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Tuesday, 23 November 2010
Page: 1953

Senator XENOPHON (5:58 PM) —I think it is pretty fair to say that most Australian families have a fixed home phone line and at least two mobiles, if not three or four. Many have connection to the internet and quite a few have pay TV as well. There is no question that the telecommunications industry will continue to grow and, as technologies improve and networks advance, it becomes even more essential to safeguard the interests of competition and consumers. Indeed, with a reported figure of more than four billion mobile phone users worldwide, expected to reach five billion in coming years, safeguarding and serving the consumer’s interest remains paramount.

As far back as 1901, the Postmaster-General’s Department was established by the Commonwealth to manage all domestic telephone, telegraph and postal services. Today Telstra is the core provider of telecommunications services in Australia. Telstra has operated and continues to operate as a retailer providing consumers with contracts, handsets and services as well as a wholesaler providing copper cable and mobile access to competitors. Being vertically integrated, with its hands effectively in both wholesale and retail pockets, Telstra has the market captured. While Telstra has around 1.4 million shareholders who are keen to ensure the company makes the biggest profits it can, it is crucial that the market is as fair as possible so that all consumers receive the best access and best services within the competitive telecommunications market.

The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2010 sets out a framework for either a voluntary structural separation or a compulsory functional separation of Telstra and puts in place a number of safeguards with regards to access, competition and consumers. This is a critical piece of legislation and in some regards it has been a long time coming. This is also critical in the context of the rollout of the National Broadband Network because it effectively gives the parliament the last major opportunity to make sure that we are on the right track.

I have long campaigned for fairer competition and the rights of consumers and I have been aware for many years of the recurring allegations of unfair and anti-competitive practices by Telstra in the past. I do acknowledge the more open and engaging approach that David Thodey has brought to the company as CEO. When it comes to structural separation, yes, I do believe that Telstra should structurally separate in the interests of fairer competition and the interests of consumers. For too long Telstra has monopolised the market. Currently, as a vertically integrated giant with substantial power and market share, Telstra can project that power throughout the sector in a way that allows it to maintain its dominance across the marketplace. I agree with the Senate Standing Committee on Environment, Communications and the Arts, which noted:

Telstra is one of the most integrated tele-communications companies in the world.

It also noted:

Partly because of this integration, it has been able to maintain a dominant position in virtually all aspects of the market despite more than 10 years of open competition.

Above all, though, I agree with the majority of the committee:

Telstra’s high level of integration has hindered the development of effective competition.

Telstra’s vertical dominance of the telecommunications sector today has put it in an unrivalled position to transfer knowledge and/or engage in pricing tactics that undermine its competitors. The result, I believe, is hindered competition and poorer services. Indeed, without strong and ongoing pressure to compete, Telstra only faces the demand of serving its shareholders, leaving service to customers as an optional extra as many would see it. In response to Telstra’s current vertical integration this bill provides a framework that seeks to lessen Telstra’s dominance through either a voluntary structural separation or a compulsory functional separation. It must be noted that structural separation is subject to a vote by shareholders sweetened by $11 billion worth of taxpayers’ funds.

My office and I have had many, many consultations with Telstra as well as with other key stakeholders in recent months not to mention recent days and nights and Telstra has made it clear that it accepts a separation of some form is on the cards. By structurally separating, Telstra will be split into two parts each an entity in its own right, each with its own CEO, board of directors and shareholders. Under this the board of each separate part will be legally responsible to its respective shareholders and in this way will provide the framework and protections against anti-competitive conduct. The new wholesale company would not be captive to the new retail company with the wholesale company under immediate competitive pressure to deal with all retailers on an independent basis.

The bill also provides a framework for functional separation should the telco choose not to voluntarily undergo a structural separation. Under functional separation Telstra would remain as a whole, but a regulatory framework would be established to keep each part at a distance. While ultimately still reporting to one body of shareholders, changes would be made so that performance is measured by efficiency in performing duties rather than in terms of shareholders.

Specifically, it would mean that Telstra would manage its retail operations separately to its wholesale functions, and thereby provide the same information and access to services on ‘equivalent’ price and non-price terms to its retail and non-Telstra businesses. In my mind, functional separation is a poor second cousin to structural separation and falls well short of the immediate benefits that can be achieved through structural separation. But either way, the clear message is that it is time Telstra is made accountable to all Australian consumers, not just to its shareholders, who, perhaps ironically, are consumers themselves and similarly demand quality service, fair prices and good competition.

As I mentioned before, I am in favour of a structural separation of Telstra. I believe it is the only true way to ensure a fair and competitive telecommunications market in Australia. But we need to know much more before we can pass such a significant piece of legislation. The bill in its current form can and should go further, to ensure that, whether or not Telstra undergoes a structural or a functional separation, the framework under which it takes place is as effective as its intent. It is imperative that the terms and requirements of the separation are as strong, as transparent and as consultative as possible, in how it is carried out, in how it is enforced and in how it is monitored. Currently, there are gaps in the proposed regulatory framework. It is also important that we strengthen consumer safeguards and strengthen the anti-competitive conduct regimes.

Given these concerns, I have circulated a number of amendments, which I will move at the committee stage, which I believe will strengthen this legislation, and I thank competition expert Associate Professor Frank Zumbo from the University of New South Wales for his assistance in drafting these amendments and for providing me with advice on this crucial piece of legislation.

I will not go into these amendments now, but broadly I would like to say that I acknowledge the formal role of the ACCC under the current bill in assessing undertakings and proceedings with enforcement remedies for breaches of undertakings. However, it is crucial that this is not purely discretionary and that the process involves consultation with all stakeholders and that the determinations are made publicly available so as to ensure greater scrutiny and transparency of process. This is one of the most significant reforms, if not the most significant, of our telecommunications sector and it is vital we get this right.

A report by the OECD last year commented that Telstra remains one of the most ‘vertically integrated providers in the world’, and warns that the government must ensure that any involvement of Telstra in the NBN does not ‘end up strengthening the dominant position of the incumbent’. In considering this legislation, we need to ensure that we are heading towards the best possible framework for our telecommunications sector and that we are not eliminating a quasi-monopoly, and replacing it with another without necessary safeguards.

As I have stated, I believe it is crucial that greater safeguards are introduced into this legislation so that the rules of Telstra’s separation—either structural or functional—are transparent and the product of consultation. This is the only way to ensure the strongest possible protections for all Australians using telecommunications services now and into the future, to maximise competition and to lower prices.

I believe there is real merit for the Productivity Commission to be involved this process but as yet I have not secured this assurance from the government. I think it is interesting to note that the agreement secured by the Australian Greens, and Senator Ludlam in particular, is that privatisation of the NBN would be contingent upon the approval of both houses of parliament and an independent study conducted by the Productivity Commission into the ownership of the NBN and its commercial impacts. So there is an acknowledgement by the government that the Productivity Commission can have a useful role in relation to better informing public policy.

However, there is another hurdle, and I see it as a primary hurdle. Madam Acting Deputy President, I approach every piece of legislation in this parliament the same way. I gather all the information I can and that I believe I need, and only then do I make a decision about the merits of any piece of legislation. But the sad fact is I cannot do that in this case because, in part, a crucial piece of information, the NBN Business Plan, is being withheld from the Senate and the public. And this is occurring because the government claims its hands are tied while the ACCC is making determinations about the NBN, and that it will not be available until the 30 November—one week after the parliament has risen.

No-one in this place should be voting blind, and signing a confidentiality agreement that lasts for seven years, three years, or even two weeks, does not resolve the problem for me. I do not believe that is the transparent, robust approach in a parliamentary democracy. I need to be able to explain to my constituents in South Australia, and to the Australian public, the reasons upon which I make such an important decision on this piece of legislation. And I cannot do that right now. It would be irresponsible to stay ignorant of the content of that document.

So while I indicate that I support the second reading stage to allow this piece of legislation to go into committee, I reserve my position as to the committee stage and the third reading of this bill. And finally, I do want to acknowledge that my staff have been working almost around the clock—17- or 18-hour days—for this piece of legislation. I am very grateful to them for their dedication on this important piece of legislation and I thank Rohan Wenn and in particular Evelyn Ek, because they understand how important it is to get it right.

(Quorum formed)