simply like parity of treatment with regard to our Velocity networks that will also be decommissioned. The existing superfast network obligations have been bedded down well within the industry over the build of the NBN, and we think the one-kilometre exemption rule should remain for all networks subject to overbuild by NBN, which is now protected by the superfast Carrier Licence Conditions determination. We also propose that the general ministerial power to exempt networks from the obligations should be retained post 1 July 2018 to deal with any unforeseen circumstances.

And, finally, we propose that the test for an exempted business network should be that it is wholly or principally, rather than exclusively, used for business services to reflect the reality of the business networks which may have some residential use at the margin. With those remarks, thank you for the opportunity to come today, and we're very happy to take questions.

CHAIR: Five minutes on the dot, thank you very much, Mr Shaw.

Senator O'NEILL: Could I ask for a copy of the opening statement. There's a lot of detail in there.

Senator DUNIAM: Are there scribbles?

Mr Shaw : There are scribbles all over it.

Senator O'NEILL: That's alright—I was an English teacher; I'm used to that.

Mr Shaw : I'm quite happy to email one to the secretary first thing tomorrow morning.

CHAIR: I think that'd be acceptable. Thank you very much, Mr Shaw.

Senator CHISHOLM: Thanks for the introduction—I missed a little bit of it when the bells rang and I panicked a bit. I'll get to some of the points you made in there, but I'm just interested to start with the move from the one-kilometre exemption to the 50-metre, which I don't think you addressed in your opening statement.

Mr Shaw : We would support retention of the one-kilometre rule.

Senator CHISHOLM: In your submission to the consultation, you say:

The reduction of the exemption to just 50 m will mean that to meet the USO, customers in these developments will likely only have access to a voice service unless the developer is prepared to pay for the additional cost of required ADSL capability. As a result, the outcome for customers in these adjacent developments will either be a loss of access to broadband or additional cost of ADSL broadband if the developer agrees to contribute towards the cost of enabling this.

So Telstra is not satisfied that the bill before the parliament has addressed these concerns?

Mr Shaw : We think that the bill creates those concerns. If we were to leave the one-kilometre rule in place, we believe in the vast majority of cases we can provide services—voice and broadband—to consumers.

Senator CHISHOLM: Is this the point around the separation that would have to take place?

Mr Shaw : No. At the moment, our business is set up to utilise the one-kilometre rule to be able to extend the network in circumstances where the NBN is not there and we have a customer seeking a broadband service. We're well set up to continue to provide that but, by bringing that back to 50 metres, we believe that there could be circumstances where customers would not be able to be provided with a broadband service, given the obligation would be put on us to limit that network extension.

Senator CHISHOLM: How does it impact on your ability to fulfil your universal service obligations?

Mr Shaw : To the extent that we couldn't extend the HFC network, for instance, to provide a service. We would have to look at some other form of infrastructure, so we would either deploy copper or use a wireless service to provide the USO.

Senator CHISHOLM: The bill sets out that the regional broadband charge applies to chargeable premises associated with a local access line, and you have expressed concerns about the implementation challenges this creates in terms of accounting services to determine the levy a company would be liable for. Can you go into more detail—and I know you mentioned this in your opening address—and explain this issue and outline the concerns that you have.

Mr Gallagher : The levy would apply to chargeable premises associated with a local access line. What that requires the industry to do is examine the nature of the line that goes into the premises. That can, in certain circumstances, be quite complex. It might require individual examination of individual premises and the lines going into individual premises, because the concept of a chargeable premise associated with a local access line hangs off one of the definitions in the legislation which requires an examination of the technical capability of the line.

It's not something that industry can immediately determine from their systems. There may well be quite a bit of work involved in determining whether or not a particular line is one that the levy is going to apply to. That's why we propose that it should be moved to a service in operation. That way industry is examining whether or not they have a service—their systems are set to up to determine what services they have—and so it's a far easier thing for industry to determine when a levy is chargeable or not.

Senator CHISHOLM: What does Telstra understand the rationale for that local access line definition to be?

Mr Gallagher : I think it was just the way that the department sought to capture what it sought to capture. It was trying to zone in on particular premises and particular customers in premises.

Senator CHISHOLM: In terms of the proposal of moving to a services-in-operation approach towards the levy calculation, what implications would that have for Telstra? Does it increase or reduce the number of services that you would have under the levy?

Mr Gallagher : We think it would potentially increase the number of services. That would likely mean there would need to be an adjustment in the amount of the levy, because you would then be spreading the total amount across a broader base of individual units.

Senator CHISHOLM: What impact would it have on what you would actually pay?

Mr Gallagher : It needn't make any impact. If you were simply to adjust the levy to the appropriate amount, the total amount that any individual carrier pays might end up being exactly the same.

Senator CHISHOLM: So you're saying make it revenue neutral but spread it out.

Mr Gallagher : Correct.

Mr Shaw : It's revenue neutral in the amount of levy collected, but the key point for us is it aids the IT build that would support the collection of the levy. It's just simpler for our systems to use existing concepts rather than create new concepts and then build a system around them.

Senator CHISHOLM: NBN Co has argued that any high-speed services provided in low-cost footprints—that is, those that are not loss making—should be within the scope of the levy. On this basis, does Telstra think there is any reasonable justification for extending the scope of the levy to business services?

Mr Gallagher : NBN Co, as part of its business case, has always known it had to compete against other business networks. That's always something that's been there. The original idea of the levy was as a way to address a revenue leakage issue in the NBN Co business case. That revenue leakage was created by cherrypickers—people who would go in and cherrypick or provide services to customers—who, in NBN Co's business case, didn't anticipate that that would occur, hence why there is a revenue leakage in its business case.

The original Vertigan concept was to attach the levy to those services or networks that compete with NBN Co but only to those services which created revenue leakage. Enterprise or business services were always there in NBN Co's business case—in that sense, they were always a revenue leakage—so we say the levy shouldn't apply to them.

Senator CHISHOLM: Have you considered why the NBN have adopted this position? I understand your suggestion about making the scope revenue neutral, but do you think that there's another motivation for why the NBN would've adopted increasing the scope of the levy to collect more revenue?

Mr Shaw : I think that's a question best addressed to others, Senator.

Senator CHISHOLM: The statutory obligation on NBN Co. for the statutory infrastructure provider to take responsibility for all premises within a rollout region once the cease sale applies, including premises that are SC0, SC10 and SC20. Can you describe what the cease sale rules are and specifically what scenario or risk this is intended to address?

Mr Gallagher : I'm not sure if I'm following you. The concept of cease sale doesn't arise under these bills; it arises under Telstra's migration plan. When NBN Co. declares ready for service within a set period after that declaration for an area or for a group of premises, Telstra then is subject to a cease sale obligation and so we can't continue to sell, in broad terms, copper services in that area because that area has commenced the 18-month migration. In essence the parties don't particularly want more customers to go onto that copper network; NBN is in that area and, if someone wants a new service, they should go immediately onto the NBN. So that's a different concept and it doesn't arise under this bill; it arises under a different document.

Senator CHISHOLM: Telstra's submission to the exposure draft says the following about the complexity of the rollout of the NBN: 'In the period leading up to the designated day there is a risk that the NBN Co. may bypass premises which are more challenging to serve or choose to declare smaller geographic areas across of a roll out region. This will lead to a Swiss cheese effect where small pockets within a region are serviced by NBN Co.' Is there evidence that that is occurring at the moment? Or is that something that could potentially happen down the track?

Mr Gallagher : That point arises in the context the geographic scope or the nature of the SIP obligation that NBN Co. acquires before the designated day—essentially before the end of the rollout. It's different to the nature of the obligation that NBN Co. has after the end of the rollout. After the end of the rollout, NBN Co. essentially is the SIP for the entire country, for all premises. Before the end of the rollout, NBN Co. becomes the SIP in those rollout regions that it has declared ready for service. The point that we make on that part of the bill is that it does not make it clear that NBN Co. is the SIP for the entire geographic area in that rollout region. It is possible that NBN Co. might only become the SIP in relation to the premises that it has connected in that rollout region. It is the case today that there are premises in rollout regions which are service class 0, which NBN Co. simply doesn't pass.

Senator CHISHOLM: Yes. The service class 0 numbers have been increasing as well. You are effectively saying that this is a current and expanding problem.

Mr Gallagher : I don't know the extent to which it is expanding. It is still the case that there are service class 0 premises, yes.

Senator CHISHOLM: So it's a current problem. The Telstra submission to the exposure draft displayed concerns that NBN was exempt from connecting premises if the premises were readily capable of being connected to a qualifying telecommunications network. These qualifying networks can include both wireless and satellite networks. Can you please provide more detail about Telstra's concerns here? Can you also describe in a practical sense, using an example or a scenario, the implications for your business and your consumers?

Mr Gallagher : I think we raised that in our submission on the exposure draft of the bills. It was back in February. My recollection of the issue is that NBN Co essentially had an ability to refuse to comply with the SIP, with the obligation to connect, if it could point to another qualifying network in place for that premises. I think our concern was that might pick up fixed wireless and satellite services. There's a question about whether they're as good a substitute for a fixed line service. Our other concern was that the same exemption did not apply to other parties who might become a SIP in a geographic area. From recollection, the exposure drafts of the bills essentially didn't treat like for like, so other SIPs didn't have the ability to refuse to connect in the same way that the NBN Co had the ability.

Senator CHISHOLM: Over the medium term, do you see the design of the regional broadband charge, if implemented, being changed as a result of USO reform or do you see them as distinctly separate issues?

Mr Shaw : We're still waiting for the government to respond to the Productivity Commission report on the USO. Some of those questions might be clearer when we see the direction of USO policy.

Senator CHISHOLM: Do you see a link between the two or do you think that they're separate issues?

Mr Shaw : At the moment, the universal service obligation relates to the provision of a voice service, a standard telephone service, whereas the RBS relates to the provision of the broadband service. In that respect, there's a differentiation. If they come together over time, as proposed by the Productivity Commission, then we have to look at what might eventuate. But, until we get a response to the PC report by the government, it's all hypothetical.

Senator DUNIAM: This is like speaking a different language, I have to confess—all these acronyms and large words. We'll do our best. In terms of the average cost of an enterprise service, is there a typical fee? I know they'll vary, but do you have some sort of typical fee that your business would receive?

Mr Gallagher : Cost or price?

Senator DUNIAM: Price—what you would charge.

Mr Gallagher : I could not tell you, Senator, I'm sorry.

Senator DUNIAM: Is there a range?

Mr Gallagher : It would entirely depend on the bandwidth of the service. You can get very high-speed, high-bandwidth data services for business customers. Large corporates would require very high bandwidth services. Small businesses might require 'smaller pipes', to make it simple. A 'fat pipe' is much more expensive than a thin pipe. There is a vast range.

Senator DUNIAM: For some sort of retail business that employs 30 people and does a lot of internet orders and things like that—online transactions—is there a ballpark figure for a service like that? Is it something you could take on notice?

Mr Shaw : We will take it on notice and talk to our enterprise team to see whether they have any indicators, but I suspect that, at the end of the day, there's no one-size-fits-all.

Senator DUNIAM: Of course not. That's why I asked for a range. I'm trying to understand the matter around the levy for the Regional Broadband Scheme. The proposed levy per service is $7.10. Is that right?

Mr Gallagher : Correct, per premises.

Senator DUNIAM: I'm just trying to get an understanding of how much that is in proportion to the service—if it's a $100-a-month service or in a number of thousands. I'm trying to get some context. If you're taking that on notice—

CHAIR: Just on this point, I have to say that I find it a little unbelievable that you don't have any idea of the rough quantum that your customers would pay for different types of services and different profiles of service. You have no idea.

Mr Shaw : Certainly the people at this table don't, which is why we've taken it on notice. Our sales team might. We've got multimillion-dollar contracts. In fact, with the Department of Defence we've got a billion-dollar contract, and we've got a multimillion-dollar contract with Qantas and CBA, and we have smaller contracts with other firms. Some of them are for a central office at one dedicated location; some are geographically dispersed—a tracking firm, for instance—all over Australia.

Senator DUNIAM: Would they have multiples in that situation?

Mr Shaw : Absolutely. The contract may be for not just the connectivity but applications and services over the top. So there is a multitude of other—

CHAIR: Which takes it from multimillions down to tens of thousands—100,000. So you have a whole range in those quantums, there. Correct?

Mr Shaw : Absolutely.

CHAIR: Well, that's the range. There you go. If you take more specificity on that range that we've just covered, that would be appreciated.

Mr Shaw : We will do what we can.

Senator DUNIAM: Under the points you have made so far, if business and government were to be exempt from paying the levy—or those services to be exempt—who do you think would then pay the levy?

Mr Shaw : Those services that are cherrypicking.

Senator DUNIAM: Sorry. Can you elaborate on that?

Mr Gallagher : It would be those services which are competing with NBN Co. So they are cherrypicking. It's those services that are creating the revenue leakage that, in NBN Co's business case, the Vertigan panel was concerned with.

Senator DUNIAM: Mr Shaw, did you mention IT systems that would need to be built for the collection of the levy?

Mr Shaw : Yes.

Senator DUNIAM: Are you saying that this is something that Telstra would have to design and add onto whatever system you already have?

Mr Shaw : Yes.

Senator DUNIAM: I heard before discussion of exposure drafts of the bill. How long has consultation been going on on this issue?

Mr Gallagher : I think the exposure drafts were released in December of last year.

Senator DUNIAM: Has there been any consultation prior to that, though, in the previous year?

CHAIR: On the concept, maybe—the idea of where they have landed now.

Mr Shaw : There was the Vertigan review which led to the government response, which is now the bill.

Senator DUNIAM: Did Telstra indicate to government that this process and what's being proposed would require the construction of a new IT system? Is that one of your concerns?

Mr Shaw : We have at various points in the discussion. As to where that occurred, I couldn't tell you, Senator. But I think the people in the department that we have been dealing with on this issue are well versed in understanding our business and the impacts of regulation on our business. Our business is, basically, an IT shop. They understand that if they impose a levy on us we would need to build a system to collect it. It wouldn't be a surprise to the department officials when you talk to them later. They talked to us about—any regulatory change that involves dollars, or the like, is an IT bill.

Senator DUNIAM: Which, I'm sure, is not new territory for a company that has all sorts of changes occurring all the time. Mr Gallagher, I think you made a comment before about adjusting the levy to an appropriate amount. Was that you or Mr Shaw? What did you mean by that? What were you getting at there—about adjusting it to an appropriate amount? How do you calculate that?

Mr Gallagher : I think it was in the context of a discussion about if the levy was taken off enterprise customers—

Mr Shaw : I think it's more about the SIOs. I think the point we were making was: if you use the construction that's proposed in the bill at the moment about how to identify a service that was subject to the levy, that is complex for us. If we use the concept of services in operation, which is something that is built into our business now, that may change the number of services that you would calculate the levy.

Senator DUNIAM: And as such it might be higher?

Mr Shaw : Let's just say it was 10 under the current construction but 11 under our construction. If you're looking to collect $100, it would be 100 divided by 10 in one or 100 divided by 11 on the other. So you wouldn't change the quantum that was being collected by government, but the individual amount might change by virtue of using a different formula.

Senator DUNIAM: I am trying to get my head around the point about those providers that are cherrypicking. Do you have any idea how much there are doing that—the ones that you are arguing should be the ones paying this levy?

Mr Gallagher : No, we don't.

Mr Shaw : We don't, but I presume the department does, given they've set a charge.

Senator DUNIAM: Your argument is: those who use the infrastructure should pay for it and the end users should, potentially, foot the bill?

Mr Shaw : We're saying that those people that are on a service that is cherrypicking and causing a revenue leakage from the NBN should pay a levy.

Senator DUNIAM: I understand what you're saying. I'm told now that I have no further time.

CHAIR: You don't. I have one very quick question. I understand from your submission that with the SIP—and there are various ways of calling it—you are supportive of those arrangements.

Mr Gallagher : Correct.

Mr Shaw : Yes.

CHAIR: Why are you supportive of those arrangements?

Mr Shaw : Because it locks in the entitlement of people to get a broadband service.

CHAIR: I understand that Senator O'Neill has one very quick question.

Senator O'NEILL: I want to go back to your comments about revenue leakage. It's been made public—and I wanted your view—that this levy is really about protecting the NBN business case. Is that what's going on?

Mr Shaw : That is a question for the governor of the NBN. As I said, we support the notion of the RBS in its original construction, which is around taking account of leakage that's occurring and the cross-subsidy that's involved with the provision of rural services. Motivations beyond that are really not for us.

Senator O'NEILL: If it doesn't happen, the leakage that you're talking about will occur. What does that do to the business case for NBN?

Mr Shaw : It's a question I suspect that our colleagues from NBN would be better placed to answer.

CHAIR: Thank you very much, Mr Shaw and Mr Gallagher, for appearing here tonight.