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Environment and Communications Legislation Committee - 05/02/2016 - Telecommunications Legislation Amendment (Access Regime and NBN Companies) Bill 2015

MASON, Mr Philip, Assistant Secretary, Market Structure Branch, Department of Communications and the Arts

[14:53]

CHAIR: Good afternoon, Mr Mason. I understand that information on parliamentary privilege and protection of witnesses and evidence has been provided to you. Is that correct?

Mr Mason : That is correct.

CHAIR: I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy; it does not preclude questions asking for explanations of policy or factual questions about when and how policies were adopted.

The committee has the department's submission, and we thank you for that submission. I now invite you to make a brief opening statement, and then the committee will ask questions.

Mr Mason : The department welcomes the opportunity to appear and discuss the operation of the bill. We apologise for the short delay in providing our submission. Originally we had thought that the bill and associated material provided sufficient detail. Having seen the submissions on the bill, however, we recognised that there were some matters where further information could be of use to the committee, so we saw merit in providing that, albeit a little late. I apologise for that delay and trust that the submission has been of use to the committee.

Turning to the bill itself, I will not dwell on its content, as the second reading speech provides a good overview and there is a lot of information in the explanatory memorandum—but of course I am happy to do so if you would like. The bill has its origin in the Vertigan panel's review of telecommunications, which started in December 2013, after the election of the current government and, more importantly, the government's December 2014 response to that review. As the Minister for Major Projects, Territories and Local Government, Mr Fletcher, said in his second reading speech, the bill seeks to make some relatively minor but, importantly, helpful changes to the regulatory framework for telecommunications, particularly as that regime relates to access to networks or wholesale services and less so nbn co's scope of operations. All up, there are around 10 distinct measures set out in eight parts in the bill. These measures fall into six broad areas, which are summarised in the second reading speech. Overall, the amendments seek to provide industry players with greater certainty as to how the regime should operate, to streamline other processes and in some areas to provide greater flexibility for players.

As I said, I am happy to talk about the bill, but it is possibly best left to you asking questions. More likely you are interested in our views on some of the issues stakeholders have raised with the bill. We appreciate that different stakeholders come to the bill with different perspectives and different interests. As the committee will probably have gathered from submissions and testimony today, many of these industry views relate to longstanding or perennial issues about which there is a lot of history as well as different views and different perspectives. We respect those views and look at the issues raised closely. Many of the issues that have been raised with the committee have been raised with the department previously. Our objective, though, is to come up with arrangements that we think best meet the public interest as a whole.

As the Minister for Major Projects, Territories and Local Government said in his second reading speech, and as has been reflected I think in submissions and comments today, the telecommunications sector is of fundamental importance to our economy and our society. Therefore, as the minister said in the speech:

… it is incumbent on us to ensure that the regulatory regime operates as best as it can so that we have a competitive, innovative and responsive telecommunications market.

That is the fundamental objective of the bill. I would note that there are over 200 licensed carriers and service providers in Australia that are potentially affected by the bill. The committee received seven submissions, including our own. This would suggest that there is not a great groundswell of concern about the bill, but obviously there are different views on that matter. That said, those who have made submissions are very important voices in the industry. We do not deny that, and that is why we are giving great attention to the matters they have raised.

Some general comments about the issues raised: there seem to be three generic things that warrant a response. The first is that the bill is seeking to make changes in the absence of demonstrated problems—or, to quote some submitters, to offer solutions looking for problems. I think in most instances the amendments can be tied back to particular identified operational problems, and perhaps that will come up in questions and answers. That said, there is a more academic point that I will raise with some trepidation, because it is fairly academic. In a number of instances the bill does seek to make changes from a more theoretical perspective in light of concerns about matters of principle—for example, how processes work to provide fairness and consistency. In this regard, I could contend that the telecommunications legislative framework as a whole is based on pre-empting problems that are theoretical and not always demonstrated. In short, there is a question about trying to make the machine work better even though it is working well enough as it is. Again, however, I would emphasise that most of the amendments can be traced back to real, concrete issues. Parties may disagree about the number of those issues or the significance of those issues, but there are issues.

Second, there is a concern that some amendments will add to the complexity of already complex legislation, add red tape and encourage gaming. Overall, we think that the amendments will set out what the process is that should be followed; the process will be followed and there will not be that scope. The key issue in many ways is about setting out a clearer due process. Overall, we think the amendments will provide greater certainty and in some instances a little more appropriate flexibility, but we do not see great concerns in this area.

Third, there is an argument that some of the measures codify practice the ACCC already undertakes as a matter of course and therefore they do not need to be legislated. While there is some attraction to this view from a regulatory burden perspective, there is also the reality that many of those measures the ACCC does not need to, even though it does. So we do not see a real problem in making clear the government's and—if the bill is passed by the parliament of Australia—the parliament's expectations of the ACCC's conduct.

I could go into more specific issues that have been raised with the bill, but perhaps that is better dealt with through the question process.

CHAIR: Thank you, Mr Mason. I think the committee would appreciate that additional information. If you would be happy to table your opening statement, that may assist the process.

Mr Mason : I may need to edit it a little bit.

CHAIR: That is fine. If you could perhaps get a revised version and edit it down a bit, it is useful information. The committee would be happy to receive it.

Senator URQUHART: Mr Mason, the government response to the review accepted the recommendation to axe universal pricing, meaning that people in regional areas could pay more for broadband than people in our cities. The proposed changes in part 7 of the bill appear to repeal nbn co's authorisation to provide universal national wholesale pricing. Is that correct?

Mr Mason : I just want to check the reference. Yes, it is part 7 in relation to authorised conduct.

Senator URQUHART: So that is correct?

Mr Mason : That part 7 of the bill would amend the authorisation provisions to move reference to uniform national wholesale pricing?

Senator URQUHART: Yes.

Mr Mason : That is technically correct in terms of how the bill works, but I think the policy context in which you were placing it is not quite correct.

Senator URQUHART: Okay, then we can agree to disagree, but I guess the issue is that the proposed changes in that part of the bill do actually repeal nbn co's authorisation to provide universal national wholesale pricing. So you are saying that is correct?

Mr Mason : No, what the bill actually does—

Senator URQUHART: I am particularly interested in part 7.

Mr Mason : What part 7 particularly does in relation to those activities is to say that nbn co can continue to operate in a particular way, particularly in relation to the points of interconnection it offers and its bundling of services, on an ongoing basis without raising trade practices issues, regardless of the fact that it may not always provide uniform national wholesale pricing. However, the policy context in which that is taking place is that nbn co still needs to provide services capped at the prices in its SAU. So the prices will effectively be capped at the same levels.

Senator URQUHART: Right, but it does not demand that nbn co will do that?

Mr Mason : The legislation has never demanded that of nbn co. nbn co's provision of uniform national wholesale pricing has always been a policy construct.

Senator URQUHART: Can you set out why these authorisations were originally put in the Competition and Consumer Act?

Mr Mason : Yes, certainly. I just point out to the committee that these things are dealt with in quite great detail in the regulation impact statement to the EM. But, in short, the way nbn co is building its network, it is operating 121 points of interconnection and basically requiring its wholesale customers to take a set of services. The way it was doing that enabled uniform national wholesale pricing to be delivered. It also enables the nbn co to be built as the nbn co is currently being built. So that conduct is arguably contrary to some aspects of trade practices law. The parliament, back in 2010-11, decided to authorise that conduct to put beyond doubt whether it was acceptable or not.

Senator URQUHART: So that was the reason why they were originally put into the act?

Mr Mason : Yes, and the way nbn co was approaching the build of the network helped support the delivery of uniform national wholesale pricing, so that was the connection there. But the requirement to deliver uniform national wholesale pricing was, as far as I recall, a policy requirement.

Senator URQUHART: Can the department please set out what the effect of the removal of these authorisations will have on any future efforts by nbn co to move back to universal wholesale pricing?

Mr Mason : The authorisations are not actually being repealed; what is being changed is to make clear the basis on which the authorisations are enduring. The idea is that the authorisations continue to be needed so that nbn co can roll out the network as it has designed and is constructing it. As it was originally enacted, the bill was tied to delivery of uniform national wholesale pricing, even though that was a policy requirement as opposed to a legislative requirement. Because the network is now being built in that way it continues to have to be built in that way. It needs to be built in that way to deliver the NBN, which is related to the delivery of better next-generation broadband for people across Australia. Basically, via the bill we are changing the rationale for the authorisations. I am sorry it is long and convoluted, but that is what it is.

Senator URQUHART: It is a very technical issue. I understand that. Will the authorisations have any future effect on nbn co's ability to move back to universal wholesale pricing?

Mr Mason : I do not really see why they should because, as I have said, it goes to how the network is being built. But again, the issue is—

Senator URQUHART: The question is: will they, though? You are saying that you do not see that they should be, but the question is: will it have any future effect on efforts made by them to move back to that? Can it?

Mr Mason : I am sorry, but it is difficult for me to give a categorical answer in relation to the future about something that is not government policy. As far as I am concerned, the amendments are being made to enable the NBN to be built as it has been designed and as it has been built. I guess that network build and that network approach have supported uniform national wholesale pricing in the past. If it is built in the same way then, arguably, it could continue to do so in the future under a different policy framework, but that is really a matter of speculation. As I have said, there is a difference between the policy setting in relation to pricing and the legislative framework. I guess a different government could adopt a different policy approach, and I do not really see that this would be a fundamental issue for it, because the network would be there. The question is: what pricing requirements would you require of it?

Senator URQUHART: From the department's view, could these changes present any complexity cost for retail service providers? For example, in cases where differentiated wholesale prices require a different retail product set—say a cheaper retail product in cities and a more expensive one in regional areas.

Mr Mason : No, because the legislation is about enabling nbn co to continue to build the network in the way planned without falling foul of any trade practices law or restrictions. It is not really about actual pricing outcomes.

Senator URQUHART: Can you categorically say that, if this legislation goes through, people who live in regional areas will not pay any more than people in cities?

Mr Mason : Not as a result of this legislation. This legislation is not concerned with that issue.

Senator URQUHART: I did not ask you about whether or not it was to do with the legislation. Can you tell me: if the legislation goes through, can you guarantee that people in regional areas will continue to pay the same amount as people in cities?

CHAIR: I am not quite sure whether it is both a hypothetical question and a question of an opinion on policy intent.

Senator URQUHART: It would be a change in the way that it is dealt with right now.

CHAIR: Mr Mason, if you do think that this is a hypothetical question or a question on the intent of government policy, I would be happy for you to treat it as such. But if you do not feel that it is, then please feel free to answer the question.

Mr Mason : I think I can answer the question. I think, as you said earlier, Senator Urquhart, the government has indicated that it has moved to a policy of wholesale price capping. I think that is what you said. A policy of wholesale price capping protects the—

Senator URQUHART: I did not talk about wholesale price capping; I asked whether or not nbn co would move back to universal wholesale pricing. I did not talk about capping.

Mr Mason : If it is to move back to uniform national wholesale pricing, it is from the policy of price capping, which is where we are now. Wholesale price capping is the government's policy. It means that people in regional areas are protected by the prices set in nbn co's SAU.

Senator URQUHART: You are saying that will not change?

Mr Mason : Price capping is the policy and it has been indicated, I am sure, that the caps are those set in nbn co's SAU. The point of price capping is that people are protected by the prices set, but nbn co does have flexibility to lower prices in some other areas where it faces competition—if necessary.

Senator URQUHART: If there were competition in, say, a city area—as opposed to a regional area—it could end up that consumers in cities would pay less than people in rural areas?

Mr Mason : That is a function of competition. I think that is why the government has introduced the policy and I do not think it has tried to hide that fact. I think the general approach in relation to competition is that if consumers can benefit from competition in markets, they should do so. But people who cannot benefit from competition should still have access to affordable and attractive prices. That is basically what the price-capping policy deals with. The other thing the government is working on is funding for non-commercial services to further reinforce that.

Senator LUDLAM: Thank you for coming in and providing some assistance. In your opening statement, you described this legislation as 'helpful'. You were not specific about whom you believe this legislation will be helpful to—because we have not been able to find anybody yet. Who will this legislation be helpful to?

Mr Mason : I would have thought it could be helpful to a wide range of industry players. My recollection of the submissions is that both Telstra and Optus said they supported a number of the measures. I think Macquarie and the CCC have called into question all of the measures. That is two at least. I think, as I said, there are many people in the industry who have not complained. But I accept the point that silence should not be taken as acceptance. If you wanted to, I could go through item by item and explain how people could benefit.

Senator LUDLAM: It is just that we have heard directly from people—I do not know whether you were in the room when Telstra and Optus were giving evidence. They had quite different points of view. I think there was general agreement that some of the bill was housekeeping and fairly innocuous. Optus certainly were not supportive and neither were Telstra. So you might want to review some of the submissions you have been getting. The CCC were there in a representative capacity, representing the smaller and mid-tier players in the sector. I would have thought that, if this were for their benefit, they would be supportive. I find that a bit perplexing.

Mr Mason : I am just looking at the Optus submission. In paragraph 3, they support five of the measures and they raise questions about four of the measures. So I accept that they do not accept the package as a whole. I accept that some of the ones they are querying are perhaps the more substantive ones. But I do not think it is quite right to say they oppose it in its entirety. I will go to some of the people who might benefit from the changes.

Senator LUDLAM: I would appreciate that.

Mr Mason : At the moment there are two regimes of facilities access—two ways carriers can seek access to facilities, which are things like exchange buildings and towers. At the moment, you can seek it through the Telecommunications Act or you can seek it through the ACCC and the part 11 process. There is scope—and this was identified by the Vertigan panel—for there to be confusion over which of those regimes applies, depending on which is activated. The bill seeks to make it clear that, if the ACCC provides an access decision, that would have precedence over the other regime. We see the benefit of that being that the ACCC can set benchmark prices and terms and conditions in relation to access. That could speed up access for any person seeking it, as opposed to the alternative, the negotiate-arbitrate process, which has generally been abolished in part 11C because it was prone to long time frames and gaming. That is one benefit.

Moving on to pilots and trials, which is one of the more contentious issues, I guess: we think this is of benefit to three classes of people. The first one would be nbn co in that nbn co at the moment is subject to very strict nondiscrimination obligations both in relation to the supply of services and in relation to the development of products, which is really what the provisions focus on. Where nbn co will need to develop new products or trial new products—and I think Optus contended it has already been able to do so; to the extent it has, it is a fairly limited example—I think the department's concern is that nbn co needs to go through hoops to be able to meet the nondiscrimination obligations. We believe that this will provide some flexibility for nbn co.

The second class of people that we think would benefit are actually service providers who actually would like to innovate. This would provide a means for them to go to nbn co and say, 'We have got a good idea but we want to trial it on your network first.' The way we understand the current regime works, because of the way the nondiscrimination provisions were struck out in 2010 and 2011, is that that idea would have to be shared with everybody who could potentially use the NBN. We are concerned that that would discourage innovation.

Senator LUDLAM: Have you got any examples of that happening?

Mr Mason : I suppose, Senator Ludlam, this is one of the areas where I say we think we are dealing with more a theoretical problem but I think we are keen to provide space in theory for it to happen than to stifle the possibility of it.

Senator LUDLAM: So it is a theoretical problem we are addressing? You cannot actually point to any examples of where that has happened?

Mr Mason : I think the CCC said they had not identified anybody. I am in the department and not everyone comes and complaints to us when they have an idea stifled. There are a couple of perspectives on this. I think the CCC and Macquarie did make the point that the NBN rollout is still fairly early in the process so there are other priorities so people may not want to be coming forward with innovative ideas yet, so that is one factor. But we do actually need to prepare for the future. We do not necessarily envisage coming to parliament seeking amendments to the telecommunications regime every couple of years. So that is one particular reason.

Senator LUDLAM: It sounds like a rather abstract problem that we are attacking here for benefits that you are seeking when actually some very practical costs have been outlined. I am genuinely perplexed as to why the government has brought this forward. If this is for the benefit of access seekers, we have just heard from Optus, Macquarie and CCC in a representative capacity, who are representing the most likely access seekers, that they do not want the bill in its present form. Does that worry you at all?

Mr Mason : No, not really because it is Optus, it is Macquarie and it is the CCC, the scope of whose membership I am unclear on at the moment. So those are three players—arguably, a few more—out of the marketplace. I think at the moment nbn co has around 80 wholesale customers. There are many more players in the market. I think there was discussion during the previous testimony about where innovation is driven from—is it driven by big players or small players? It is a range of players, but small players are often known to be nimble. So I understand the line of questioning and I cannot give you concrete examples but we are trying to create opportunities.

The third category of people who we would think would benefit from this would be consumers in terms of benefiting from innovation down the track. The other comment I would make in relation to pilots and trials is there seems to be some notion that what we are doing is creating an opportunity for somebody to come up with an idea and for nbn co to launch that service for that person and for that person to operate it for a honeymoon period and to capture customers. I do not think that actually qualifies as a pilot or a trial. A trial or a pilot is fundamentally about getting an idea and actually seeing if it works. This is the way the provisions would work. The ACCC has scope to say, 'We do not think that this is a bona fide pilot or trial,' and to take action.

Senator LUDLAM: I presume that it is still government policy that nbn co only retains its natural monopoly characteristics in the areas which are appropriate as a wholesale provider. It is still government policy, or are we deliberately trying to loosen those restrictions?

Mr Mason : I think government policy is that nbn co is a commercial venture and it needs to operate on a commercial basis. So its fundamental sphere of operation is really what has been to date generally a Telstra monopoly type of area, which is a residential local access network.

Senator LUDLAM: I am not sure that you answered my question there at all. Do you think nbn co should be allowed to operate data centres, for example?

Mr Mason : I think the issue is: would those data centres be retail data centres?

Senator LUDLAM: Apparently. That is what our previous witnesses put to us.

Mr Mason : Nbn co is not allowed to provide services to end users. It is fundamental to its wholesale only character.

Senator LUDLAM: Previous witnesses have put to us that you are potentially loosening those restrictions so that it could start branching out to those sorts of services. Would you agree with that?

Mr Mason : Sorry, it is not clear to us how that is the case.

Senator LUDLAM: You might want to review some of the evidence that has been put to the committee. If you think it is worth rebutting, then I would appreciate it.

Mr Mason : We have reviewed the evidence. It is a bit difficult to rebut the contention. If it wants to operate data centres for retail level customers, that would be operating in the retail market and it is explicitly prohibited from doing so. I think it is section 9 of the act. In terms of the regulation-making power that is proposed, which I guess is at the bottom of what we are talking about here, they cannot actually modify the operation of section 9 of the NBN Companies Act.

Senator LUDLAM: I will leave it there.

Senator BACK: I will pick up, if I may, where Senator Ludlam finished off. Mr Mason, in the answer that you gave, you made the statement nbn co cannot provide services to end users. Was I correct in hearing that?

Mr Mason : That is correct. That is the general model. I have to qualify it, of course, because there are slight exceptions. Technically it can supply services to utilities, which could be of the nature of end users. That has been in the legislation since it was introduced by the previous government in, I think, 2010.

Senator BACK: Do the proposed amendments that we are dealing with here change in any way nbn's capacity to provide services to any other end users, compared to what is in the legislation now?

Mr Mason : Not as far as I am aware. I have read the submissions closely. I cannot see how that happens. Obviously there is a regulation-making power that is designed to provide flexibility in relation to the line of business restrictions. It does not go to this issue of supply and operation in the retail market.

Senator BACK: Can I go to your comments on pilots and trials. Did I hear you correctly when, in answering a question, you said that as the legislation is framed at the moment, if a service provider went to nbn co said, 'We want to trial a new, innovative technology,' that would have to be made public or made known to all other providers. Is that correct?

Mr Mason : That is my understanding of the law, yes. I would say that under the regime that is proposed there would be quite considerable information in the public domain as to what was happening as well. So the issue is not simply about secrecy. That in itself is an issue, as you would appreciate, but it is also about saying: 'We have this idea. We want to trial it to see if it works and be able to take advantage of that initiative.'

Senator BACK: At the moment they could not do that with any degree of confidentiality with the wholesaler?

Mr Mason : That is our concern, yes. But they need to make clear that the issue of confidentiality will not be fully addressed. It goes beyond confidentiality. It is the fact that nbn co as we understand it would not be able to offer the service for trial. So if I could pick up on Mr Foreman's analogy, if I may for a moment—I think he was talking about water and beer.

Senator BACK: He was; yes.

Mr Mason : So, for example, if someone came up with the idea that they want the water supplied by nbn co to provide a new fancy cocktail drink, they, arguably, would not be able to do that because that would be discriminatory—they would be getting special treatment.

Senator BACK: Even at the trial stage?

Mr Mason : Yes. The tweak to the product would need to be available to all of their competitors, even though they had put no effort into—

Senator BACK: Even though, as yet, there is no a product—because it is a concept. It is not a product yet.

Mr Mason : Yes.

Senator BACK: Nevertheless, a party, be it Macquarie or anyone, wanting to go to nbn—to use that gentleman's analogy about knocking up a cocktail—could not do it with any degree of confidentiality because it has to be in the public arena.

Mr Mason : Yes, but, sorry, I still need to say that the confidentiality issue will not be fully addressed.

Senator BACK: No. I understand that.

Mr Mason : There will be information about that.

Senator BACK: Nevertheless, with the proposed changes, there would be the capacity for somebody to come forward with some innovative new concept and be able to trial it—with the wholesaler?

Mr Mason : With nbn co as the wholesaler; yes.

Senator BACK: With nbn co as the wholesaler, without the rest of the market being part of that process or being aware of it.

Mr Mason : Yes. Well, they would be aware of it because there needs to be notification. That is actually one of the safeguards—in that—

Senator BACK: I do not understand how it changes then.

Mr Mason : It changes because nbn co would not actually be able now to provide, say, the tweaked vanilla product that the innovator wants to use.

Senator BACK: But will they be able to should this legislation be passed?

Mr Mason : Yes, there would still be information about the idea, but not as much information as may be the case. But the way in which we understand the regime works at the moment, if somebody comes forward with that idea, and say, 'We want this tweaked product from you, nbn co, so that we can trial our new idea,' nbn co has to make that available to everybody from that date.

Senator BACK: Now?

Mr Mason : Yes.

Senator BACK: But they would not have to make it available to everybody should the legislation be passed.

Mr Mason : That would be the objective. But after the trial period nbn co would need to make it available to everybody on a non-discriminatory basis.

Senator BACK: I am happy about that to trigger my next question. So in the event that the trial succeeded—this innovative idea succeeded—the benefit that the original promoter of it would have would be time in the sense that they developed it, they are ahead of the game, they are ahead of the market. Therefore, the consumer benefits because there is some new product in the market, and the original party who promoted it gets the advantage because they were there first.

Mr Mason : Yes, there would be that type of advantage, but, again, we have also been quite careful, we hope, in saying they are not being given a honeymoon period, as it were.

Senator BACK: No, they are not being given a honeymoon period with the development of it or with rolling it out, but they are receiving some priority in terms of testing it.

Mr Mason : In our view, they would receive the benefit of trialling, testing, getting it more marketable and getting it more market-ready as a reward for their initiative, as it is.

Senator BACK: Which they cannot do now?

Mr Mason : Yes, as we understand it.

Senator BACK: The reason I am asking these questions is I have asked other witnesses if they have participated in pilots and trials, and they have said, no, they have not. It becomes apparent to me now why they have not, Mr Mason. It is simply because there are those other 85 contractors, clients, out there that you are speaking about, and they know very well that by taking an idea forward to nbn co they receive no benefit at all at the moment. It has become apparent to me, in the way that you have explained it. This seems to me to be one of the most significant advantages, both to service providers and then to consumers, because it is through those innovations that consumers are going to benefit.

Mr Mason : Thank you, Senator, that is what we think, too.

Senator BACK: It takes me a while to get my mind around these things, Mr Mason. But I can see now particularly why a smaller innovative player would not be wanting to put their hand up—because they are going to get eaten up. Hansard does not record nods.

Mr Mason : I am sorry. Yes, we agree.

Senator BACK: No problem at all.

Mr Mason : That is the objective of the amendments, really.

Senator BACK: That really has been the main question that I wanted to ask you—that is, what the problems are that this change is seeking to address. In the fast-moving world of electronic communication, you have answered it for me.

Mr Mason : Yes. And I think that environment is actually very important, and Mr Healy actually talked about that himself—the dynamic nature of the industry.

Senator BACK: Is there a reason then, how or why, discrimination may assist innovation in these pilots or trials? Or is discrimination and the innovative processes far apart from each other?

Mr Mason : Giving a little history may be a better way to explain this. I think there is a general acceptance in economic theory that discrimination is actually a good thing. If somebody can produce efficiencies in buying goods or services then that should be able to be reflected in the price at which they buy things. The original legislation introduced into the parliament in 2010 by the previous government actually provided for discrimination on efficiency grounds. But as you have probably heard from testimony today—and this is one of the perennial issues in the telecommunications industry—there are concerns about that being taken advantage of, perhaps, and benefiting particular players. So the parliament did not accept those discrimination provisions—they were struck out.

The bill and the act still contain very strict requirements about non-discrimination in relation to product development, which takes us to where we are. But, unfortunately, when the discrimination provisions were struck out no adjustments were actually made to provide any flexibility in relation to product development, which is why we are here. As a result of that, our view is that, if nbn co engaged with somebody with a new idea in the kind of way that you have been describing, that would technically be discrimination and that is not lawful under the act. So it is an issue that, yes, discrimination may actually be beneficial in some instances and actually foster innovation.

Senator BACK: It is at the phase and stage that the concept becomes a product.

CHAIR: I have a point of clarification on that. I have just found this exchange very helpful in locking in my understanding of the issue. Would it be accurate to describe what is technically called discrimination as being protection for those who have some IP or some ideas that they want to incubate and trial, but it is only for 12 months. It may be a layman's or non-legal thing, but in terms of the concept are we actually talking about protecting small innovators, particularly, who cannot compete with the bigger companies? Are we talking about protecting them for 12 months so that they can trial and test their idea, but after 12 months it then has to be made public and available?

Mr Mason : I am reluctant to use the word 'protecting'. I think it is more about creating opportunities. There are all kinds of ways you could tackle this kind of issue.

CHAIR: Instead of discrimination—and I know that is the legal definition—I am just trying to find this other concept. Protection also has other connotations—so, encouraging?

Mr Mason : I would describe it as creating an opportunity that does not necessarily exist. I am just a bit reluctant with this notion of protection, because it sounds like we are creating this regime where basically you give an innovator a holiday period where they can go and scoop up the market in advance, which is potentially problematic. That is something we have been quite mindful of. It is one approach that actually could be taken, but it is not the approach that has been taken. It is quite clear that this is in relation to pilots and trials, and the ACCC, as the expert regulator—and we have great confidence in the ACCC's competence—can make a judgement that this is not really a pilot or a trial but is a way for you to try to capture the market in advance, and that is not what we are about or what we want to achieve.

CHAIR: I think 'creating an opportunity' is probably the expression I was looking for. As Senator Back said, there must be some really great ideas on innovations and new products, but if they are not coming forward for these pilots and trials yet, the intent is to create an opportunity for them to come forward and trial it. Then, after 12 months, it goes into the public domain.

Mr Mason : Yes, the product is generally available. And the pilot may not be for 12 months. It is actually up to 12 months. The ACCC may say, 'That is unrealistic. You do not need 12 months to pilot that or trial it. You can have six months.' It may be a shorter period.

Senator BACK: My final question goes to the powers of the ACCC. We heard a scenario in which the analogy was given of an inquiry going on for a period of time and just at the time the ACCC is about to make its final determination a truckload of new data comes along. The ACCC considers that they do not have the time or the opportunity to consider this completely new data so they come to a determination and the party that provided the truckload of data then appeals to the courts to say, 'We have provided all of this information and the ACCC did not take it into account. Therefore we want to appeal their decision,' inevitably delaying it. That scenario has been presented to us. Do you understand that to be realistic? Has it happened? Do the amendments as proposed have any impact at all or capacity to, if you like, diminish that opportunity?

Mr Mason : Yes, the general scenario is familiar, but I need to provide a bit of context. As I have said, many of these issues are perennial, and it is hard to know if examples people are using are from recent times or if they are from distant past times and have actually been addressed. So I think these issues are coming up in relation to our proposals, for example, that the ACCC should look at what approach it has taken to determining prices in one context vis-a-vis another context and that it should consult in making certain fairly important regulatory decisions and those kinds of things.

A lot of these concerns about gaming were actually addressed in amendments in 2010-11, including the removal of merits review from part XIC, which is a pretty significant step. I think Telstra raised that with you. As a result of that, industry does have judicial review still. It can still go to the courts and say, 'Was due process followed?' That is a fairly fundamental right, and in the absence of merits review it is a bit hard to query that, really. So it is incumbent on the regulator to follow due process. I think the contention of some of the submitters is that, if you add yet another procedural requirement to the framework, which in some areas we are, or if you add a new flexibility in some areas, which we are, there is a scope for people to complain that due process has not been followed. Yes, that is a risk, but at the same time the point is to provide due process that is reasonable. For example, in relation to affected parties needing to be consulted if the ACCC makes a regulatory decision that affects them, which apparently is standard practice anyway, it does not actually seem to be too burdensome for us to expect that of the ACCC. The way the amendments are actually drafted, it says that is really the expectation on the ACCC, but in reality it does not actually invalidate the ACCC's decision. So it is not the firmest whip that could be applied.

Senator BACK: If I can just follow that up, we had issues raised by Optus, Macquarie and the ACCC questioning whether the elements of the bill as they have been presented to us in any way undermine the discretion, the capacity or the power of the ACCC. I think you have answered it. I think you have indicated that it is not the case but, just for my clarity, can you comment on that.

Mr Mason : I guess in some ways it is a question of perspective. I do not think it undermines the power or authority of the ACCC. It puts in place some additional procedural requirements which the government thinks are reasonable and appropriate. Most of those flow from the Vertigan inquiry, which was undertaken over a period of at least a year and was staffed by people with significant industry experience. Then, in some other areas, it provides some greater flexibility. People can contend that that makes the job harder for the ACCC, but I do not recall the ACCC saying these were particularly burdensome or odious changes. As far as I recall, a lot of the submissions argue that you do not need to make these changes, because the ACCC does this as a matter of course, which seems a rather odd argument for not making sure the ACCC does them.

Senator BACK: We speak about innovators. To date, the assumption I have been making is that that refers to those who are already service providers. What if any is the capacity for a non-service-provider innovator to come up with a concept? They are unlikely to bring that to market themselves. They come up with a concept: do they have the capacity under the proposed bill—or indeed even now—to go to NBN Co and say, 'We've got this idea. We'd like to trial it.'? Of course, should it be successful, because they are not a service provider they would go to the service provider market to try and sell their concept, now a product, for the benefit of consumers.

Mr Mason : I was leafing through the act, but I am not sure it would provide me with a ready answer. Basically, these kinds of rights apply to a person who is an access seeker. My recollection is that an access seeker can be both somebody who is actively providing services and somebody who potentially will be, so if they were 'potentially will be' they would have the benefit of it, but I am not certain on that. I can take that on notice if that helps. The simpler answer is that it is probably more likely to be people who are already signed up as customers with NBN Co. That is probably the simpler answer.

CHAIR: In relation to our discussion about the intent of the bill, to assist me to understand fully the concept, in terms of creating an opportunity, would it be fair to say that what the bill is attempting to do, or is doing, is create a time limited opportunity for innovators to experiment before sharing on equal terms with all other providers?

Mr Mason : I think that is a fairly eloquent summary, yes.

CHAIR: We have no further questions. Thank you, very much, Mr Mason, for the department's written submission and also for your evidence today. That concludes today's hearing. I thank all witnesses today for their informative presentations. I declare this hearing closed.

Committee adjourned at 15:41