Mr Andren asked the Minister representing the Minister for Communications, the Information Economy and the Arts, upon notice, on 29 June 1998:

(1) Is it a fact that (a) the Internet Service Provider (ISP) industry is a small business growth industry in Australia and (b) the Government promotes itself as a champion of small business.

(2) Is it also a fact that (a) Telstra is the only Internet Access Provider (IAP) with the infrastructure throughout regional Australia through which ISPs can access the network, (b) no other IAPs allow ISPs to access their regional nodes and (c) Telstra is in direct competition with local ISPs for the provision of Internet services in many parts of regional Australia; if so, does the potential exist for Telstra to misuse its position in the regional Internet market.

(3) What legislative and administrative safeguards exist apart from recourse to the Australian Competition and Consumer Commission (ACCC) to ensure that Internet providers like Telstra act appropriately in the regional Internet market place.

(4) Are local ISPs able to complain about Telstra services to the Telecommunications Industry Ombudsman; if not, why not.

(5) Within the terms of the telecommunications provisions of the Trade Practices Act, how does the ACCC (a) define the Internet service delivery market and (b) classify organisation as IAPs or ISPs.

(6) How will the competition notices issued by the ACCC to Telstra benefit regional ISPs.

(7) Will he direct the ACCC to investigate Telstra's interconnectivity charging policies in regional Internet markets; if not, why not.

(8) Will he ensure that Telstra does not impose timed local calls upon ISPs for incoming data calls.

(9) Is it inconsistent for Telstra to charge ISPs on the basis of volume of data used but offer individual clients a flat rate of $44 per month for unlimited Internet access.

Mr Warwick Smith (Minister for Family Services) —The Minister for Communications, the Information Economy and the Arts has provided the following answer to the honourable member's question:

(1) (a) The ISP industry may be regarded as a small business growth industry. Various reports place the number of ISPs in Australia at between 500 and 850, most of which fall into the small business category (ie less than 20 employees). The number of ISPs has grown significantly from an estimated 200 in January 1996.

(b) The vast majority of Australian businesses are small. They comprise about 95 per cent of private businesses and number about 900 000. The Federal Government recognises the important role these businesses play, both economically and socially. The Office of Small Business in the Department of Workplace Relations and Small Business has been established as focal point for pursuing Government policy outcomes that benefit, or do not adversely impact upon, the small business sector.

The Office seeks to improve the business-operating environment for small business, and is responsible for:

. providing policy advice to the Government on small business issues;

. building and maintaining effective links with industry, small business organisations, and State and Territory and overseas governments;

. implementing and fostering the Government's small business initiatives; and

. developing an electronic single access point to government business information.

(2) (a) While Telstra has the most geographically extensive Internet `backbone', the networks of other IAPs extend to some regional areas. Regional ISPs may also connect to IAPs other than Telstra's Big Pond Direct, either by dial-up connections at telephony rates or permanent connections by means of leased lines. Which carrier or carriage service provider an ISP approaches for these connections is a matter for the ISP to decide.

(b) No. IAPs other than Telstra do allow ISPs to access their regional `nodes'. Regional ISPs can approach other IAPs to explore alternative means of connecting to the Internet.

(c) Telstra's Big Pond retail units are in direct competition with local ISPs for the provision of Internet services to end users all over Australia, not only in regional Australia. Telstra has advised, however, that it clearly delineates between its IAP business and its ISP businesses. According to Telstra, its ISP businesses acquire carriage and access services from its IAP business on the same terms as are available to any other ISP. As such, Telstra suggests its ISP businesses face the same cost structures as any other Australian ISP with similar economies of scale.

The ACCC has provided the comment that the potential always exists for companies with market power to misuse that power. Telstra has a degree of market power in regional markets for the provision of Internet services. If it should misuse that market power for an illegal purpose, it is open to action under the various laws of Australia including telecommunications specific legislation.

(3) The regulatory framework which was introduced with open competition on 1 July 1997 brought the regulation of competition in the telecommunications industry more closely into line with general trade practices law. All participants in the telecommunications industry are fully subject to the restrictive trade practices provisions contained in Part IV of the Trade Practice Act 1974 (the TPA). The post 97 legislation, however, recognises the scope for Telstra, and other incumbent operators, to engage in anti-competitive conduct. Consequently, there are a number of important mechanisms built into the framework to facilitate vigorous but fair competition. These include a telecommunications access regime, industry-specific anti-competitive conduct regulation, and mechanisms to enable customers to `pre-select' their preferred service provider.

The telecommunications access regime, which is contained in Part XIC of the TPA, establishes clear, legislated access rights for competing service providers to specific carriage services and related services, and establishes mechanisms within which the terms and conditions of access can be determined. The regime is administered by the ACCC and is intended to reduce the market power of those owning or controlling important infrastructure or services which are necessary for competitive services to be supplied to users.

In recognition of the continued market power of incumbent operators, the regulatory framework includes industry-specific provisions for regulating anti-competitive conduct which are contained in Part XI B of the TPA. Under these provisions, the ACCC is able to issue a competition notice to a carrier or carriage service provider which has engaged in anti-competitive conduct. Where such a notice is issued, the ACCC is able to seek pecuniary penalties and a third party will be able to seek damages—if the carrier or service provider continues to engage in the specified conduct.

As the competition regulator, it is appropriate that the ACCC be primarily responsible for addressing allegations of the misuse of market power by Telstra.

(4) No. Only end-users, specifically residential and small business telecommunications consumers, can have grievances investigated by the Telecommunications Industry Ombudsman (TIO). The Telecommunications Act 1997 requires all carriers and carriage service providers (including ISPs) to participate in the TIO scheme. ISPs, therefore, participate in the TIO scheme as service providers supplying end users, rather than as intermediate customers of carriers.

This is primarily because the TIO is intended to operate as a scheme to help consumers and small business, not as a dispute resolution forum for telecommunications suppliers. Complaints about alleged anti-competitive issues are normally most appropriately dealt with by the ACCC and about other matters by the ACA.

(5) (a) The ACCC has advised that, as outlined in its information paper, "Anti-competitive Conduct in Telecommunications Markets", it defines markets according to the circumstances dictated by the various investigations it undertakes. This approach derives from the fact that a particular market definition which is pertinent to one investigation may not be applicable in another. Consequently, an ACCC definition of the `Internet service delivery market' is dependent on the particular service being provided, the functional level (wholesale or retail) at which the particular service is provided, whether there are substitutes to the service readily available, the geographic boundaries of a proposed market, the period of time in which the market might be said to exist and, in some cases, on where the effects of particular types of behaviour are being felt.

(b) The ACCC has advised that it classifies organisations as particular types of service provider based on the service in question and with regard to its discussions with the participants in the marketplace and other industry stakeholders. The Competition Notices served on Telstra on 28 May and 17 June 1998 related to its failure to pay IAPs for `access provider services' provided by IAPs while charging those same IAPs for `access provider services' provided to them by Telstra.

For the purpose of those Notices and following extensive discussion with the industry, the ACCC

(i) defined ISPs as the operators of local or regional communications networks from which end users and content providers (the owners of websites) access other similar networks; and

(ii) defined IAPs as the operators of the high speed broadband `backbone' networks for interconnecting the ISP networks in Australia, and having `nodes', or points of interconnection in the major mainland capital cities.

(6) The ACCC has advised that the Notices served on Telstra have resulted in it reaching Internet interconnection agreements with the other three major Australian IAPs. The agreements will substantially lower the costs each of those IAPs incur in providing Internet `backbone' service to ISPs. The savings made as a result of lower costs are apparently already being passed on to ISPs in the form of lower charges for using the major IAP backbones. This has increased competition amongst IAPs for ISP traffic. Regional ISPs are expected to benefit from this increased competition by being able to pick and choose from a wider range of IAPs now able to compete with Telstra for regional ISP business.

(7) Interconnection prices are, in the first instance, a matter for commercial negotiation between the parties. Should service providers seeking access to relevant services be unable to reach agreement on the price-related terms and conditions of access, they may approach the ACCC to investigate the matter and take appropriate action under the general or telecommunications specific trade practices provisions. Concerned ISPs also have certain rights to take private action where they believe conduct breaches relevant provisions.

(8) The Government has prepared draft regulations under the Telecommunications Act 1997 (the Act) to prevent compulsory B-Party charging by carriage service providers of calls to ISPs from residential and charity customers to access the Internet. The Government would not wish to see undermined its legislated guarantee that residential and charity customers have an untimed local call option for data calls.

The Act mandates an untimed local call option for residential voice and data calls, and business voice calls—but not for business data calls. The Government has taken this approach to business data calls on the basis that business users of services have a greater ability to pay for the services they use and should be expected to do so. It is not in anyone's long term interests to establish cross-subsidies that may potentially impact on residential users of telecommunications services. The B-Party charging draft regulations do not, therefore, include business data calls, because the Act does not preclude carriage service providers from charging such calls on a timed basis to the A-Party.

(9) It is not inconsistent for IAPs to charge ISPs a volume based rate while charging individuals a flat rate. It is common practice within the Internet industry for providers to have more than one price which they offer their various clients the different services they provide. The service provided by an IAP to an individual is different to that provided to an ISP and involves different costs and different economies of scale and scope. Differing costs associated with the different product allow providers to set different prices for those products.

Introductory offers are commonplace, as are volume-based discounts, special deals, unbundled pricing and flat rate offers, some of which are up to a year in advance. The variation in pricing packages is consistent with a competitive market where each of the players strive to differentiate their products from those of their competitors.