Mr McGAURAN (Minister for Science) (9:45 AM) —I move:

The Telecommunications Competition Bill 2002 introduces a range of measures to enhance the level of competition and improve the investment climate in the telecommunications sector. The measures will ensure that consumers continue to enjoy lower prices and improved services from a competitive telecommunications industry.

The objectives of the bill are to:

· speed-up access to `core' telecommunications services;

· facilitate investment in new telecommunications infrastructure;

· provide a more transparent regulatory market, particularly in relation to Telstra's wholesale and retail operations; and

· enhance accountability and transparency in tackling anticompetitive conduct.

The Telecommunications Competition Bill makes amendments to part XIB of the Trade Practices Act 1974, which deals with anticompetitive conduct in the telecommunications industry, and part XIC of the Trade Practices Act, which deals with interconnection and access to telecommunications services. The bill also makes some amendments to the Telecommunications Act 1997 and consequential amendments to the Telecommunications (Carrier Licence Charges) Act 1997.

The bill implements the government's response to the Productivity Commission's inquiry report on Telecommunications Competition Regulation and builds upon amendments introduced by the government last year to streamline the Australian Competition and Consumer Commission's (ACCC) arbitration process for telecommunications access disputes. The provisions in the bill have been developed following extensive consultation with industry and other key stakeholders.

It is important that the telecommunications regulatory regime provides timely, efficient and transparent outcomes for all involved. The Telecommunications Competition Bill will deliver these benefits and provide a boost to competition during a period when external factors, such as access to capital, are providing new challenges for the telecommunications industry.

The Productivity Commission's report confirmed that the underlying regulatory philosophy of the current telecommunications competition regime is appropriate. Since the introduction of open competition in the telecommunications market in 1997, the government has made a number of amendments to the regime with a view to ensuring that it operates effectively and continues to promote the long-term interests of end users.

The proposed amendments in this bill will further improve the operation of the access regime and the anticompetitive conduct rules. The key measures in the bill include:

· encouraging further investment in the telecommunications infrastructure required for broadband and other key communications services, by enabling potential investors to obtain up-front certainty, through undertakings to the ACCC about access prices and terms and conditions that will apply to their future investments;

· providing greater certainty and more timely access for access seekers, by removing merits review of ACCC arbitrations, requiring the ACCC to produce model terms and conditions for `core' telecommunications services, encouraging voluntary undertakings and ensuring the effective operation of the standard access obligations;

· improving the operation of the anticompetitive conduct regime under part XIB by enabling the ACCC to issue advisory notices before a competition notice is issued and requiring the ACCC to consult with affected parties before issuing a competition notice; and

· requiring the preparation and publication of regulatory accounts to provide greater transparency of Telstra's wholesale and retail operations, particularly in relation to the `core' interconnection services provided over Telstra's network.

The Productivity Commission's report noted that the telecommunications access regime does not enable potential investors in a telecommunications service to receive an exemption from the standard access obligations or to lodge an access undertaking until they supply an active declared service. This acts as a disincentive for new investment because it means potential investors cannot obtain certainty as to whether or not their service will be declared and, if so, on what terms they would be required to provide access before making their investment.

The government recognises the need to provide investment certainty. To achieve this outcome, the bill extends the existing provisions in part XIC to enable the ACCC to grant ex-ante exemptions and approve access undertakings for services that are not yet declared or supplied. The access provider will be able to enter into a regulatory compact with the ACCC that takes into account the benefits to the access provider, potential access seekers and consumers.

In recognition that ex-ante exemptions or undertakings could relate to nationally significant telecommunications infrastructure, the ACCC will be required to have regard to any views of the minister specified in a disallowable instrument.

A major initiative in this bill that will facilitate more timely access is the repeal of merits review of ACCC arbitration decisions by the Australian Competition Tribunal (ACT).

ACCC arbitration hearings involve a detailed and exhaustive assessment of access pricing and other issues. Repeating this process before the ACT can be costly and unnecessary, leaving access seekers to bear the contingent liabilities, given that final prices can be backdated by the ACT to the time of the access dispute. Lengthy delays in finally resolving access disputes impose costs on industry participants and create uncertainty for investors, particularly in a telecommunications industry that is subject to rapid technological change.

Parties to an arbitration will still be able to appeal the decision of the ACCC on a point of law to the Federal and High Courts.

The bill assists parties to reach commercial agreement on fair terms and conditions of access by requiring the regulator to publish model terms and conditions of access to `core' fixed line network services that are supplied over the Telstra network. In the first instance, these model terms and conditions will cover the:

· domestic public switched telephone network originating and terminating services;

· unconditioned local loop service; and

· local carriage service.

There will also be flexibility for regulations to prescribe other declared services that should be subject to the requirement to publish model terms and conditions if this becomes necessary.

Publication of model terms and conditions for `core' services will signal to the industry the price and non-price terms and conditions that the ACCC would be likely to determine in an access arbitration. This will in turn encourage parties to reach agreement through commercial negotiation rather than relying on arbitrated outcomes.

In keeping with the underlying philosophy of the regime, the bill incorporates a number of provisions to encourage timely access through industry-wide voluntary undertakings. Because of their voluntary nature and industry-wide application, the bill retains merits review by the ACT of access undertakings.

Express provisions will enable the ACCC to defer consideration of an access dispute in order to consider a voluntary undertaking. In exercising this power, the ACCC will be required to have regard to the industry-wide application of undertakings compared with the bilateral operation of arbitration decisions. While the ACCC will be given the flexibility to consider other relevant matters that could outweigh these industry-wide benefits, it will be required to publish transparent guidelines on the exercise of its deferral power.

The government's view is that, in most cases, the commission should seek to consider a voluntary undertaking in advance of an arbitration. There may be, however, circumstances, such as in relation to the timing of the lodgment of an undertaking or in relation to the content of an undertaking, where it is appropriate to deal with an arbitration in advance of an undertaking.

The bill also ensures that a voluntary undertaking overrides any previous arbitration decisions from the date that the undertaking is accepted by the regulator—or by the ACT following merits review. This amendment will supplement existing provisions in the act that prevent the ACCC from making an arbitration decision inconsistent with an accepted undertaking.

The bill imposes time limits on ACCC or ACT consideration of voluntary undertakings, subject to extensions of time where necessary, and limits ACT review to evidence that was put to the ACCC by relevant parties or otherwise identified by the ACCC for the purpose of its inquiry process.

The government has previously announced that it will encourage a more transparent regulatory market by requiring accounting separation of Telstra's wholesale and retail operations, particularly in relation to the `core' interconnection services provided over the Telstra network. Accounting separation will address competition concerns arising from the level of vertical integration between Telstra's wholesale and retail services and substantially improve the provision of costing and price information to the ACCC as regulator, access seekers and the market.

The broad objective of accounting separation is to provide transparency to the ACCC, competitors that access the Telstra network and the market generally. Accounting separation will assist in identifying whether Telstra is discriminating between itself and its competitors in relation to price or non-price terms and conditions of supply.

Publication of an enhanced level of transparent cost information together with mechanisms for release of more detailed information to access seekers on a confidential basis will result in a better informed market. It will also assist Telstra's competitors in commercial negotiations about access prices and in participating in matters before the ACCC.

Accounting separation will be implemented by giving the minister a power to direct the ACCC to prepare or publish reports using its existing broad record-keeping rule powers under part XIB. It will not constrain the ACCC in the use of its existing powers. Rather, it will ensure that these powers, which have been underutilised in the past, are better used to provide improved transparency of Telstra's wholesale and retail operations. The ACCC will be directed to ensure that:

(a) Telstra prepares current (replacement) cost accounts (as well as existing historic cost accounts) to provide more transparency to the ACCC about Telstra's costs as an ongoing sustainable business;

(b) Telstra publishes current cost and historic cost key financial statements in respect of `core' interconnect services;

(c) the ACCC prepares and publishes an `imputation' analysis based on Telstra purchasing the `core' interconnect services at the price that it charges external access seekers; and

(d) Telstra publishes information comparing its actual performance in supplying `core' services to itself and to external access seekers in terms of key non-price terms and conditions.

Use of the directions power will enable the introduction of an accounting separation framework without the complexity of specifying detailed regulatory accounting rules through `black letter' law. The proposed framework incorporates best practice elements of overseas regulatory accounting models without interfering in Telstra's internal business operations or reducing Telstra's capacity to realise bona fide economies of scale and scope.

Part XIB of the Trade Practices Act provides an important regulatory tool for the ACCC to deal with anticompetitive conduct. The accounting separation framework will supplement these regulatory powers by assisting the ACCC and industry to identify whether there is an industry pattern of unfair price discrimination, `price squeezes' or other anticompetitive conduct. At the same time, the accounting separation rules will also provide Telstra with the opportunity and the incentive to demonstrate that there are no systemic problems.

There are also specific measures in the bill to improve the effective operation and accountability of decision-making under part XIB. The ACCC will:

· be required to issue guidelines on the circumstances in which it will issue a competition notice as opposed to taking other action under the Trade Practices Act;

· be required to consult with a carrier or carriage service provider before issuing a part A competition notice; and

· be able to issue advisory notices before any competition notice has been issued and therefore possibly before any anticompetitive conduct has occurred.

The bill also contains a number of more minor amendments to the Trade Practices Act which adopt recommendations of the Productivity Commission.

The bill also includes competition related amendments to the Telecommunications Act 1997, such as moving the responsibility for determining which services should be subject to preselection from the Australian Communications Authority to the ACCC and removing the legal requirement for carriers to have, and to report on, a current industry development plan.

In conclusion, there is a range of specific measures in the bill each of which will improve the operation of the telecommunications competition regime. The package of measures will also combine to make the telecommunications competition regime more timely, effective and accountable.

Despite the appearance of complexity, as detailed in this second reading speech, in actual fact, especially for those who are in charge of the regulatory oversight as well as those who are required to adapt to it, it is a fairly straightforward but not entirely simple matter—all of it directed at the principle of making the industry more competitive so that benefits flow through to consumers.

Importantly, the combination of the ex-ante undertakings, model terms and conditions for key interconnect services, ACCC power to defer arbitration hearings and the removal of merits review of individual disputes will strongly encourage a greater emphasis on industry-wide undertakings in preference to drawn out individual arbitrations.

While this bill implements substantial regulatory reform, the government recognises that the changing and dynamic nature of the telecommunications industry will require ongoing monitoring to ensure the regime continues to meet the needs of an open and competitive telecommunications market. However, it is important that regulatory change is demonstrated to be necessary, targeted to specific practical problems and implemented within a consistent regulatory philosophy. The measures in this bill meet these tests and are broadly supported by the telecommunications industry. I commend the bill to the House and table the explanatory memorandum.

Debate (on motion by Mr Zahra) adjourned.