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Thursday, 5 May 1994
Page: 310

Senator ALSTON (Deputy Leader of the Opposition) (12.06 p.m.) —This bill amends the Telecommunications Act 1991 to relax prohibitions on price discrimination and to set up a process under which Austel will be able to test telecommunication tariffs for their anti-competitive effects. The Telecommunications Amendment Bill 1994 is designed to deal with the apparent illegality of various pricing options introduced by both Telecom and Optus. The most important of these have been Telecom's flexiplan schemes and the strategic partnership arrangements entered into by Telecom customers.

  Currently in the Federal Court Optus is arguing that certain of these flexiplans and SPAs are illegal under the anti-discrimination provisions of the current act. Flexiplans are pricing schemes under which, for a flat fee, customers receive discounts on various types of service. For example, for a certain amount per month a residential customer may receive a five per cent discount on all local and STD calls. Strategic partnership arrangements are arrangements between Telecom and large corporate customers under which Telecom provides bulk services at a discount. As dominant carrier in many service markets, Telecom is strictly forbidden to price discriminate in those markets against any person under section 183. At present the only exception is when price differences can be justified on a cost basis.

  It is generally agreed that the intent of the act was not to rule out innovative pricing schemes as such. However, certain anti-discrimination provisions of the act, particularly section 184(3) which appears to rule out the bundling of two or more services, appear to do just that. Both Telecom and Optus offer flexiplan type pricing arrangements, and neither would like to see them all declared illegal. On the other hand, there has been concern that some Telecom flexiplans bundle services where there is competition, such as STD connections, with services in which Telecom is dominant, such as local calls. Clearly only Telecom is in a position to do this. There has also been concern that discounts offered under Telecom SPAs with large corporate customers have not been cost justified.

  The history of this matter is a long sorry tale. In November 1992 Optus made representations to Austel claiming that SPAs, and indeed a range of other services, were uncompetitive. Austel immediately took action and held an informal inquiry whereby it consulted extensively with Telecom, Optus, the department and the minister's office from November 1992 until January of the following year.

  Following these discussions all parties concluded that there were defects in the legislation. Austel also concluded that the legislation did not reflect government policy in relation to innovative pricing or discounting. Yet, despite all of that, despite there being heated agreement on all sides, here we are in May 1994 and this bill is still not through the parliament. A succession of ministers ought to accept at least some responsibility for this, particularly Senator Collins and his then junior minister, who undoubtedly were urged on many occasions to bring this matter to the parliament to ensure that any illegalities that were currently operating were not allowed to continue and that any doubt surrounding the current provisions was resolved.

  Indeed, the current minister, the Minister for Communications and the Arts (Mr Lee), cannot escape liability in this regard either. On the basis of a report in the Australian newspaper it seems that it was only when threats were made—perhaps in desperation—that up to half the Telecom board would resign because of fears about their own personal liability that finally the rocket achieved the desired effect and the current minister then finally resolved to take action. That is not a very satisfactory state of affairs. It certainly does not augur too well for someone who described these amendments in today's Australian Financial Review as being his one bright idea as a minister. Indeed, Louise Dodson of the Financial Review describes this as the biggest issue that Mr Lee has so far had to deal with.

  The changes undoubtedly have widespread industry support but this is likely to be due to a sense of immense frustration and a continuing desire to resolve the uncertainty as it is a reflection of any inherent confidence in the current proposals. It is, I think, true to say that one cannot ever be certain about the effect of provisions, particularly in this area where the technology is moving very fast, a number of the marketing plans are indeed innovative and have to be tried in the marketplace, and the anti-competitive provisions are still in their infancy in terms of their operation. But, having said all that, I must say that it seems that there has been an inordinate delay. Whilst one can understand that the minister is certainly not wanting to have greatness prematurely thrust upon him, his glacier-like response to these changes does not constitute a very auspicious debut.

  The language of the minister's second reading speech talks in terms of this being `fine tuning', `removing any doubts', and that `it has become increasingly apparent that a number of tariffs may breach the provisions of the act in a technical but unintended sense'. That, of course, is not news to anyone. That has been known in the industry for something like 12 to 18 months. That is why I think there has been great concern on all sides to finally see these amendments proceed through the chamber as quickly as possible.

  Although we were given very little time to consider the effect of these amendments, the opposition did take the opportunity to canvass a number of aspects with the industry. It is on that basis that we do say that there does seem to be widespread support. However, we were concerned that the provision that requires services to be generally available was expressed by the minister to have the intention of also having broad appeal. Whilst I certainly accept that that could have yet another unintended consequence of striking down packages that are targeted at small segments of the customer population, the fact remains that, if there is any doubt in due course and these matters do come up for resolution in the courts, the courts are then entitled to have regard to the minister's second reading speech. I think significant confusion could indeed arise as a result. The minister uses the expression—and I quote:

. . . the following types of discriminatory tariffs will be permitted:

(a) Those that are generally available; that is, of broad appeal to customers and potential customers.

The advice that I have received—and I think this would be the view of Telecom and others—is that there is a very significant difference between `generally available' and `of broad appeal'. `Broad appeal' could either require a judgment to be made at the beginning as to whether or not packages were likely to be of broad appeal, or it could involve a judgment after the event as to whether there was a high take-up rate. Whichever it is, it still poses particular problems for plans that might be restricted to certain groups, such as particular countries to which there is a large volume of traffic and where it makes sense for Telecom and Optus to provide discounts, certainly on an off-peak basis. Those are generally available, but they may not be of broad appeal, because only a certain segment of the population would be interested, for example, in calling Cambodia on a regular basis. I think the minister ought to at least clarify his understanding of that terminology so that in the event that these matters do come before the courts we are not allowing the courts to proceed on a false basis.

  The bill has been described by Peter Leonard, a very respected commentator and, I suppose it should be said, a lawyer acting for Optus in a number of matters—

Senator Collins —I agree; I think that should be said.

Senator ALSTON —I make the point I do not think anyone would in general terms doubt his objectivity. In this instance I think it is clear if one reads the article in Australian Communications that if he does have a partisan view it is very well disguised. Certainly, I think his long track record in the industry is one that has earned him considerable respect. He describes these as the most fundamental changes to telecommunications regulations since the current regime began. He says:

  The Government states the Amendment Bill is intended to . . . `remove any doubt that a dominant carrier can offer certain charging options which would otherwise be discriminatory and hence in breach of the Telecommunications Act.'

As I have already indicated, that is a marked understatement. The fact is there is not only doubt but there seems to be a general belief that current arrangements are illegal and therefore there needs to be not just some minor clarification or fine tuning, but careful and specific changes.

  Indeed, the minister's claim that his one bright idea involves a movement away from `black letter' law to vesting Austel with a much broader degree of discretion is, in itself, an admission that these are very fundamental changes and will, of course, require that Austel has the necessary resources. It is now given more time in which to make these judgments on tariffs. Perhaps one of the most significant changes of all is that it can, after the event, disallow new tariff provisions. Its general power under section 46 of the current act would allow it to make random checks on specific tariff arrangements. All of that should at least help to ensure that no-one is tempted to go beyond the bounds of the legislation and should certainly enable Austel to exercise its powers comprehensively.

  The bill also gives Austel the power to disallow tariffs filed by a dominant carrier which materially and adversely affect the development and/or maintenance of commercially sustainable competition. That is not a provision that is in line with the Trade Practices Act approach. It is clearly a tougher test—deliberately so and, I think, rightly so. That is an overarching power that will need to be exercised with care.

  The scheme of the act allows discrimination in several circumstances, as I have previously indicated, such as under tariffs that are generally available. Again, I stress that Peter Leonard points out that the tariff must be a broad appeal to customers and potential customers. So once again we have people proceeding on a basis which may cause considerable difficulties down the track.

  Secondly, I turn to the case of a tariff which is not generally available but in respect of which exceptions are able to be made. The tariff is now allowed if permitted by Austel and if it is not anti-competitive. Austel may allow discrimination in three cases: one, if justified by cost differences—as I understand it, that is likely to be the route that would enable the resurrection of SPA type arrangements in due course—secondly, `if justified by community interest in promotion of universal service availability at reasonable cost'; and, third, `if justifiable as a trial, pilot program or demonstration'.

  Austel is not required to immediately review existing tariffs. An exempt tariff must still be subject to scrutiny and disallowance by Austel because of its anti-competitive effect. That is where this tougher test, which is deliberately different from the provisions of the Trade Practices Act, would come into effect.

  The bill will also enable the minister to give directions as to how Austel is to perform its functions. Austel will be required to follow draft ministerial directions which can be disallowed by the parliament. Austel will be required to promptly undertake a comprehensive review in relation to bundled tariffs, particularly SPAs and flexiplans, which calculate discounts based on the usage of two or more services. This has been a vexed area and one that I think is in need of urgent attention. Clearly, the intention of the legislation is that there should be a higher degree of transparency where a carrier provides a service exclusively, such as Telecom providing local calls. A company should not be in a position to bundle that in with other competitive services and thereby provide a combination which its competitor cannot compete against.

  I note that the minister says that it is government policy that a carrier who is in a position to dominate a market should not be permitted to bundle telecommunication services where that conduct is anti-competitive. On the face of it, that leaves open the possibility that services can be bundled where the conduct is competitive. Where there is only one carrier providing a service, it clearly is intended that that should be regarded as anti-competitive. The sooner Austel ensures that that situation does not arise the better. As I understand it, the carriers are likely to file general tariffs that will allow an objective assessment of the true cost of each individual service rather than bundling them, as has happened in the past. I think that will be a great step forward.

  The opposition supports these amendments without any further need for amendments. We very much trust that the new regime will be successful and that Austel will have the resources to exercise its watchdog role fearlessly and impartially. Clearly, it is operating in untested waters where there are very significant interests and very large costs involved in investments. In those circumstances, it is absolutely imperative that the regulator be fearlessly impartial and certainly facilitate the growth of competition in this dynamic area. If it is allowed to do that, and we do not have any more of the dilatory behaviour and procrastination that we have seen in bringing these amendments forward, hopefully litigation of any sort will be kept to a minimum.