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Wednesday, 23 March 1994
Page: 2112


Senator SHERRY (Parliamentary Secretary to the Minister for Primary Industries and Energy) (6.23 p.m.) —I move:

  That this bill be now read a second time.

I table the draft ministerial direction to Austel and seek leave to have the second reading speech incorporated in Hansard.

  Leave granted.

  The speech read as follows

The bill will ensure a continuation of the Government's policy in the area of telecommunications pricing. It will inhibit the development of potential anti-competitive effects, and will strengthen mechanisms for enforcement of that policy. The policy was detailed in the Government's statement on telecommunications in November 1990, and remains an important part of the measures we have adopted to develop a competitive, world-class, consumer-oriented telecommunications industry.

Policy Context

Before addressing the detail of the legislation it is necessary to put the proposed changes in context.

In introducing major reforms to the telecommunications sector in 1991 the Government paid particular attention to the need for long-term, commercially sustainable competition to develop in a relatively short period of time. The Telecommunications Act 1991 incorporates an integrated package of competitive safeguards designed to ensure that a dominant telecommunications carrier does not abuse its position so as to unfairly restrict the operation of new entrants.

The experience with the current regulatory regime has been very positive. Competition between Optus and Telecom in the long distance and international markets means that today's prices are, on average, some 40 per cent lower in these areas than they were five years ago in real terms. Both carriers are facing price and service competition from Vodafone in the digital mobile market. And even in this increasingly competitive environment, Telecom has recently declared a record half-yearly after tax profit of $997 million. It has been able to do so because, as the Government expected, competition has not only lowered prices; it has driven up demand, and spurred Telstra to improve its efficiency and customer service faster than it lost market share to Optus. As a result, Australia now has a bigger, better, more efficient telecommunications services sector. The achievements are a tribute to the company and its workers.

Nonetheless, the Act as originally drafted has led to some unintended consequences that now need to be corrected in the light of experience in an increasingly competitive market. This is essentially "fine-tuning" of a system that is working well.

Purpose of the Bill

In broad terms, the bill is intended to do two things.

Firstly, it will remove any doubt that a dominant carrier can offer certain charging options that would otherwise be discriminatory and hence in breach of the Telecommunications Act. AUSTEL, as the specialist regulator, will have a role in determining whether charging options are discriminatory.

Secondly, it will enable AUSTEL to disallow tariffs that materially and adversely affect the development and/or maintenance of commercially sustainable competition.

Why the Bill is Needed

It has become increasingly apparent that a number of tariffs introduced by carriers since the advent of competition may breach the anti-discrimination provisions of the Telecommunications Act in a technical but unintended sense. Telecom's Flexi-Plans (providing usage-tailored discounts to both residential and business customers for a fee) and Strategic Partnership Agreements (providing large corporate customers with volume discounts) are the most prominent of these, although there are almost certainly others that are affected.

It is now also apparent that there is the potential for some carrier pricing practices to have the effect of inhibiting the development of competition in telecommunications.

These effects need to be addressed to maintain progress in competition, innovation and customer benefit.

The Government has consulted extensively with the industry to address this situation so as to ensure that, while the integrity of the package of competitive safeguards embodied in the Act is maintained, there is no inadvertent prevention of pricing initiatives that benefit consumers and that are not anti-competitive. This bill achieves these objectives.

What the Bill Does

Exemption from Discrimination Provisions

The Act currently prohibits price discrimination by a dominant carrier, except where the discrimination is based on differences in costs. The bill retains the anti-discrimination provision, and recasts the exemptions so that 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. Tariffs under which a service is available to be acquired on the same terms and conditions by major customer groups, such as business customers, residential customers or those in a class of persons determined by AUSTEL will be allowed—but those that are narrowly targeted, in such a way that competition is inhibited or the benefits of competition are narrowly focused, will not. This change will, among other things, effectively permit the majority of existing Telecom Flexi-Plan tariffs. There are currently some 2.3 million Flexi-Plan customers;

(b)  Those where discrimination—even if narrowly focused—is, in AUSTEL's opinion, justified by differences in the carrier's costs. Some Telecom SPAs would be expected to be assessed under this provision. This approach provides significant practical scope for Telecom to demonstrate its commercial case to AUSTEL as to the cost-justification of specific tariffs. The amendments will explicitly allow broad network cost savings to be taken into account and will provide considerable flexibility to accommodate the commercial realities of the industry;

(c)  Those justified by the community interest in promotion of universal access to the standard telephone service. This would include, for example, existing community and pastoral call rates offered by Telecom; and

(d)  Trial programs, pilot programs and demonstrations, such as Telecom's current trial of calling line identification.

Some of these types of tariffs will require AUSTEL to exercise some judgement as to whether they fall within one of the above categories specified in the bill. In view of the specialised nature of this area of regulation, and the need for swift action to enable commercial decisions to be made, the Government wishes these matters to be dealt with in substance by AUSTEL rather than the courts.

Additional Pro-Competitive Measures

There is general agreement within the industry that pricing behaviour that adversely affects competition should not be allowed. The Government considers that AUSTEL, as the appropriate independent regulatory authority, should have the authority to act to stop such behaviour. This is particularly important for the development of the telecommunications sector, which is still in a transitional phase from monopoly to competition. This form of safety net is a logical complement to the broadening of exemptions from the anti-discrimination prohibition.

Accordingly, the bill proposes a new power for AUSTEL to disallow a tariff of a carrier that is in a position to dominate a market if it is "anti-competitive". To ensure consistency with the Government's overall pro-competitive regulatory framework for telecommunications, an "anti-competitive" test is defined quite specifically as one that would materially and adversely affect the development and/or maintenance of commercially sustainable competition in a market. This test, which only applies to tariffs of a dominant carrier, is deliberately different from those applicable under the Trade Practices Act. This reflects the still developing nature of competition in telecommunications, and the barrier to competition that would otherwise be represented by Telstra's incumbent position.

It should be noted that the new power to disallow anti-competitive tariffs will extend to tariffs that are permitted by virtue of the new discrimination exemptions. That is, a tariff that is exempt from the anti-discrimination provisions, for example because AUSTEL considers the discrimination is cost-related, may still be subject to scrutiny and disallowance because of its "anti-competitive effects".

Ministerial Direction

It is important that AUSTEL's proposed new power be exercised in a way that is consistent, and is seen to be consistent, with Government policy. The bill enables the Minister to give directions to AUSTEL about how it is to perform its functions under the new tariff disallowance provisions. Such a direction will be a disallowable instrument.

A draft Ministerial direction to AUSTEL has been prepared under this proposed new provision, and I will be seeking leave to table it at the conclusion of this speech.

The draft direction:

requires AUSTEL to develop, in consultation with industry, a framework and procedures under which it would exercise its powers;

specifies matters that AUSTEL must take into account in deciding whether a tariff should be disallowed (such as assessing the overall effect on the market of the tariff), although this list is not meant to be exhaustive;

requires AUSTEL to consider whether a tariff is anti-competitive (as defined in the bill) if specified circumstances exist.

I want to draw particular attention to the Government's policy on "bundling" of telecommunications services by a dominant carrier. "Bundling" occurs where a tariff contains components of different services (such as uncompetitive basic access and local calls "bundled" with competitive services such as long distance). It is Government policy that a carrier that is in a position to dominate a market should not be permitted to "bundle" telecommunications services where that conduct is "anti-competitive". The draft direction requires that AUSTEL examine all "bundled" tariffs and decide if they are "anti-competitive".

It is important to note that the Minister will be limited to spelling out policies and principles, and will not be able to direct AUSTEL to disallow a particular tariff.

Period for Examination of Tariffs

At present AUSTEL has only two days in which to consider a tariff filed with it under the Act before the tariff becomes operative. The new arrangement proposed in the bill is that a tariff for a basic carriage service by a dominant carrier does not come into force before the 15th business day after AUSTEL receives it, or an earlier date if AUSTEL so decides.

There are two reasons for this change. The first is to ensure that a dominant carrier does not introduce an anti-competitive tariff and benefit from its effects before AUSTEL has had a reasonable opportunity to consider whether it should be disallowed. The second reason is to give AUSTEL sufficient time (if necessary) to apply all necessary scrutiny, including application of the criteria specified in the Ministerial direction.

Other Matters

The bill repeals existing sub-section 184(3) of the Act because its meaning has been found to be uncertain in practice. The new provisions inserted by the bill clarify the Government's policy intentions.

None of the measures in the bill displace the operation of the general competition provisions of the Trade Practices Act, and this is made clear in the bill.

Implementation

The proposed date of commencement for the amending Act is 15 March 1994. This is the date on which the Government announced the changes embodied in the bill. This fixed date is desirable to provide certainty to industry, including carriers and their customers.

Austel Resources

Administering these new provisions will be a significant task for AUSTEL. It will need to exercise judgement in relation to exemption of tariffs from the anti-discrimination rules; develop a framework for exercising its new tariff disallowance powers; and scrutinise dominant carrier tariffs to determine if they are "anti-competitive".

It is critical that AUSTEL be properly resourced, as the success of these measures will largely depend on AUSTEL's ability to administer them. The Government will be providing additional funding for AUSTEL in this regard for the period 1993/94 to 1996/97.

I should note that AUSTEL has proved to be a highly successful regulator of an industry that has undergone significant change in a short period of time. It has managed difficult and complex issues such as interconnection and the preselection ballot, as well as provided advice on a range of special issues, and done so in a professional and timely manner.

Consultation with Industry

There has been extensive consultation with the telecommunications industry on these proposals. The bill's objectives have general acceptance, and the Government considers that the bill puts in place workable arrangements to implement its policy.

Further Review

The longer-term operation of the price discrimination provisions of the Telecommunications Act, including the question of consistency with the general competition policy framework, will be given further consideration as part of the previously foreshadowed review of telecommunications arrangements to apply after 1997.

I commend the bill to the Senate.

I present the Explanatory Memorandum to this bill.

  Debate (on motion by Senator O'Chee) adjourned.