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Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009

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2008-2009

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

HOUSE OF REPRESENTATIVES

                                                                                                                                 

 

 

 

 

 

 

 

 

 

 

TELECOMMUNICATIONS LEGISLATION AMENDMENT

(COMPETITION AND CONSUMER SAFEGUARDS) BILL 2009

 

 

 

 

 

 

REPLACEMENT EXPLANATORY MEMORANDUM

 

 

 

 

 

 

(Circulated by authority of the Minister for Broadband, Communications

and the Digital Economy, Senator the Hon. Stephen Conroy)

 

 

 

 

 

 

THIS MEMORANDUM REPLACES THE EXPLANATORY MEMORANDUM PRESENTED TO THE

HOUSE OF REPRESENTATIVES ON 15 SEPTEMBER 2009

 

(This Memorandum corrects minor typographical and cross-referencing errors in the original Explanatory Memorandum)

 

 





TELECOMMUNICATIONS LEGISLATION AMENDMENT (COMPETITION AND CONSUMER SAFEGUARDS) BILL 2009

 

OUTLINE

 

The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 (the Bill) introduces a package of legislative reforms aimed at enhancing competitive outcomes in the Australian telecommunications industry and strengthening consumer safeguards.

 

The package has three primary parts: addressing Telstra’s vertical and horizontal integration; streamlining the access and anti-competitive conduct regimes; and strengthening consumer safeguard measures such as the Universal Service Obligation (USO), the Customer Service Guarantee (CSG) and priority assistance.

 

The Bill contains amendments to the Telecommunications Act 1997 (Tel Act), Parts XIB and XIC of the Trade Practices Act 1974 (the TPA), the Radiocommunications Act 1992 (the Radcom Act) and the Telecommunications (Consumer Protection and Service Standards) Act 1999 (the Consumer Protection Act).  The Bill also makes consequential amendments to the National Transmission Network Sale Act 1998 (NTN Sale Act).

 

Addressing the current structure of the telecommunications sector

 

The Australian telecommunications market is characterised by a very strong and highly integrated incumbent, Telstra. Telstra is one of the most integrated telecommunications companies in the world owning the only copper network connecting almost every house, the largest cable and mobile networks, and a 50 per cent stake in Foxtel, Australia’s largest subscription television provider. 

 

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. It is the Government’s view that Telstra’s high level of integration has hindered the development of effective competition in the sector.

 

The National Broadband Network (NBN) will deliver a wholesale-only, open access telecommunications market structure, transforming the competitive dynamics in the Australian telecommunications industry.

 

However, during the rollout of the NBN, the existing regulatory regime will remain important for delivering competitive outcomes in the interests of Australian consumers, businesses and the economy more broadly.

 

Consistent with the market structure that will be delivered through the NBN, Part 1 of Schedule 1 of this Bill inserts a new Part 33 in the Tel Act which provides provisions for Telstra to voluntarily structurally separate.

 

Structural separation may , but does not need to, involve the creation of a new company by Telstra and the transfer of its fixed-line assets to that new company. Alternatively it may involve Telstra progressively migrating its fixed-line traffic to the NBN over an agreed period of time and under set regulatory arrangements, and sell or cease to use its fixed-line assets on an agreed basis.  This approach will ultimately lead to a national outcome where there is a wholesale-only network not controlled by any retail company—in other words, full structural separation in time. Such a negotiated outcome would be consistent with the wholesale-only, open access market structure to be delivered through the National Broadband Network.

 

However, if Telstra does not voluntarily implement structural separation, this Bill will require the functional separation of Telstra. Functional separation is a regulatory tool that has been used successfully in other countries such as the UK and New Zealand and is being considered by the European Commission, to address the underlying incentives that fixed-line incumbents have to favour their own retail businesses.

 

This Bill amends the Tel Act to require that Telstra must:

·          conduct its network operations and wholesale functions at arm’s length from the rest of Telstra;

·          provide the same information and access to regulated services on equivalent price and non-price terms to its retail business and non-Telstra wholesale customers; and

·          put in place and maintain strong internal governance structures that provide transparency for the regulator and access seekers that equivalence arrangements are effective.

 

These provisions are contained in a new Part 9 of Schedule 1 to the Tel Act, to be inserted by Part 1 of Schedule 1 to the Bill.

 

As part of the functional separation framework, Telstra will be required to establish and maintain a single wholesale/network unit, separate from its retail business units, and a committee to be known as the Oversight and Equivalence Board.

 

Telstra will be required to operate its network and wholesale functions at arm’s-length from the rest of Telstra. The Oversight and Equivalence Board will report to the Australian Competition and Consumer Commission (ACCC) and Telstra’s board of directors about Telstra’s compliance with its functional separation obligations.

 

Telstra’s level of horizontal integration across the different delivery platforms—copper, cable and mobile—is in contrast to many countries where there are restrictions on incumbents owning both cable and traditional fixed-line telephone networks. Unlike Australia, in a range of countries the fixed-line incumbent does not also own the largest mobile carrier as measured by market share. Telstra’s horizontal integration has significantly contributed to Telstra’s ongoing dominance in the Australian telecommunications market.

 

The Government intends to correct this unique market structure, by introducing a set of measures designed to promote competition across the various telecommunications platforms while providing Telstra with the flexibility to choose its future path.

 

The proposed amendments to the Radcom Act and the new Part 10 of Schedule 1 to the Tel Act (in Part 1 of Schedule 1 to the Bill) will prevent Telstra from acquiring specified bands of spectrum, which could be used for advanced wireless broadband services unless it structurally separates, divests its hybrid fibre coaxial cable network and its interests in Foxtel. The legislation provides scope for the Minister to remove the requirements around the cable network and Foxtel if he is satisfied that Telstra’s structural separation undertaking is sufficient to address concerns about the degree of Telstra’s power in telecommunications markets.

 

Streamlining the access and anti-competitive conduct regimes in Parts XIB and XIC of the TPA

 

The Government’s key objective is to promote an open, competitive telecommunications market to provide Australian consumers with access to innovative and affordable services. The telecommunications access regime in Part XIC of the TPA and the telecommunications-specific anti-competitive conduct regime in Part XIB are two essential means of accomplishing this objective.

 

Regulated access ensures that communications services which have been declared by the ACCC will be provided to access seekers to enable them to provide services to end-users. Where the ACCC is of the opinion that anti-competitive conduct is occurring (or has occurred) it can issue a competition notice, which can lead to penalties being imposed if the conduct is proven.

 

Since the introduction of these measures in 1997 their operation has been criticised by many in industry as being overly protracted, and vulnerable to ‘gaming’ by parties with an incentive to delay or damage new entrants. Attempts have been made to improve aspects of the regime, but with limited success. Building on extensive consultations with industry, regulatory agencies and the public, this Bill will significantly reform the competition regime to address these problems.

 

Amending Part XIC of the TPA

 

Currently Part XIC provides that, if parties cannot agree on the terms of access to a declared service, then either party (the carrier or carriage service provider that provides access to the service, or the access seeker) can notify an access dispute to the ACCC. The ACCC must then arbitrate the dispute. The terms and conditions of access are then those determined by the ACCC in its arbitration determination for those two parties only. This is known as the ‘negotiate-arbitrate’ model. 

 

Since it is clear that the ‘negotiate-arbitrate’ model is not producing effective outcomes for industry or consumers, Part 2 of Schedule 1 to the Bill reforms the regime to allow the regulator to set up-front prices and non-price terms for declared services. This will create a benchmark which access seekers can fall back on, while still allowing parties to negotiate different terms.

 

The ACCC will issue access determinations for each declared service, with terms and conditions (and any appropriate exemptions or special rules) usually set for a period between three and five years. The regulator will also be able to determine ‘fixed principles’, such as how depreciation is treated, to remain in force over a longer period if necessary.

 

Access agreements entered into between providers and access seekers will have to be registered with the ACCC; however approval by the regulator will not be required.

 

The ACCC will have the power to make binding rules of conduct for the supply of declared services which would apply either in addition to, or as a variation of, an access determination. Having such rules in place will allow the regulator to act quickly on issues affecting the supply of retail services. Since they are designed as a temporary measure to deal with urgent matters, the duration of binding rules of conduct is limited to a maximum of 12 months. It is envisaged that binding rules of conduct will only be used on an occasional basis. 

 

Part XIC will be modified to remove the option to apply for exemptions from access obligations or undertakings, except in relation to new services which are deemed to require regulatory relief to stimulate innovation in the market. To promote regulatory certainty and timely decision-making, merits review of decisions under Part XIC will no longer be available. Judicial appeal processes will still be available, however, for parties wishing to appeal a point of law.

 

The process of lodging special access undertakings has proven to be unnecessarily inflexible, with even minor changes to the terms of the undertaking requiring an entirely new application to be submitted and assessed from the beginning. This will be changed to allow the ACCC to suggest changes to undertakings as the assessment process proceeds.

 

Amending Part XIB of the TPA

 

Part 3 of Schedule 1 to the Bill will make two changes to the way the anti-competitive conduct provisions in Part XIB operate. Part 3 streamlines the enforcement process that the ACCC is required to follow, and clarifies that the competition notice regime applies to content services delivered by carriers and carriage service providers.

 

The competition notice process has been criticised on the grounds that the consultation process prior to the issuing of a competition notice can delay enforcement action. These delays may lead to irreversible damage to the parties that are affected by any alleged anti-competitive conduct.

 

This Bill will remove the requirement for the ACCC to undertake consultation before issuing a Part A competition notice. This Bill also explicitly provides that the ACCC is not required to observe any requirements of procedural fairness in relation to the issue of a Part A competition notice.

 

This will deny the party alleged to have taken part in anti-competitive conduct the ability to delay the ACCC’s enforcement activities on procedural grounds. The focus for both parties will therefore be on resolving the alleged illegal conduct, rather than on litigation aimed at challenging the processes followed by the ACCC. The competition notice can be lifted at any time if the ACCC is satisfied that the allegation of improper conduct is mistaken, or the situation has been corrected.

 

If the ACCC commences court proceedings to enforce a Part A competition notice, the ACCC would still have to prove to the court that the competition rule had been breached by the alleged offender.

 

Content services are defined in section 15 of the Tel Act and include a broadcasting service, online information service, online entertainment service, any other online service, or any other service as determined by the Minister. Content services are not currently listed as a service supplied in a telecommunications market and as a consequence, it is unclear whether Part XIB applies to content services supplied by carriers and carriage service providers.

 

Clarifying the scope of Part XIB will increase regulatory certainty and reduce the risk of protracted legal disputes on this issue.

 

Strengthening existing consumer protection regulations

 

The Government is committed to ensuring consumers are protected in the transition to the NBN. Current protections are delivered through key telecommunications-specific consumer safeguards including the Universal Service Obligation, the Customer Service Guarantee and Priority Assistance.

 

The Bill strengthens existing legislative requirements to better protect consumers, address falling service quality and ensure continued access to basic voice services in the lead up to the NBN. There are also measures to improve the effectiveness of the regulating body, the Australian Communications and Media Authority (ACMA), through enhanced regulatory powers.

 

Universal Service Obligation

 

The Universal Service Obligation (USO) has the objective of ensuring basic voice telephony and payphone services are reasonably accessible to all people on an equitable basis. However, current requirements imposed on the primary universal service provider (currently Telstra) are imprecise and difficult to enforce.

 

Part 4 of Schedule 1 to the Bill amends the Consumer Protection Act to include new requirements for the universal service provider to supply, on request, standard telephone services with characteristics and to performance standards determined by the Minister. It is intended that performance standards will include maximum periods of time for new connections and fault rectification and reliability standards. There are also new provisions providing minimum performance benchmarks that the universal service provider must meet in fulfilling its responsibilities.

 

The Bill also provides the Minister with the power to specify, by written determination, rules and performance standards to which a primary universal service provider must adhere in relation to the supply, installation, maintenance and location of payphones. In addition, there will be new rules in relation to public consultation and notification of proposals to remove payphones. The ACMA will have new powers to direct the universal service provider not to remove payphones. It is intended that people adversely affected by a proposed payphone removal will be able to request that the ACMA consider issuing directions to the universal service provider. In considering whether to issue such a direction, the ACMA will have regard to both the consultation and notification requirements as well as the rules about the location of payphones.

 

Customer Service Guarantee

 

The Customer Service Guarantee (CSG) requires telephone companies to meet minimum performance standards or provide customers with financial compensation when these standards are not met. However, compliance reporting undertaken by the ACMA indicates declining industry performance against the CSG requirements, which suggests the existing arrangements are not providing sufficient incentive for the industry to maintain or improve service quality.

 

Part 5 of Schedule 1 to the Bill amends the Consumer Protection Act to provide for the Minister to establish minimum CSG performance benchmarks to arrest the decline in telecommunications service quality standards. While failure by a service provider to meet a CSG standard is not subject to a civil penalty under the Tel Act, failure to meet the minimum CSG performance benchmarks will be. As for the USO, expanded powers of the ACMA to issue infringement notices under the new Part 31B will assist the ACMA to effectively enforce this consumer safeguard. It is expected that this will be a strong incentive on the industry to improve service quality.

 

In addition, the Bill provides for the Minister to establish new CSG timeframes for connections and repair that will apply to wholesale providers to assist retail providers of CSG services to meet CSG service quality standards.

 

To avoid stifling innovation and customer choice, the Bill will clarify CSG waiver provisions provided for under section 122 of the Consumer Protection Act. A customer’s express agreement for a waiver will be required. The practice of deeming CSG rights to be waived, for example, through a standard form of agreement under Part 23 of the Tel Act, will not be allowed . In addition, there is a new requirement that a customer waiver of the CSG must include a statement that summarises the consequences of the customer waiving the CSG.

 

To ensure consumers have the safety net of always being able to purchase a CSG service, the Bill makes explicit that the CSG cannot be waived for a telephone service that is supplied in fulfilment of the Universal Service Obligation.

 

Priority Assistance

 

Priority assistance services provide enhanced telephone connections and fault repairs for customers with a need for such services because a person at the residence has a life threatening medical condition and is at risk of suffering a rapid, life threatening deterioration in their condition.

 

To assist customers purchase services with priority assistance if this is needed, Part 6 of the Bill introduces a new service provider rule in Schedule 2 of the Tel Act requiring service providers to either offer a priority assistance service in accordance with the Communications Alliance code on priority assistance or inform customers of providers from whom they can purchase such a service if they require it. Telstra will remain bound by its current carrier licence condition requiring it to have priority assistance services.

 

Enforcement

 

Part 7 of Schedule 1 to the Bill inserts a new Part 31B into the Tel Act which provides expanded powers for the ACMA to issue infringement notices.  This will assist the ACMA in enforcing obligations under the telecommunications regulatory regime.

 

Part 8 of Schedule 1 to the Bill substitutes a new definition of civil penalty provision to simplify and clarify the definition.

 

FINANCIAL IMPACT STATEMENT

 

These reforms will have a moderate financial impact on administration costs for the ACCC and the ACMA, which will be funded by increasing the carrier licence charges levied by the ACMA under the Telecommunications (Carrier Licence Charges) Act 1997 . This will mean that the proposal has a limited fiscal impact for the Commonwealth.



 

 

 

REGULATION ASSESSMENT

 

ADDRESSING TELSTRA’S VERTICAL AND HORIZONTAL INTEGRATION

 

1.       Introduction

This regulation assessment has been prepared in consultation with the Office of Best Practice Regulation to provide an analysis of the regulatory impact of the Government’s decision to implement measures to address Telstra’s horizontal and vertical integration.

 

2.       Background

On 7 April 2009, the Australian Government announced it would establish a new company that would invest up to $43 billion over eight years to build and operate a National Broadband Network (NBN) delivering superfast broadband to Australian homes and workplaces.

 

This historic nation-building investment will help transform the Australian economy and create jobs and businesses for the 21st century.

 

The Government’s plan will dramatically improve the availability of superfast broadband across Australia and fundamentally change the competitive dynamics of the Australian telecommunications sector. This new network will be wholesale-only and open access to maximise competition, and ensure improved consumer outcomes. 

 

Operating as a wholesale-only provider, the NBN Company (NBN Co) will solve the current structural issues in the telecommunications sector where the vertically integrated incumbent owns the only ubiquitous fixed-line network in Australia, and competes against its wholesale customers in downstream retail markets. NBN Co will have less incentive to unfairly discriminate between access seekers. It will also be required to operate on an open access basis and provide equivalent terms and conditions of access to all access seekers.

 

The Government has stated that the NBN will be rolled out progressively over eight years. During this time the existing telecommunications regulatory regime will remain important for delivering services in the interests of Australian consumers and businesses.

 

As such, reform of the current telecommunications regulatory regime is a core element of the Government’s historic plans for the NBN. Taking into account the views expressed in response to the NBN discussion paper released on 7 April, the Government has announced a reform package including measures that promote greater equivalence, transparency and competition in the industry.

 

3.       Issues associated with vertical and horizontal integration would be addressed by structural separation

Telstra is a vertically integrated incumbent, which provides access to its network and supplies wholesale services to those that it competes with in downstream retail markets. Telstra also owns the largest mobile network, the largest hybrid fibre coaxial cable network in Australia (passing 2.5 million homes) and 50 per cent of Australia’s largest subscription television provider, Foxtel.

 

Telstra’s integrated position across all the telecommunications platforms has led to long-standing and widespread concerns that the existing telecommunications structure is failing consumers, businesses and the economy in general.

 

As the nation moves to superfast broadband it is the Government’s clear desire for Telstra to vertically structurally separate, on a voluntary basis, in the transition to the NBN to be consistent with the structure of NBN Co. This is a view shared by consumer group the Australian Telecommunications User Group where:

[t] he Government’s approach to the NBN operator should be the benchmark for arrangements during the 8 year transition period… ’—Australian Telecommunications User Group [1]

 

Structural separation is the only arrangement that will fully address both Telstra’s incentives and its ability to discriminate against its competitors and thereby ensure equivalence.

 

The Government retains an open mind on what the best model for structural separation is as the nation transitions to the NBN. It may, but does not need to, involve the creation of a new company by Telstra and the transfer of its fixed-line assets to that new company.

 

Alternatively, it may involve Telstra progressively migrating its fixed-line traffic to the NBN over an agreed period of time and under set regulatory arrangements, and for it to sell or cease to use its fixed-line assets on an agreed basis. This approach will ultimately lead to a national outcome where there is a wholesale-only network not controlled by any retail company—in other words, full structural separation in time. Such a negotiated outcome would be consistent with the wholesale-only, open access market structure to be delivered through the NBN.

 

What is structural separation?

Structural separation as defined by the ACCC is:

‘… the legal separation of Telstra’s assets and activities into separate corporate entities with entirely separate owners/shareholders. ’—ACCC [2]

 

Why structural separation limits the incentives to discriminate

The ACCC explains that the incentive to discriminate arises where there is market power and:

equivalence in access might risk profit contribution — that is, where:

·          a materially higher return is available on retail supply than from providing network access services; and

·          effective competition in downstream markets would result in the erosion of excess profits if access seekers had equivalent access to the upstream input; and

·          countervailing incentives—such as those that might exist under the threat of effective competition across all levels of production (e.g. if HFC [hybrid fibre coaxial] and/or wireless networks provided strong competitive constraint)—are weak. ’—ACCC [3]

 

Further, the ACCC explains that a structurally separated entity has few incentives to discriminate against downstream rivals because:

‘… without a retail arm to which it may seek to provide an advantage, a wholesale-only operator would gain little from favouring one access seeker over another, thereby ensuring true equivalence. On the other hand, vertical integration of any form into downstream markets, even when subject to regulatory measures, will not ensure equivalence. ’—ACCC [4]

 

The views of the industry

Submissions in response to the Regulatory Reform discussion paper called for Telstra’s structural separation and stated that:

‘…Optus does not believe that these [functional separation] arrangements go far enough and they remain a second best approach to structural separation.’ Optus [5]

‘Structural Separation between access provider and access seekers is essential.’ iiNet [6]

‘The structural separation of Telstra should be a policy objective. Functional separation should not be pursued as it does not materially improve on the current arrangements.’ Unwired [7]

‘The separation arrangements should, in fact, encourage Telstra itself to consider divesting itself of its network activities, consistent with the Government’s ideal model of the industry structure.’ —Competitive Carriers Coalition [8]

 

According to these submitters, structural separation is the only remedy to fully address Telstra’s incentives to discriminate.

 

Telstra did not directly address the issue of its structural separation in its regulatory submission. However, submissions it has made to previous processes indicate it has not supported this option in the past.



The views of the regulator

The ACCC considers:

‘… that structural separation is the only regulatory arrangement that will in practical terms address Telstra’s incentives and ability to discriminate against its competitors and thereby ensure equivalence. ’—ACCC [9]

 

Potential benefits to the company of structural separation

The ACCC in its regulatory submission [10] stated that vertical separation can enhance the value of separated firms and that there may be some vertical dis-economies of scope which may arise as firms take on additional functions which are outside the scope of its core functions and which the firm is not well equipped to perform.

Voluntary structural separation is not without precedent. The ACCC in its submission provided several examples of companies which have chosen to legally and structurally separate including:

·          in May 2008, Time Warner Inc announced that it would structurally separate from the second largest cable operator in the United States, Time Warner Cable Inc. The reason for the separation was that each company would have greater strategic, financial and operation flexibility and would be better positioned to compete within their respective markets;

·          in 2005, the Australian Gas Light Company split its infrastructure assets from its retail and merchant energy business on the basis that the move would create greater long-term value for shareholders; and

·          in 2007, Toll split off its infrastructure assets (ports and the Pacific National rail business) from its logistics business. Regarding the re-structure Toll stated that ‘ dynamic growth opportunities were identified in both businesses, building on Toll’s current strong results and performance ’.

 

How structural separation could be implemented

Telstra’s structural separation could be implemented under a voluntarily enforceable undertaking to be submitted to the ACCC.  Under this sort of mechanism, the Minister could provide guidance to the ACCC on the matters it would take into account when considering whether to accept the undertaking.

 

An important note is that the enforceable undertaking to structurally separate could take different forms. For example, to achieve the aim of structural separation:

·          Telstra could undertake to create a new company, vest its fixed-line network in that company and then sell that company, leaving Telstra operating as a retailer of fixed-line services; or

·          Telstra could undertake to migrate its traffic to the NBN over time and sell or cease to use its fixed-line assets.  Under this option, Telstra would undertake to:

o    supply services to its retail customers using carriage services provided by means of the NBN;

o    vend the fixed-line assets that the NBN requires to NBN Co; and

vend to another company (or in the alternative, cease to use) any other fixed-line assets.

 

In the absence of an outcome which delivered structural separation on a voluntary basis, regulatory intervention will be required to address Telstra’s vertical and horizontal integration.

 

4.       Telstra’s vertical integration

The problem being addressed

Telstra’s level of vertical integration raises concerns about the extent to which it has the ability and the incentive to favour its own retail business over its wholesale customers when providing access to various services, particularly those which are key upstream inputs for providing downstream services to end-users. It also can strategically delay or limit investment in access services and related infrastructure.

 

These incentives may lead to behaviour by the vertically integrated incumbent that limits the development of effective competition in the provision or availability of services, including new and improved services. Types of discriminatory behaviour that a vertically integrated incumbent might engage in include: [11]

·          price discrimination—where the access provider charges a higher price to its wholesale customers than is implicitly charged to its own retail business;

·          discriminatory use or withholding of information—where the access provider provides information to its retail business with information it does not provide to access seekers or refuses to supply other information which is necessary to take up the wholesale offer or to supply the retail service;

·          delaying tactics—where the access provider supplies a certain input to a downstream competitor at a later point in time compared to its own retail business;

·          quality discrimination—where the access provider supplies products and services at a lesser quality to downstream competitors than it supplies to its own retail business;

·          strategic design of product characteristics—for example, the access provider may use particular standards that are easy to meet for its own retail business but not for its wholesale customers; and

·          undue use of information—this may arise where an access provider obtains certain information about the customers of its downstream competitors. Based on this information, the access provider can target competitors’ customers with tailor-made offers and so can restrict its competitors’ sales and or raise its rivals’ costs.

 

Lord David Currie, the former Chairman of Ofcom, the United Kingdom’s (UK) communications regulator, stated the following about the harmful effects of discriminatory behaviour:

 

‘It does not even require active non-price discrimination. All that is needed is for the incumbent not to try their hardest to achieve reliability, timeliness and predictability to disrupt significantly the launch by competitors of a rival retail proposition. A significant mismatch between the promise of a marketing campaign and consumers’ actual experience of waiting weeks or even months to get what is promised can do significant and lasting damage to a competitor’s market entry. ’—Lord David Currie [12]

 

Industry stakeholder concerns

Telstra has been criticised in the past for using its vertical integration to protect its position across key telecommunications markets and therefore limiting the ability for competition to grow in the sector.

 

Optus in its submission to the Government’s regulatory reform discussion paper gave the following examples of Telstra’s behaviour in using its vertical integration to limit competition in broadband.

·          ‘Initially set high prices for broadband access thereby discouraging take-up. Telstra only dropped its retail prices for broadband services when Optus commenced re-selling its wholesale DSL [digital subscriber line] service in February 2004;

·          Delay competitor deployment of DSL services by structuring its wholesale offering in such a manner that its competitors could not offer services substantially different from those offered by Telstra. For example, Telstra refused to configure its wholesale ADSL [asymmetric digital subscriber line] service so as to allow for a high speed Internet service to be provided to a residential customer at a different quality of service from that which Telstra BigPond offers;

·          Squeeze the margin available to competitors taking its wholesale DSL service by setting retail prices close to or below wholesale prices;

·          Limit the functionality of its wholesale broadband services and thereby hinder innovation by competitors, such as symmetrical services and VOIP [Voice over Internet Protocol] services; and

·          Artificially cap broadband speeds at 1.5Mbps [Megabits per second] on first generation ADSL(a technology capable of up to 8 Mbps) and delaying until February 2008 the introduction of ADSL2+ services (except in exchanges where it faced direct competition from ADSL2+ services provided by competitors using ULLS [unbundled local loop service] access to deploy their own equipment). Many areas within Australia continue to be denied access to ADSL2+ services.’ —Optus [13]

 

AAPT, Internode, Primus, Hutchison and Austar all gave similar examples in their regulatory submissions regarding Telstra’s behaviour to limit competition. The ACCC also provided examples in its regulatory submission. [14] , [15] , [16] , [17] , [18] , [19]

 

Optus also noted that Telstra misused information available to it as a wholesale provider:

‘Telstra has been found guilty of misusing information available to it as a wholesale provider, by passing this information to its retail arm for marketing and competitive analysis purposes. The court found that, at least in the period 1993 to 2000, Optus’ confidential long distance traffic information was provided by Telstra Wholesale to Telstra Retail and then used to prepare ‘Market Share’ reports…’ —Optus [20]

 

Measures to reduce the ability and incentives to discriminate

The basic concept of vertical separation in telecommunications is to separate the bottleneck upstream assets, such as the copper customer access network, so that control of access to them cannot be used to lessen, damage or exclude competition in downstream markets. Vertical separation can be an effective regulatory tool to improve competition and services to end users by promoting transparency and equivalence.

 

Transparency and equivalence

Transparency can be achieved by implementing processes and reporting requirements so that the regulator and Telstra’s wholesale customers can be confident that Telstra’s wholesale customers are being treated in an equivalent manner to how Telstra supplies its own retail business.

 

Equivalence is where Telstra provides essential business inputs on equivalent terms and conditions to both its own retail business and its wholesale customers. Equivalence relates to both price and non-price terms and conditions such as service provisioning and availability of information about the network, and is considered an essential factor in promoting effective competition in downstream retail markets.

 

The history of attempting to address Telstra’s level of vertical integration

In an attempt to address Telstra’s level of vertical integration by promoting equivalence and transparency the following regimes have been implemented in Australia.

 

Accounting separation

Measures to promote transparency were first introduced in 1991 requiring the Australian Telecommunications Authority to develop an accounting separation regime, which was referred to as the chart of accounts and a cost allocation manual. The regime, however, only required horizontal accounting separation between each carrier’s retail services. Horizontal accounting separation is a requirement for reporting revenue and historical cost information of the carrier’s different retail businesses to the ACCC.

 

In 2001, under direction from the Minister for Communications, Information Technology and the Arts, the ACCC introduced its Telecommunications Industry Regulatory Accounting Framework issued under section 151BU of the Trade Practices Act 1974 . These record keeping rules required Telstra to keep vertically separated accounts on an historical cost basis and report revenues and costs for Telstra’s retail and wholesale services separately—including wholesale services Telstra provides to itself internally.

 

In June 2003, a second set of accounting separation rules were implemented by the ACCC which required vertical accounting separation under a current cost accounting basis. Current cost reporting requires Telstra to produce accounting records that reflect current costs (i.e. the costs Telstra would incur if its network was built today).

 

Furthermore, the then Government directed the ACCC to implement an enhanced form of accounting separation of Telstra. This required the ACCC to report on key performance indicators for non-price terms and conditions that compare service performance between Telstra’s retail and wholesale supplied services. The purpose of the enhanced accounting separation framework for Telstra, which is still in force at present, was to provide the ACCC, access seekers and the public with greater transparency with respect to Telstra’s wholesale and retail costs. It also required imputation testing, which can be used to assist in detecting an anti-competitive price squeeze in a retail market. Specifically, the imputation testing implemented under this direction involved comparisons of:

·          the retail price charged by Telstra for a particular service; and

·          the (wholesale) access price charged by Telstra for an essential input to that service plus the additional costs incurred in transforming the essential input to the retail service (the ‘retail costs’).

 

Operational separation

In 2005, the current operational separation framework for Telstra was introduced following a review of the competition regime. The operational separation regime aimed to promote the principles of transparency and equivalence in relation to the supply by Telstra of wholesale services.

 

The operational separation of Telstra is a statutory condition of Telstra’s carrier licence. Telstra was required to prepare an operational separation plan, which was approved by the then Minister on 23 June 2006. Under the plan, Telstra is required to maintain three business units, wholesale, retail and key network services and to operate these businesses substantially separate from each other.

 

The operational separation plan includes four strategies for Telstra to provide equivalence:

·          a service quality strategy—which aims to ensure that Telstra’s standard of delivery of eligible services made available to its wholesale customers is equivalent to the standard of delivery of comparable eligible services supplied to its own retail business unit;

·          an information equivalence strategy—which aims to ensure that information provided by Telstra’s key network services or wholesale business units to its wholesale customers about relevant changes to Telstra’s network is, to the extent possible, equivalent to the provision of the same or similar information to its own retail business unit;

·          an information security strategy—which aims to protect Telstra’s wholesale customers’ confidential information; and

·          a customer responsiveness strategy—which aims to ensure that Telstra is responsive to complaints made by its wholesale customers and also includes the measures Telstra will implement to monitor its compliance with the service quality and information equivalence strategies.

 

Telstra’s operational separation plan also provides for a price equivalence framework, which seeks to provide an ongoing assurance that Telstra is not favouring its retail business by supplying services to itself at lower prices to the services that it supplies to its wholesale customers. The price equivalence framework requires Telstra to conduct imputation testing to assess the impact of material price changes, on the margin available to efficient competitors.

 

The accounting, record keeping and operational separation regulations are all still in effect.

 

The effectiveness of the current operational and accounting separation regulations

The broad consensus across industry and from the regulator is that accounting and operational separation regimes have not promoted genuine equivalence of access or effective competition in the telecommunications sectored.

 

The views of the regulator

The ACCC’s experience is that:

‘… the current operational separation regime aimed at promoting equivalence is ineffective and does not address Telstra’s incentive and ability to discriminate against its competitors ’, and  ‘[s] ince coming into effect in June 2006 the operational separation arrangements that apply to Telstra have been shown to be ineffective in a number of essential areas. Since

 June 2006 Telstra has been able to
:

·          supply ADSL2+ services on a retail basis only;

·          ignore the ACCC’s written advice on imputation testing principles;

·          deflect wholesale customer complaints on the basis they were not made under the OSP [operational separation plan] ;

·          provide whole-of-business incentives to executives in the ring-fenced divisions; and

·          require end-user customers who are customers of access seekers to provide Telstra retail units with information that is confidential to the access seeker ’. —ACCC [21]

 

All the above issues mentioned by the ACCC have not promoted genuine equivalence or transparency, or promoted effective competition. Expanding further the supply of ADSL2+ services on a retail only basis, until relatively recently, has had the effect of limiting the opportunity for Telstra’s competitors to compete with Telstra for the most valuable business customers.

 

The views of the industry

The overwhelming message from regulatory consultations conducted in 2008 and more recently in response to the National Broadband Network: Regulatory Reform for 21st Century Broadband Discussion Paper is that the current operation and accounting separation measures have not worked effectively. Most of the 130 submitters called for structural or stronger functional separation of Telstra.

 

The following comments in the regulatory submission summarise the general sentiments raised in response to the discussion paper.

 ‘ there has been no discernable increase in competition in the fixed network market after the introduction of accounting and operational separation…Operational Separation in Australia has not been a transparent regulatory tool. Australian Telecommunications User Group [22]

‘it is clear that they [the operational separation arrangements] have delivered little if any benefits to end-users…these arrangements are not fit for purpose...’ Optus [23]

The cost of trying to manage behaviour [sic] while making inadequate efforts to change incentives has been demonstrated by the continual gaming of the regulatory requirements in Australia in the past 12 years and by the abject failure of the operational separation and, before them, the accounting separation arrangements. Competitive Carriers Coalition [24]

‘… there are no benefits of the operational and accounting separation regimes ... Macquarie Telecom [25]

Accounting separation and operational separation have been tried but have both been spectacularly unsuccessful .’— AAPT [26]

‘Operational separation of Telstra has not led to satisfactory outcomes in the Australian telecommunications sector .’— Vodafone [27]

‘… the current so-called "operational separation" regime that applies to Telstra, TransACT strongly believes that that regime has failed …’— TransACT [28]

‘…the accounting and operational separation regimes have been widely acknowledged as failures.’ —iiNet [29]

 

The sentiments expressed by both the regulator and Telstra’s competitors demonstrates a lack of trust in the operational separation regime and its lack of transparency has not assured them that access seekers are being treated in an equivalent manner to Telstra’s own retail business.

 

One of the major issues expressed by access seekers is the delays in being provided a wholesale service by Telstra and issues surrounding access to Telstra’s exchanges to install equipment. For example:

Some of the conduct engaged in by Telstra has been quite explicit, for example defying access obligations and ... refusing industry participants access to exchanges. Some of the conduct has been more strategic, such as refusing to implement efficient migration processes, and the practice of disputing the ACCC pricing decisions to delay competitor rollout, impose litigation costs on the industry and unsettle investment plans. One thing is very clear, during the history of competition in our industry Telstra has had no appetite to foster or promote competition, innovation or increased network utilisation. ’—Primus [30]

Optus complained to the ACCC that Telstra was providing higher performance standards to its retail customers than wholesale customers—for example, by routinely offering better connection times to its retail customers than to wholesale customers…Whilst Telstra Retail is able to provide connection remotely at the flick of a switch—Telstra applied a cumbersome process for wholesale customers requiring two separate technicians to visit the customer’s premises and taking several days to complete (and requiring customers to be present for both visits). ’—Optus consultant Dr Chris Doyle, University of Warwick [31]

 

Further, access seekers need to have confidence that the regime to address the issues surrounding vertical integration is working effectively to justify their investments. In its submission the Strategy and Policy Consultants Network, who specialise in providing strategy, policy and economics advice in electronic communications markets, stated that:

[w] hile the incentives for discrimination remain in place [due to vertical integration] it is essential that wholesale customers of Telstra believe that they are being treated equally, as perceptions are sufficient to change the behaviour of operators. They need to have the confidence that the system is working to justify investments in the market, without which retail customers will be the losers.’ —Strategy and Policy Consultants Network [32]

 

Most fundamentally, the current operational separation regime has not addressed Telstra’s vertical integration and its lack of incentive to reach agreement on reasonable access terms, or to conclude negotiations speedily with access seekers.



The chairman of the ACCC, Mr Graeme Samuel, has previously reported that:

[s] ince 1997, the ACCC has been notified of a total of 157 telecommunications access disputes. This is in stark contrast to the three access disputes that have been notified to the ACCC across all other sectors of the economy.

Over the past 24 months, judicial review has also been sought in respect of almost all final arbitration determinations made by the ACCC. As of 6 May, there were 15 final determinations before the Federal Court—all relating to the unconditioned local loop service and the line sharing service.’ —Mr Graeme Samuel, ACCC [33]

 

This large number of access disputes compared to other regulated sectors demonstrates both the ability and the incentive Telstra has to pursue a litigation strategy to limit or delay competition. The harmful effects such a strategy can have on investment in the sector. The Strategy and Policy Consultants Network comments on:

[u] ncertainty about outcomes will have an impact on operators’ ability to commit to product and market developments. This will particularly be the case where the process is not able to deliver outcomes in a timely manner, as delays in the process will typically disadvantage operators competing with Telstra. ’—Strategy and Policy Consultants Network [34]

 

Primus also notes that:

‘…Telstra typically rejects the authority of the ACCC and routinely challenges decisions in court, means the industry never acquires any certainty about the terms and conditions applicable to an access service it acquires, until it is of historical impact only .’—Primus [35]

 

In addition to the business uncertainty caused by the high level of disputation, Optus estimates it could have cost the whole industry at least $200 million over the past 12 years in the preparation of expert statements and legal support not to mention the time and resources required to participate in these processes. [36]

 

Telstra acknowledges in its regulatory submission that:

‘… despite our ongoing effort, the wider telecommunications industry continues to express concerns about the need for greater equivalence and transparency. ’—Telstra [37]

 

To address the equivalence concerns expressed by the industry and the regulator, Telstra proposed in its regulatory reform submission the establishment of an independent technical Telecommunications Adjudicator. The Telecommunications Adjudicator would make binding decisions specifically on equivalence and related service and technical issues in the supply of regulated services to access seekers.

 

The Telecommunications Adjudicator would be a welcome addition to the Australian telecommunications landscape to resolve many of the non-price issues in the sector. However, it still does not effectively alter Telstra’s underling incentive, as a vertically integrated incumbent, to favour its own retail business over its competitors.

 

Operational separation’s weak enforcement mechanisms

Enforcement mechanisms for the existing operational separation regime are weak and indirect. There is no legal obligation on Telstra to comply with its operational separation plan. In the event of a contravention, the Minister may direct Telstra to give him a draft rectification plan for approval. Once the Minister approves the rectification plan, it is then a licence condition that Telstra comply. Weak enforcement mechanisms are a disincentive to enforcement action and no directions have been issued. The ACCC states that:

‘[w] e [the ACCC] continue to receive complaints of conduct that suggest that the objective of equivalence, which was the objective of the [operational separation] regime, is not being achieved. There have been some instances of conduct [by Telstra] since the regime’s inception which, while it is not clear they breach the operational separation plan, do not promote the objective of equivalence which was the fundamental objective of the plan in the first place. ’—ACCC [38]

 

The ACCC has written twice to the relevant Ministers advising of its concerns on the apparent shortcomings of the operational separation plan:

‘First, on 6 February 2007, in relation to concerns that Telstra was rewarding ostensibly ring-fenced technicians for providing retail sales leads and introducing higher quality ADSL services for retail customers before advising wholesale customers.

Second, on 27 February 2008, in relation to Telstra’s failure to provide information to the ACCC in response to a formal request made under clause 6.8 of Telstra’s OSP [operational separation plan] . The request required Telstra to produce the model it uses to assess its pricing under the PEF after notifying the ACCC of a material price change.’ —ACCC [39]

 

It is clear that stronger enforcement mechanisms are needed to give the regulator sufficient powers to ensure that the objectives of transparency and equivalence are being met.

 

Why Government action is needed

During the rollout of the NBN the existing regime, including measures to promote transparency, equivalence and competition, will remain important for delivering outcomes in the interests of consumers and businesses. The intended outcome is a healthy competitive market, thereby improving quality, prices and choices for end-users, and creating a sector where different business models and innovation can prosper.



Current state of competition in Australian telecommunications market

The ACCC has recently reported that competition in the Australian telecommunications market is not emerging as anticipated.

‘effectively competitive telecommunications markets—anticipated in 1997 when the sector was opened to competition—do not appear to be emerging…

In particular, the industry’s underlying structural features have hindered the development of competition with the high, specialised and largely “sunk” costs of investment in the most fundamental elements of telecommunications networks (e.g. the ducts, pits, poles, copper, cable and fibre) imposing high barriers to entry for competitors, and thus conferring a very high degree of market power on the incumbent operator, Telstra.

While new entrants and investment have made some inroads, the incumbent still retains enduring and substantial market power, with shares of 72 per cent, 58 per cent and 42 per cent of retail PSTN [public switched telephone network] voice services, retail fixed broadband and retail mobile voice services in 2007-08…

A key factor in Telstra’s ongoing success in maintaining its dominant market position has been its historical position as the owner of the ubiquitous CAN [Customer Access Network] . The ability of competitors to access the existing fixed-line CAN continues to directly affect how access seekers compete for end users. It is becoming increasingly evident that the CAN is (and will remain) an enduring bottleneck, emphasising how critical it is for access seekers to be able to obtain access to the CAN at reasonable prices. ’—ACCC [40]

The following graph using the Herfindahl-Hirschman Index (HHI) further illustrates Telstra’s dominance of the retail fixed voice and broadband sectors in Australia. The subscriber-based HHI measures concentration levels in a service area and provides a snapshot of competition in that particular service area. The HHI can range from 0 to 10 000 with increases in the index generally indicating a decrease in competition and an increase of market power. While market share measures are only one measure used in competition analysis, the ACCC’s 2008 Merger Guidelines indicate that s cores above 2,000 identify potential competition issues, which can be indicative of structural characteristics of the market that exist or are emerging. [41]

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: ACCC Report Telecommunications competitive safeguards for 2007-2008.

For retail public switched telephone network services, the very high concentration levels are likely to be influenced heavily by Telstra’s level of vertical integration in the market with shares of close to or over 70 per cent in the last three years as illustrated by the table below. [42]

 

Provider

2005-06

2006-07

2007-08

Telstra

69%

71%

72%

Optus

11%

11%

11%

AAPT

4%

3%

3%

Other

16%

14%

15%

Source: ACCC Report Telecommunications competitive safeguards for 2007-2008.

 

In the case of retail broadband services, there has been an upward trend in the concentration of the market since 2005-08 as illustrated in the table below. The ACCC reports that during this period, Telstra grew its market share of retail services by almost 25 per cent, while its major competitors’ iiNet managed to retain its existing market share and Optus’ fell by a fifth. In addition, the share of the market held by small internet service providers halved during the same period. [43]

 

Provider

2005-06

2006-07

2007-08

Telstra

47%

56%

58%

Optus

20%

19%

16%

iiNet

6%

8%

7%

Other

28%

18%

19%

Source: ACCC Report Telecommunications competitive safeguards for 2007-2008.

 

The market within which retail mobile services are supplied is currently less concentrated.

 

International Comparisons

Key international statistics indicate that Australia is trailing other developed economies. In many areas Australia is trailing other countries with similar geographic realities, such as Canada.

 

Key international statistics

A recent OECD report indicated that Australia is ranked: [44]

·          16th for total broadband subscribers per 100 inhabitants;

·          4th, 5th and 9th most expensive for low-speed, medium-speed and high-speed average monthly subscription broadband prices respectively;

·          14th, 16th and 17th most expensive for residential low-use, medium-use and high-use fixed-line voice prices respectively; and

·          5th most expensive for both small/home offices and small and medium-sized enterprises fixed-line voice prices respectively.

The World Economic Forum ranks Australia: [45] , [46]

·          12th for both residential and business telephone connection charges;

·          20th for high speed broadband subscription charges;

·          22nd and 37th for residential and business monthly telephone subscription charges respectively;

·          25th for accessibility of digital content;

·          29th for the lowest cost of broadband; and

·          35th for quality of competition in the internet service provider sector.

 

The ACCC’s analysis and Australia’s poor international indicators highlight the ongoing importance of Telstra’s competitors being able to access Telstra’s customer access network in a manner that is transparent and equivalent to how Telstra’s retail businesses access the network. To create an environment for healthy competition to flourish, stronger vertical separation with enhanced equivalence and transparency measures is required.

 

In countries such as the UK where stronger forms of separation have been in force since 2005, there has been a marked improvement in its key international telecommunication statistics and indicators. The UK outperforms Australia across a range of key telecommunications indicators as shown in the table below.

Telecommunications indicator/statistic

UK ranking

UK better than Aust.

OECD

Total broadband subscribers per 100 inhabitants

11 th

Yes.

Low-speed, medium-speed and high-speed average monthly subscription broadband prices

24th, 28th and 22nd most expensive

Yes.

Residential medium-use and high-use fixed-line voice prices

13th, 23rd and 23rd most expensive

Yes.

World Economic Forum

High speed broadband subscription charges

14 th

Yes.

accessibility of digital content

14 th

Yes.

Lowest cost of broadband

10 th

Yes.

Quality of competition in the internet service provider sector

21 st

Yes.

 

As illustrated by the difference between the international rankings between Australia and the UK, it is anticipated stronger separation measures would improve competition, lower prices and improve take-up rates in the broadband market.

 

5.       Objectives of the Government’s vertical separation action

The Government’s objective is to address concerns created by Telstra’s vertical integration by reducing Telstra’s ability and incentive to discriminate against other service providers and to promote greater equivalence and transparency which will encourage greater competition across the telecommunications industry.

 

6.       Government’s functional separation policy to address Telstra’s vertical integration—including implementation process

If Telstra decides not to voluntarily structurally separate then a functional separation regime will be established to address Telstra’s vertical integration.

 

It has been widely observed that imposing mandatory structural separation on Telstra is likely to raise compensation issues.

 

The ACCC notes that although functional separation is unable to ensure equivalence:

‘… a strong functional separation model is a step forward in promoting equivalence from the current operational separation regime applied to Telstra… [it] may go some way to providing open access and promoting equivalence of price and non-price terms and conditions. ’—ACCC [47]

 

Optus in its submission argues that functional separation is the second best option to structural separation, however, the:

[f] unctional separation of the form implemented in the UK and New Zealand provides an appropriate starting point for consideration of a new regulatory settlement. Such an approach would almost certainly represent a significant improvement on the arrangements we have today. ’—Optus [48]

 

The proposed functional separation framework will be implemented through legislative amendment to the Telecommunications Act 1997 with more detailed requirements to be addressed by Telstra to be set out in a determination to be made by the Minister.

 

Broadly, Telstra will be required to submit undertakings to the Minister concerning the implementation of functional separation, and ongoing commitments to functional separation.

These undertakings will be contained in a draft Functional Separation Undertaking (FSU). Those undertakings must be directed at achieving key principles and objectives of functional separation and must include specific matters set out by the Minister in a requirements determination. The key principles of the new functional separation regime include:

·          Telstra to operate its network and wholesale functions at arm’s-length from the rest of Telstra;

·          non-Telstra wholesale customers to access regulated services on equivalent price and non-price terms and conditions as is provided to Telstra’s retail unit;

·          Telstra’s retail unit to only be consulted on future products and future demand requirements at the same time and in the same way a non-Telstra access seeker is consulted; and

·          strong internal governance structures with transparency so that Telstra’s competitors and the regulator can be confident that Telstra’s retail unit is being treated the same as competitors.

 

The Minister will consider the draft FSU submitted by Telstra, hold a public review and consult the ACCC.

 

The Minister will then approve, vary or replace the draft FSU. It then becomes a final FSU. Telstra will then be required to comply with the final FSU with compliance being a carrier licence condition.

 

As part of the requirement for strong internal governance structures with transparency, Telstra will be required to establish an oversight and equivalence board to monitor and support Telstra’s compliance with the final FSU and report to Telstra’s Board and the ACCC about that compliance. There will also be provisions for the establishment of a new independent telecommunications adjudicator, to provide a practical way to enable access providers and access seekers to resolve non-price equivalence and service level issues.

 

More detailed requirements of the functional separation undertaking to be addressed by Telstra will be set out in a written determination (a functional separation requirements determination), which is not a legislative instrument, to be made by the Minister within

90 days of the commencement of the legislation and will provide specific detail on:

·          the responsibilities of, and requirements on, the functionally separated business unit;

·          the assets residing in the functionally separated business unit;

·          the equivalence requirements for regulated services to be provided by Telstra;

·          the functional separation governance framework;

·          enforcement and oversight provisions; and

·          the requirement for Telstra to establish an oversight and equivalence board, including a support office, to monitor and support Telstra in complying with its FSU.

 

As functional separation is the next best option to structural separation, the functional separation obligations on Telstra would cease in the event that Telstra submits an enforceable undertaking acceptable to the ACCC to structurally separate.

 

7.       Regulatory assessment of functional separation

Functional separation provides a much stronger form of separation than the current operational separation regime and is similar to regimes introduced in the UK and more recently in New Zealand (see Appendix A for a table providing a comparison of the Australian, UK and New Zealand separation models - source ACCC ). It would enable Telstra to retain limited economies of scale and scope as a vertically integrated supplier where services are not regulated, such as in the mobile sector, but would have much more stringent controls over its network and wholesale dealings with its own retail arm in relation to regulated services.

 

Price and non-price equivalence, ring-fencing measures and enforcement provisions will all be much stronger than the current regime, thereby providing the right incentives for Telstra to deliver its network and wholesale functions to a high standard no matter which customers it is dealing with.

 

The exact requirements for these measures and provisions will be set out in the functional separation requirements determination with the following descriptions being examples of how the measures in the proposed functional separation framework could be made stronger than the current operational separation framework.

 

Stronger price and non-price equivalence

The ACCC in its submission to the regulatory reform discussion paper outlined the minimum requirements for a robust functional separation model. In particular, the ACCC explained how price and non-price terms could be made stronger than what is required in the current operational separation regime.

 

Regarding equivalence for price terms, the ACCC states that:

‘[p] rice equivalence measures requiring affiliates pay the same for their access to the network as wholesale customers. This involves establishing a transfer pricing system and the preparation of separate accounts for the ring-fenced affiliates, and retail affiliates, of the firm that are prepared on the basis of these transactions. This differs from imputation testing models, as are used in Part XIB anticompetitive or competition investigations, which seek to identify for regulatory purposes an implied access price for affiliates by deducting an estimate of higher layer costs from average retail prices that are offered. Without ex-ante separation of the relevant business units, however, there is no requirement that this implied price must reflect the same tariffs faced by wholesale customers. Further, there is no requirement under an imputation testing only model for retail or wholesale affiliates to account for their use of the network on an arms length basis. ’—ACCC [49]

 

For non-price terms the ACCC states that:

‘[n] on-price equivalence measures requiring that the same access products are offered, and the same processes and systems are used to provide operational support (service qualification and provisioning, fault handling and billing) to the retail and wholesale customer facing affiliates and to access seekers. Equivalence in technical quality is promoted by the use of the same access products, while equivalent operational quality is promoted by the use of the same operational support systems. This differs to a more light handed approach that permits differences in processes provided that specified measures of relative performance do not differ. This alternative approach provides less assurance and is dependent upon robust and encompassing measures being designed and implemented, and even then permits targeted discrimination. ’—ACCC [50]

 

Ring-fencing arrangements and the oversight and equivalence board

Ring-fencing arrangements govern staff roles and the transactions between the functionally separated business units to ensure the separated units operate on a stand-alone basis, at arm’s length and in the separated business units’ best interests.

 

Ring-fencing arrangements would be much stricter than in the current regime and new oversight arrangements would apply with the establishment of a new oversight and equivalence board.

 

An example of the stronger ring-fencing arrangements in the proposed functional separation framework would be that staff in the network and wholesale business unit would not be permitted to receive whole-of-business incentives. Localised incentive arrangements are considered essential in delivering the objectives of functional separation as in the absence of these requirements employees will likely seek to maximise group shareholder value (and thereby discriminate against competitors) to maximise their own bonuses.

 

Telstra would establish an oversight and equivalence board and set its terms of reference in consultation with the regulator similar to the equivalent oversight bodies that have been established in both the UK and New Zealand. Some examples of the roles that the oversight bodies undertake overseas include:

·          report to the Board and the regulator on matters including when it becomes aware of a non-trivial breach of the functional separation obligations or any actions or omissions in terms of compliance with the obligations;

·          consider and review key performance indicators and report to the Board and the regulator on a regular basis and in the company’s annual report compliance with the functional separation obligations;

·          review performance, carry out investigations, process complaints, consult regularly with wholesale customers generally and recommend to the Board and the regulator actions needed to remedy any concerns with compliance with the separation undertakings;

·          consider codes of conduct for personnel and review and report to the regulator any requests for exemptions permitted under the undertaking, making clear whether those requests are supported or not; and

·          review the supply of the company’s services internally to the retail business unit.

 

Stronger and more direct enforcement provisions

Enforcement provisions will be stronger as a contravention of Telstra’s functional separation undertakings will be a direct breach of its carrier licence conditions. This is stronger than the current operational separation regime. The ACCC explains the weak and indirect nature of the current enforcement provisions:

‘[i] n terms of remedying a breach, Telstra’s OSP [operation separation plan] can be seen to contain a “two strikes policy”, as the ACCC can only take enforcement action when a ‘rectification plan’ has been contravened, and a rectification plan would only exist where the Minister has first required Telstra to prepare such a plan and has accepted it. ’—ACCC [51]

 

As stated in the Telecommunications Act, the pecuniary penalty payable as a result of a breach of a carrier licence condition by a body corporate is not to exceed $10 million for each contravention.

 

Both stronger ring-fencing arrangements and enforcement provisions will make it much more difficult for employees to intentionally or unintentionally circumvent their obligations under functional separation and create stronger incentives for Telstra employees not to discriminate against Telstra’s competitors.

 

The stronger measures just outlined are all equally important to the effectiveness of a functional separation regime where the aim is to promote equivalence and transparency.

 

The cost of functional separation

Functional separation is not without cost and it will be more complex and costly for Telstra to implement than the current measures. It could also involve the migration of Telstra’s customers to new systems, which could potentially affect those customers’ services. It will be the responsibility of Telstra to minimise customer impacts during the transition to functional separation.

 

Cost of functional separation in the United Kingdom

In 2005, functional separation undertakings were submitted by British Telecommunications plc (BT) to Ofcom, the UK’s communications regulator, in lieu of the possibility of much harsher regulatory penalties, including structural separation, being imposed given Ofcom’s findings that BT’s market power was restricting competition in the sector.

 

The key features of the BT undertakings were the establishment of a new business unit, called Openreach, responsible for the operation and development of BT’s local access network and that Openreach would support all communications providers, including BT’s retail businesses, on an equivalent basis.

 

Functional separation in the UK is reported to have cost GBP153 million [52] to set up.  However, substantial benefits were apparent within 12 months of functional separation commencing. The costs to BT were in relation to the establishment of Openreach and to the introduction of equivalence of input systems.

 

A non-price cost was that during the implementation of BT’s functional separation undertakings, some customers’ services were affected when BT migrated its customers to new systems.

 

Cost of functional separation in New Zealand

The functional separation model adopted in New Zealand is based on the BT model and was implemented to promote competition and increase broadband take-up in the New Zealand telecommunications markets.

 

In 2006, a law was passed requiring the functional separation of Telecom New Zealand. The law, and the resulting determination, required Telecom New Zealand to separate into three separate business units—retail, wholesale and fixed network access service—with the separated business units all to operate at arm’s length from one another. The separation process formally commenced on 31 March 2008.

 

The key difference between the New Zealand and UK models is that Telecom New Zealand avoided the requirement to re-develop many of its information technology support systems due to the fact it was not obliged to provide equivalence of inputs for legacy wholesale services.

 

Functional separation is reported to have cost NZ$200 million. However, benefits have been identified within 12 months of functional separation commencing. It is reported that the annual operational costs for functional separation is up to NZ$40 million per annum. [53]

 

Costs on Telstra

As further details of the functional separation model will be set out in a determination at a later date, the exact costs that will be incurred by Telstra cannot be quantified. Telstra recently reported in its 2009 full year financial results analyst briefing that functional separation could take between one to five years to implement and cost between $500 million to $1 billion. [54] , [55]

 

Specifically, Telstra claims that if it is required to implement a similar functional separation model as to the one implemented by Telecom New Zealand it would take greater than one year, cost $500 million and affect its share price by approximately four cents per share.

 

Telstra also reports that if it is required to implement a BT-style functional separation model it could take five to six years, cost between $800 million-$1 billion or more with ongoing costs of $50 million-$100 million and affect its share price by greater than 10 cents per share. Telstra states that implementing this model would involve a very expensive unwinding of its information technology systems.

 

It is unclear what assumptions Telstra’s claimed implementation costs or effects on its share price are based on, but it is assumed that much of the incurred cost would be as a result of initial set up and administrative costs as well as the required changes to information technology systems. Telstra’s claims can be assumed to represent the upper bounds of possible costs.

 

A separate analysis of the effects functional separation may have on Telstra’s share price has been performed by Macquarie research, which is part of the Macquarie Group, where it estimates that:

 

‘… functional separation would cost Telstra shareholders between six and 33 cents per share—the lower figure representing a scenario in which regulatory changes are made without a National Broadband Network (NBN) being completed by the Government, the latter including the competitive effect of an NBN. ’—Macquarie [56]

 

However, functional separation does not necessarily have a negative impact on share price as demonstrated by BT. In 2007, the European Regulators Group noted that:

 

[f] ollowing the announcement of the undertakings in the United Kingdom, BT’s share price increased. After almost two years, BT has shown a relatively strong share performance compared with many of its European peers…it is clear the undertakings entered into by BT were not perceived by the market as a disincentive to invest.’ —European Regulators Group [57]

 

Despite the uncertainty on the effects functional separation will have on Telstra’s share price and the ongoing costs it is likely to incur, the initial set up costs and implementation timeframes for Telstra will be significant.

 

Costs to the Government

The functional separation of Telstra will also incur costs for the Government in terms of administering, monitoring and enforcing the framework by the ACCC. It is estimated that functional separation will cost:

·          in 2009-10 $2,863,154;

·          in 2010-11 $2,276,795; and

·          in 2011-12 $1,459,526.

 

The proposed increased resources for the regulator will be recovered by increasing the carrier licence charges.

 

There is potential over time for the wind back of work programs concerning Telstra’s operational and accounting separation as a result of functional separation. However, it is not possible to precisely identify the reduction of regulations and work programs at present as a result of these new regulatory measures.

 

The benefits of functional separation

For similar reasons that functional separation is being proposed in Australia, functional separation was implemented in both the UK and New Zealand to promote transparency and equivalence to encourage the development of retail-level competition and broadband take-up.

 

The benefits resulting from functional separation have been significant, in particular in the UK, where the functional separation of BT had an almost immediate effect on the state of competition in their telecommunications market.

 

Benefits of functional separation in the United Kingdom

The UK experience has demonstrated that functional separation can deliver competitive outcomes to the benefit of consumers, businesses and the industry. Consumers in the UK are able to benefit from lower prices and the development of more innovative services with the European Regulators Group reporting that:

‘[the] creation of Openreach [BT’s functionally separated network and wholesale business unit] prompted a new wave of investment in the UK electronic communications market, which in turn triggered a major price war in the retail broadband market and led to a range of innovative broadband services being offered to end-users.’— European Regulators Group [58]

 

Some commentators have criticised functional separation as compromising investments by restricting the ability of a vertically integrated operator to coordinate investment with its retail arm and limiting its incentive to upgrade the network. This has not been the experience of BT, with BT stating that:

‘…[t]he provision of equivalence does not stifle our ability or desire to invest; we have just announced a ₤1.5bn investment programme in next generation broadband with full equivalence. We are amongst the world leaders in this area .’—BT Global Services [59]

 

Ofcom, the UK’s communication regulator, considers that while not the sole contributing factor to increased competition and benefits experienced by consumers and businesses, BT’s functional separation undertakings have contributed to the following outcomes:

‘Fixed broadband adoption has continued its growth reaching over 60 % of UK households at the end of 2008 from 41 % at the end of 2005.’

‘Over 5.5 million broadband connections at the end of 2008 were provided by operators other than BT who have deployed infrastructure at BT’s local exchanges.’

‘Competition between 2005 and 2007 led to a fall in the cost of a basket of residential fixed voice services on average by 10.5 per cent in real terms each year.’

‘The take-up of [unbundled local loop (ULL)] services has grown from less than 200,000 lines in Q3 2005 to over 5.5 million lines at the end of December 2008, equating to approximately 32 per cent of all (cable and ADSL) fixed broadband connections.’

‘BT’s share of wholesale broadband access (ADSL and cable) fell from 71% at the end of 2005 to 47% at the end of 2008.’

‘BT’s retail share of (residential and SME) broadband connections stood at around 27 per cent at the end of 2007 which is one of the lowest incumbent operator market shares in the OECD, with the exception of North America.’ —Ofcom [60]

 

The results from the UK experience are positive as illustrated by the statistics just stated. Of particular note is that broadband adoption has grown significantly, while BT’s market power has diminished substantially and fixed voice prices have decreased as a direct result of the increased competition in the market.

 

As demonstrated by the following analysis and table from the Strategy and Policy Consultants Network, the UK has stronger broadband take-up and a higher proportion of its subscribers use higher bandwidth connections than Australians. It is therefore expected that Australia will improve its broadband penetration rate and the percentage of subscribers using higher-speed broadband connections as a benefit of the increased level of competition in the sector due to stronger separation measures for Telstra.

 

 

 

Broadband Penetration: Australia’s level of penetration is 25.4% against 28.5% in the UK. However, penetration is strongly and positively associated with Gross Domestic Product (GDP) per capita: the higher the GDP per capita, the higher the level of penetration. If we correct for GDP per capita we find that penetration is (sic) Australia 2.28 percentage points below the level we would expect whilst the UK is 2.18 percentage points above the level we would expect .’— Strategy and Policy Consultants Network [61]

 

Percentage of Australian and UK subscribers per bandwidth.

 

Bandwidth

Proportion of Subscribers

Australia

United Kingdom

512 kbps and below

44%

4.3%

512kbps-8mbps

33%

89.3%

More than 8 mbps

23%

7.2%

Source: Strategy and Policy Consultants Network, Preventing Discrimination in the Australian Broadband Market.

 

Another important point is that the take-up of unbundled local loop services has grown dramatically since the introduction of functional separation. Unbundled local loop services are an essential service to foster competition on the existing fixed-line copper network and require the incumbent to lease at cost part of its local assets to competitors. The dramatic increase in take-up of this essential service demonstrates the high level of confidence competitors have that the functional separation regime results in them being treated in a non-discriminatory way by the incumbent which has given them confidence to invest in the market.

 

Functional separation has had a positive net effect in the UK with its telecommunications regulator, Ofcom stating that:

‘[s] ince our last review, and nearly four years on since the [BT functional separation] Undertakings were given, our annual evaluation continues to indicate that the net effect of the Undertakings to date, both for competition and consumers has been positive.

Given the substantial benefits the Undertakings have delivered to retail and wholesale customers to date, we continue to remain of the view that the Undertakings are an appropriate and comprehensive solution to the competition concerns that we set out in the TSR [Strategic Review of Telecommunications] . ’—Ofcom [62]

 

Furthermore, the benefits of functional separation are displayed earlier in this regulatory assessment where the UK is superior to Australia in most key international telecommunications indicators stated regarding price, take-up rates and the state of the sector’s competition.

 

Benefits of functional separation in New Zealand

Functional separation in New Zealand is in its early days but there appears to be early benefits as a result of its implementation.

‘Telecom’s share of the retail broadband market has continued to decline and now sits at 57 percent of total broadband connections compared to 61 percent at the end of 2007…the 2006 legislative reforms continue to have a positive effect on the fixed line telecommunications markets and are likely to show further gains in 2009.’ —New Zealand Commerce Commission [63]

 

In addition, functional separation in New Zealand has seen a marked change in Telecom New Zealand’s behaviour towards its wholesale customers.

‘Operational separation [the equivalent of functional in the Australian context] of Telecom NZ has been a huge success. It is all positive; there are no negatives.

From the moment the government announced the separation plan on 3 May 2006, Telecom's behaviours in the market place changed. Before separation it viewed its wholesale customers as unwelcome campers on its network. The moment separation became inevitable, it immediately started to recognise them as valued business partners.’ —speech by Dr Ross Patterson, Telecommunications Commissioner, New Zealand Commerce Commission [64]  

 

Changing the incumbent’s attitude towards its wholesale customers, not just because of the regulation imposed, but for the incumbent to see the true value of its wholesale customers as equal business partners, is a major outcome for the functional separation regime implemented in New Zealand.

 

Reduction of regulation

The increased competition resulting from functional separation could reduce the need for other forms of regulation, such as retail price controls. For example, in the UK, Ofcom has reduced BT’s retail price controls, as a result of the benefits from functional separation due to the increased level of retail level competition in the market. However, such a reduction of regulation could only occur once a fully competitive retail market was established.

 

8.       Overall assessment of functional separation

Functional separation is the next best option to structural separation and will go some way in providing equivalence and thereby further promoting competition in the sector.

Currently, reviews of regulatory frameworks are being contemplated in many overseas markets as a regulatory remedy to ensure competition prevails. In its 2009 Communications Outlook publication, the Organisation for Economic Co-operation and Development (OECD) states:

…functional separation of integrated incumbent operators should be part of the policy toolkit available to regulators to use, as a last resort measure, if other possibilities to create competitive markets have not been successful… [and] regulatory frameworks, which had reached a certain stability and maturity during the last decade, are in many cases being reviewed in order to ensure that competition prevails .’—OECD [65]

 

As stated earlier the competitive telecommunications market that was envisaged is not emerging due to Telstra’s level of integration and incentives to favour its own retail business compared to its wholesale customers. The proposed functional separation framework will go a long way to altering Telstra’s incentives and its behaviour when providing access to services for its wholesale customers.

 

Even though functional separation is seen as the second best option to structural separation, it will be supported by Telstra’s competitors as they will be able to compete with Telstra on more level terms than currently. As a result, competitors will have the confidence to invest in the market, which will see greater innovation, lower prices and more choices for consumers.

 

That being said, the ongoing cost to the competition due to Telstra’s vertical integration affects all Australians and the economy more generally through higher telecommunications prices and reduced innovation and investment in the sector. Also any costs incurred to Telstra as a result of functional separation may not be as significant as other systems costs that are part of the costs of doing business. For example, in recent years Telstra has reportedly spent in excess of $10 billion [66] on next generation networks (including wireless) systems and over $1.5 billion [67] on its recent information technology transformation project.

 

It is the Australian Government’s considered view that the medium- and longer-term competition benefits for the economy, business and end-users of implementing functional separation outweigh the short-term costs to Telstra of implementing functional separation if Telstra decides not to voluntarily structurally separate.

 

9.       Telstra’s horizontal integration

The problem being addressed

In the past, concerns have been expressed by a range of stakeholders that Telstra’s control of the only and near ubiquitous copper fixed line network, the largest cable and mobile  networks and 50 per cent of the Foxtel has reduced the development of facilities-based competition in Australia in comparison to other countries and has contributed to Telstra’s dominance in the market.

 

Compared to most other countries, Telstra’s level of integration is unique.  For example, in most other developed countries there are restrictions on incumbents from owning both cable and traditional fixed-line telephone networks.

 

Unlike Australia, in a range of countries, the fixed-line incumbent does not also own the largest mobile carrier as measured by market share.

 

Telstra’s ownership of the two largest fixed line networks in Australia has limited competitive tension in the telecommunication sector, and therefore choice for consumers with the ACCC stating in 2003 that:

‘…Telstra’s control of both a copper and a cable network and the lack of competitive discipline it faces as a result of this dual ownership, means Telstra is in a position to largely dictate the type of services that consumers will be able to access and the time at which these services become available.’ —ACCC [68]

 

In addition to Telstra’s control of fixed line networks, Telstra’s 50 per cent stake in Foxtel has hindered competition in both the telecommunications and pay-TV markets. This is because Telstra has the incentive to base its decisions on its interests in both the telecommunications market and its pay-TV interests.  As a result, new products that a pure media company or a pure telecommunication wholesaler might offer are potentially not being made available to consumers.

 

Why Government action is needed

To ensure that competition across telecommunications platforms can prosper into the future, Telstra will be required to structurally separate, divest its cable network and Foxtel interests in order to acquire spectrum for advanced wireless broadband. However, under the legislation, the Minister has the power to exempt Telstra from requirements to divest its cable and pay-tv assets.

 

These measures are designed to promote competition across the various telecommunications platforms, but provide Telstra will the flexibility to choose its future path.

 

Australia is one of the few countries that has allowed its telecommunications incumbent to own a hybrid fibre coaxial cable network. In many other countries, including within the European Union, there are restrictions on incumbents that own the fixed line telephone network also owning cable networks (See Appendix B for a list of countries where restrictions have been placed on the incumbent’s involvement in the Pay TV sector, source: Optus).

 

The divestment of certain assets to be allowed to participate in other market segments or to avoid regulation is not unfamiliar in the telecommunications sector. For example, for the merger between the European telecommunications providers Telia and Sonera, the European Commission directed Telia to divest its cable network in Sweden. [69] While in the UK,

‘BT divested itself of its mobile business in 2001 to simplify its business, and since then the company’s performance has gone from strength to strength…’— Ovum [70]

 

The Government’s clear objective is to promote competition which is in the interests of all Australian consumers, businesses and the economy more broadly.

 

The issues surrounding Telstra’s ownership of Foxtel

Optus contends that Telstra’s investment in Foxtel represents a significant threat to competition:

Telstra’s fifty per cent ownership in Foxtel has been recognised to have caused significant distortions in the development of the Pay TV market within Australia, with associated impacts on the telecommunications fixed line services market. ’—Optus [71]

 

The impacts and distortions in the development of the respective markets are difficult to quantify, however, problems arise because c ontent can provide telecommunications service providers with new high-value business opportunities and further stimulates demand for their carriage services. Exclusive access to content creates an effective means of locking customers in. Further lock-in can be achieved through the bundling of services (i.e. selling two or more types of services together at a discount rate). Access to content on an exclusive basis limits the opportunities available to competitors, in both the carriage and content sectors.

 

Because of Telstra’s stake in Foxtel and its ownership of the largest hybrid fibre coaxial cable network, Telstra has the incentive to seek to restrict the supply of Foxtel Pay TV channels to other networks competing with Telstra for the supply of telecommunications services and to hinder other Pay TV businesses from accessing Telstra’s cable network. The Seven Network in its submission strongly supports Telstra being required to divest its ownership of Foxtel arguing that competition has suffered as:

  [t] he [Australian] pay TV sector is characterised by the absence of any effective competition. The barriers to entry are now such that the marketplace is highly unlikely to deliver any real or sustainable competition in the future.’— The Seven Network [72]

 

Telstra choosing to divest its Foxtel interests could see new entrants into the Pay TV sector with new channels providing greater choice for consumers. It could also see increased competition in the telephony and broadband markets as Pay TV services could be bundled with other telecommunications providers.

 

A number of submitters to the regulatory discussion paper argued for Telstra to divest its Foxtel interests including:

  …Telstra should be required to immediately divest its interests in Foxtel. ’ — Macquarie Telecom [73]

…the Government ought to require Telstra to divest its ownership interest in FOXTEL. Austar [74]

TransACT would encourage the government to consider... horizontal separation, by requiring Telstra to divest its 50% interest in FOXTEL… ’ — TransACT [75]

Competition policies dictate that Telstra must be forced to divest its ownership interest in Foxtel. Primus [76]

The CCC submits Telstra should be required to divest itself of its interests in the HFC cable and Foxtel... ’ — Competitive Carriers Coalition [77]

 

Optus also submits that Telstra’s stake in Foxtel will be significant into the future. The reason being as consumers move to higher speed broadband services, such as those offered by the NBN, IPTV and the associated content are likely to be key drivers for the take-up of these higher speed services. That is:

…control of content will become increasingly critical, since it will become a crucial factor in customer’s purchasing decisions. ’—Optus [78]

 

In a recent speech, the ACCC’s Chairman Mr Graeme Samuel also noted the reasons why control of content could stifle competition:

…a telecommunications network operator is able to acquire sufficient compelling content on an exclusive basis, such that it limits alternative network owners’ ability to offer attractive packages to consumers. ’—Mr Graeme Samuel, ACCC [79]

 

In contrast, Telstra in its submission argued that the presence of telecommunications carriers in media markets promotes the traditional media policy goal of diversity and plurality and:

…the existing legal and regulatory frameworks for cable networks, media and content, contain strong safeguards to prevent anti-competitive conduct and the misuse of market power…The Foxtel content sharing agreement with Optus and Foxtel’s undertakings to the ACCC, for example, have helped secure the industry’s financial sustainability and ensured that pay TV content is accessible across platforms and providers. ’—Telstra [80]

 

Foxtel did not address its possible divestment by Telstra in its submission to the regulatory reform discussion paper. It did state that it:

…would be particularly concerned that a new regulatory regime may be introduced to deal with perceived concerns with Telstra and that this regime may end up having wider application… [and] is also concerned…on the need to prohibit one company from buying a media asset fundamentally misunderstands the way in which the content supply market operates as well as misunderstanding the implications of broadband… [and] is not aware…that access to content has foreclosed competition or otherwise acted as a barrier to entry or that this has caused a lack of investment in facilities or the subscription television industry. ’—Foxtel [81]

 

Austar in its submission notes the ability of a dominant telecommunications operator to reinforce its dominance not just through subscription television services but also in the broadband market is an issue:

The issue is the potential for a powerful telecommunications operator to exploit its power in the platform delivery market to close off content competition, not just in subscription television, but also in broadband service acquisition. We have already seen this in the exclusive content deal that Telstra did for AFL rights for its Bigpond internet service. As the lines between platforms begin to blur as true “convergence” takes hold, the ability for a dominant telco operator to dominate this space and use content rights to reinforce that dominance become even more concerning. ’—Austar [82]

 

With the Government’s aim for the NBN to deliver superfast broadband to all Australians and a fully competitive telecommunications market, Telstra’s divestment of Foxtel would improve the environment for a competitive market to develop.

 

The lack of infrastructure based competition in the past due to Telstra’s ownership of a hybrid fibre coaxial cable network

Telstra’s ownership of the largest cable network means that, along with its fixed line copper network, it owns the two most significant fixed line communications platforms in Australia.

 

Divestment of the cable network could provide the basis for additional infrastructure-based competition for the provision of voice, broadband and subscription television services in metropolitan areas where this cable footprint exists.

 

In their respective regulatory submissions Macquarie Telecom, Primus and the Competitive Carriers Coalition all argued for Telstra to be required to divest its cable network. Telstra, Foxtel, Optus and the Communications, Electrical and Plumbing Union argued against divestment. Optus stated that Telstra’s cable network should reside in the company that will be created as a result of Telstra’s structural separation (Optus in its submission provided a structural separation model for Telstra where Telstra would be required to divest its network and wholesale functions to a separate company not owned or controlled by Telstra).

 

Making Telstra’s access to spectrum conditional on structural reform

To promote competition across the various telecommunications platforms, the Government is proposing legislative measures that will provide Telstra will the flexibility to choose its future path.

 

The Government is proposing that Telstra will not be able to acquire spectrum for advanced wireless broadband while it remains vertically integrated, maintains its interest in Foxtel and owns a hybrid fibre coaxial cable network. If the Minister is satisfied that any concerns arising from Telstra’s market power are sufficiently addressed by Telstra’s undertaking to structurally separate, the Minister will be able to exempt Telstra from the requirements to divest its interests in Foxtel and/or its hybrid fibre coaxial cable network. This reflects the view that an appropriate form of structural separation may address the concerns in relation to Telstra’s level of horizontal integration.

 

The availability of spectrum has been essential in encouraging competition between different technologies, as well as different service providers of mobile services.

 

Availability of spectrum is becoming increasingly important for telecommunications as the use of wireless broadband and mobile technologies such as 3G increases. The prospect of new technologies—such as Long Term Evolution—which allow for more bandwidth-intensive applications will further increase this demand.

 

The allocation of spectrum is carried out under the Radiocommunications Act. Currently, when spectrum becomes available, it can be sold through auction, with licence periods of up to 15 years. Secondary trading in spectrum is permitted.

 

Over coming years, the Government will consider the allocation of spectrum made available through the staged cessation of analog television in the transition to digital television, the expiry of licences for spectrum currently used for mobile telephone services and any changes to the use of spectrum currently used for electronic news gathering.

 

The Government recognises that the future demands will place pressure on the available spectrum.

 

Competition limits have been imposed on existing carriers in Australia in the past. Specifically, t he applicable Ministers have used their directions powers under section 60 of the Radiocommunications Act 1992 to apply competition limits to particular spectrum licence auctions five times. [83]

 

If Telstra wishes to participate in spectrum auctions for advanced wireless broadband it must structurally separate and divest its cable network and subscription television assets. The relevant spectrum Telstra will be prevented from acquiring is the broadcasting spectrum and spectrum used for electronic news gathering. Telstra will not be prevented under this rule from re-acquiring spectrum it currently uses for mobile telephone services.

 

Telstra in its submission does not support the proposal to prevent it from accessing the spectrum that is required for the provision of next generation wireless services. [84] Hutchison also does not consider competition limits appropriate on spectrum unless the Government identifies clear quantifiable net social benefit from restricting competition for newly available spectrum. [85] Whereas the ACCC states that:

‘[a] lthough Telstra has voiced concerns over the use of competition limits … the ACCC considers they can be an effective mechanism to promote competition. —ACCC [86]

 

The Digital Economy Industry Work Group [87] , Optus and Unwired in their regulatory reform submissions also stated that competition restrictions should be considered to spectrum auctions with Optus and Unwired stating:

Optus submits that competition limits on spectrum allocations should be considered

—Optus
[88]

‘[f] uture competition limits on spectrum allocation should be based on the market power of

applicants across all delivery platforms. ’—Unwired [89]

 

10.   Objectives of the Government’s horizontal separation action

The Government’s objective is to address Telstra’s ability to discriminate against its competitors, promote competition across the various telecommunications platforms, and provide Telstra will the flexibility to choose its future path. 

 

11.   Government’s policy to address Telstra’s horizontal integration

Telstra will be required to nominate which markets it participates in by being prevented from acquiring spectrum for advanced wireless broadband while it:

·          remains vertically integrated; and

·          maintains its interest in Foxtel; and

·          owns a hybrid fibre coaxial cable network.

 

In order to acquire spectrum, Telstra must submit enforceable undertakings to structurally separate to the ACCC and to divest its Foxtel and hybrid fibre cable coaxial network.  Under the legislation, the Minister could provide guidance to the ACCC on the matters it would take into account when considering whether to accept a structural separation undertaking.

 

There is a provision to enable the Minister, if satisfied that any concerns arising from Telstra’s market power are sufficiently addressed by Telstra’s undertaking to structurally separate, to exempt Telstra from the requirements to divest its interests in Foxtel and/or its hybrid fibre coaxial cable network.

 

12.   Regulatory assessment of measures to address Telstra’s horizontal integration.

The Government is not imposing any regulation on Telstra to structurally separate or divest its Foxtel or hybrid fibre coaxial cable network interests. Telstra will have a choice to divest these assets and to structurally separate or to participate in the market for advanced wireless broadband.

 

Therefore the intention of this section is to outline the potential costs, where possible, to Telstra and the Commonwealth if Telstra decides to participate in spectrum auctions for advanced wireless broadband.

 

All the costs identified are estimates only.

 

Estimated cost of Telstra’s divestment of Foxtel

Foxtel has 1.63 million direct and wholesale subscribers. It has been reported that Foxtel is worth $3.5 billion, with revenue reaching $1.84 billion and posting a pre-tax profit of

$135 million for the year ended 30 June 2009. [90] , [91] , [92]

 

If Telstra divests its Foxtel interest it will lose the associated profits from the cable TV provider and the strategic benefit to its telecommunications business in owning a premium content provider. However, it is not possible at this time to accurately state how much Telstra would lose or gain in to divesting its 50 per cent stake in Foxtel, which would partly depend on the revenue from the sale.

 

Costs will also be incurred by the Government in assessing the Foxtel divestment undertakings, however at this point in time it is not clear what these costs will be.

 

Estimated cost of Telstra’s divestment of its hybrid fibre coaxial cable network

There are financial costs involved in Telstra divesting its hybrid fibre coaxial cable network in terms of securing market value for the asset.

 

In its financial analysis of the NBN, Deutsche Bank stated that the estimated ‘book value’ of Telstra’s cable network is approximately $3.6 billion or $1450 per home passed, while the market value is in the vicinity of $1.25 billion or $500 per home passed. This could be a direct cost to Telstra in the vicinity of $2 billion if Telstra sells its network at current market value. Another cost is that Telstra would lose revenues received from Foxtel for use of the cable network, which is estimated to be $80 million per annum, but this is a low margin offering. [93]

 

Deutsche Bank also estimate that if Telstra divests its hybrid fibre coaxial cable network at market value and a successful NBN is built, the estimated value of Telstra’s share price will be $3.70 per share.

 

Costs will also be incurred by the Government in assessing the divestment undertakings, however at this point in time it is not clear what these costs will be.

 

Estimated cost of preventing Telstra from acquiring spectrum

There could be a cost to the Commonwealth Government if Telstra chose not to participate in spectrum auctions due to the loss in competitive tension. However the Government considers the benefit of a more competitive telecommunications sector outweighs the potential loss of revenue from spectrum auctions.

 

At this point in time, it is not possible to predict the potential loss in revenue to the Commonwealth.

 

It is also not possible to estimate the potential loss in revenue for Telstra as a result of not acquiring spectrum and not providing advanced wireless broadband services.

 

13.   Overall assessment of the measures to address Telstra’s horizontal integration

As the Chairman of the ACCC recently stated:

‘…control of both the telecommunications pipes and a large volume of compelling content that is distributed over those pipes, could give one company significant market power in both the telecommunications and content sectors. ’—Mr Graeme Samuel, ACCC [94]

 

Telstra’s level of integration across all fixed line platforms has meant effective competition between the various types of infrastructure has not developed in the past and has resulted in Telstra growing its market power in both the content and telecommunications areas.

 

The rollout of the NBN as a wholesale-only open access network will fundamentally transform the competitive dynamics of the Australian telecommunications sector. That said, during the rollout and after, the existing telecommunications regulatory regime and market structure will remain important for delivering services in the interests of Australian consumers, businesses and the economy more broadly.

 

In order to promote more effective competition in the sector in the interests of consumers, businesses and the economy more generally, the Government is proposing measures to address Telstra’s level of integration across various telecommunications platforms. Within these measures, the Government is providing Telstra with the choice and flexibility to choose its future path. 

 

If Telstra chooses to remain vertically-integrated, and is therefore unable to participate in the spectrum auctions it will open up the market to new entrants which would provider even greater competition in the mobile market and promote an environment for healthy cross-platform competition to occur. This could result in new and innovative bundling and pricing packages for consumers from the new entrants, with the increased level of cross-platform competition lowering prices in both the fixed-line broadband and mobile markets.

 

Similarly, if Telstra decides to participate in the spectrum auctions a competitive market will also develop with the possibility of infrastructure-based competition to occur between the fixed-line telecommunication and the new cable network owner. The divestment of Foxtel would improve the environment for a competitive market to develop. The structural separation of Telstra will improve the level of competition on the fixed-line network during the transition to the NBN.

 

In line with the proposed measures to ensure that the NBN Co is a wholesale-only open access network, these measures to reduce Telstra’s level of integration across telecommunications platforms and promote more effective competition can be expected to be broadly supported by non-Telstra participants in the industry.

 

The Government acknowledges that requiring Telstra to make choices will curtail future business opportunities and have potential costs. It could also affect the Government’s revenue from the spectrum auctions.

 

However, the Government considers that in moving towards the rollout of the NBN, it is imperative to promote greater competition and address the investment issues that have arisen in the past from Telstra’s horizontal and vertical integration for the benefit of all Australian consumers, businesses and the economy more broadly.



APPENDIX A

Table 1 Comparison of the Australian, UK and New Zealand operational separation models (Source: ACCC)

 

Australia `

UK

New Zealand

Organisational Split

Notional. Telstra still operates the Key Network services division which deals with Telstra and access seekers.

1. Key Network services (Telstra branded)

2. Wholesale business unit (for both unbundled and managed services)

3. Retail Services Unit

More substantive. Network services division separately branded.

1. Network services (separately branded) - Openreach

2. Wholesale business units (separate for (i) unbundled and (ii) managed services) - BT Wholesale

3. Retail business unit - BT Retail

More substantive . Network services division separately branded.

1. The Access Network Services unit (separately branded)

2. Wholesale unit

3. Telecommunications Fixed Network business unit (other than ANS and wholesale unit)

4. Retail unit

Accounting

arrangements

No requirement for separate accounts.

Requirement for separate accounts.

Requirement for separate accounts of ANS.

Assets allocated

between units

No

Yes

No

Price equivalence

measures

Relatively weak . Imputation testing preferred but Telstra has not yet provided relevant information.

Stronger . Transfer pricing to promote internal/external equivalence.

 

Stronger. Transfer pricing to promote internal/external

Equivalence.

Service quality

measures

Relatively weak. General equivalence obligation on service quality, KPI reporting on connections, faults and billing but does not necessarily translate into services delivered.

 

Much stronger. Requirements to use the same regulated wholesale products, at the same prices and using the same transactional systems/processes, as BT’s retail activities. KPI reporting on provision and repair for wholesale line rental, ULL, IPstream, and billing.

Much stronger. Requirements to offer same products and services at both the wholesale and retail levels and use same processes as wholesale KPI reporting on connections, faults and billing to demonstrate equivalence of inputs.

 

Customer support

measures

 

Questionable. Dispute resolution and responsiveness measures managed by Telstra internally.

More robust. Independent complaints body.

More robust. Independent complaints body.

 

Governance

Relatively weak . Externally audited annual compliance report to Minister, Board committee oversight, designated executive with day-to-day responsibility, staff training obligation.

 

More robust. Externally audited annual compliance report. Equality of Access Board committee oversight (independent

directors). Requirements regarding reporting lines, senior staff engagement.

More robust. External audit of Independent Oversight Group’s (IOG) annual report, arms-length rules applying to certain Telecom personnel, requirements regarding reporting lines, requirements for setting ANS policies to ensure that ANS operates on a stand-alone basis.

Regulator

Responsible Minister. ACCC investigation function and regular reporting function.

Ofcom investigatory and regular reporting function.

NZ Commerce Commission - Enforcement role

IOG - independent oversight role.

Timing

Commenced June 2006.

Commenced late 2005.

Commenced 31 March 2008.

Enforcement

options

 

Relatively weak. Many steps before ACCC can take action. “Two strikes” policy requiring intervention of Minister.

Stronger. Ofcom can prosecute breaches of OSP undertakings. Financial penalties up to 10% of relevant turnover.

Stronger. Commerce Commission can prosecute breaches of OSP - $10m for each breach, $500k per day for continuing Breaches.



APPENDIX B

Restrictions on incumbent involvement in Pay TV (Source: Optus [95] )

 

Country

Restriction

Belgium

Belgian cable operators are traditionally separated from the incumbent.

Canada

Bell Canada was prohibited from holding a broadcasting licence and operating a broadcasting undertaking. ( Section 7 Bell Canada Act, repealed 1997 as a result of Convergence Policy Statement 6 August 1996).

Germany

Deutsche Telekom has announced that it will separate its cable operations into separate legal entity and that it will consider further measures

Hungary

Telecommunications organisation cannot own, lease or control a cable network, except in settlements with a population of under 30,000.

Hong Kong

The cable operator Wharf was granted an exclusive licence to provide pay TV services.

Italy

Telecom Italia was prohibited to enter the terrestrial broadcasting market.

Japan

NTT and KDD were prohibited from providing cable TV service.

The Netherlands

KPN (the holding company of the incumbent PTT Telecom) is not allowed direct provision on cable TV infrastructure. The incumbent sold its shareholdings in cable companies at the insistence of the regulator.

Spain

Telefonica was prohibited from entering into cable telephony (1997-1999).

United Kingdom

Cable operators were initially granted exclusive geographical licences to provide pay TV services. BT and Mercury were not permitted to enter the Pay TV business. BT was prohibited from involvement in broadcasting by Duopoly Review 1991 (effective from 1991-2001).

US

Incumbent telcos were barred from providing video service in all but the most rural areas and similarly cable operators is (sic) limited to providing subscription TV - known as the Cable Communications Policy Act 1984 (effective from 1984 to 1996).

 

 



REGULATION IMPACT STATEMENT

 

REFORM OF PART XIC OF THE TRADE PRACTICES ACT 1974 (NETWORK ACCESS ARRANGEMENTS)

 

1.                   Issues which give rise to the need for action

In order to obtain improved outcomes for consumers, a competitive market for telecommunications services must be established. Competitors’ access on reasonable terms to services that are necessary for the supply of retail services is an essential element of this objective. The current access regime has failed to adequately provide such access in a timely fashion.

 

Background

Under Part XIC of the Trade Practices Act 1974 the Australian Competition and Consumer Commission (ACCC) has the power to ‘declare’ specific telecommunications services to be subject to the access regime.

Once a service is declared, a telecommunications provider that supplies the declared service (an access provider) is obliged to supply it to other telecommunications service providers (access seekers) on request (subject to certain exceptions). After it declares a service, the ACCC is required to issue non-binding ‘pricing principles’ for that service.

The price and non-price terms on which a declared service is supplied are determined by the following means:

·                negotiation and agreement between the access provider and the access seeker; or

·                if negotiation fails, the terms are as specified in:

o    an access undertaking previously lodged by the access provider and accepted by the ACCC, or

o    in the absence of a relevant undertaking that specifies the terms of access, a determination by the ACCC following arbitration.

This is known as the negotiate-arbitrate model. This approach was chosen over more direct methods of setting access terms in order to encourage market-based outcomes. However, in practice determining terms and conditions of access under Part XIC has proven to be time-consuming and litigious.

Part XIC also provides for:

·                  the ACCC to determine model terms and conditions for certain ‘core services’;

·                  the granting of exemptions, for existing services and for services that are not yet declared (to encourage investment in new telecommunications infrastructure);

·                  the Minister to make a determination setting out pricing principles (which apply to undertaking and arbitration decisions); and

·                  applications to be made to the Tribunal for review of exemption and undertaking decisions.

The exercise of the regulatory powers of the ACCC in Part XIC, including the power to declare services, is governed by consideration of the long-term interests of end-users (LTIE). In deciding whether something is in the LTIE, the ACCC must consider whether it is likely to promote:

·                competition;

·                any-to-any connectivity (i.e. communication between users of services over different networks); and

·                the efficient use of, and investment in, telecommunications infrastructure.

The negotiate-arbitrate model has proven to be complex and delay-prone. Each access dispute has to be arbitrated individually - even if it is very similar to disputes that have previously been arbitrated.  For instance, an arbitration relating to one of the most important declared services, the unbundled local loop service (ULLS), which commenced in early 2005 was not finally decided by the ACCC until December 2007, despite the Commission having made numerous earlier statements on ULLS pricing. Rather than encouraging flexible negotiation, the process has been a source of uncertainty and delay for access seekers.

It was originally envisioned that, as the access regime became well-established, new entrants would compete successfully with the incumbent provider (Telstra) and gradually invest in their own infrastructure, perhaps eventually replicating Telstra’s network and thus eliminating the economic bottleneck comprising Telstra’s fixed line customer access network. While significant investment has taken place, this outcome is nowhere near being achieved. ACCC figures for June 2008 show that out of 5069 Telstra exchanges, only 521 (10 per cent) have had competitors’ facilities installed. Regulatory uncertainty appears to have played a part in curbing more extensive investment by competitors.

 

Problem

The negotiate-arbitrate model within the telecommunications access regime has been extensively criticised by a range of stakeholders across the industry. Access seekers have been the primary critics, but the ACCC and bodies such as the Internet Society of Australia have also expressed grave doubts that the regime is achieving its aims.

Stakeholders’ main areas of concern have been that the negotiate-arbitrate model is very slow, cumbersome and open to gaming (if not outright obstruction), and that Part XIC in its current form does not provide sufficient regulatory certainty for investment. It is ineffective largely because it has not effectively constrained the incentive of the vertically-integrated Telstra to provide access to its network on terms that are not as favourable as those it supplies to its own retail business.

The telecommunications sector is characterised by disputation to a greater extent than other industries where negotiate-arbitrate access regimes operate. The litigious nature of the telecommunications sector in Australia is illustrated by the fact that:

·                as of mid-May 2009, 157 telecommunications access disputes had been notified since the commencement of the Part XIC regime in 1997. This can be contrasted to three access disputes that have been notified in other sectors (in respect of a gas pipeline, Sydney airport, and a sewerage service); and

·                in recent times, judicial review has been sought in respect of almost all final arbitration determinations made by the ACCC (mostly by Telstra).

·                as of March 2009, the ACCC was considering 51 access disputes, all involving Telstra. Of these, 42 related to the supply of broadband inputs.

While disputes in different regulated industries cannot be directly compared, the number of arbitrations requested and the regular reoccurrence of the same access issues lead the Government to conclude that the process is not working as intended and is prone to excessive delay. Telstra is the main beneficiary of this delay and disputation, as it retards the rollout of competing services. Investment in new infrastructure is similarly inhibited by regulatory uncertainty. More than a decade after the introduction of competition, Telstra remains dominant in almost all sectors of the telecommunications market, and it continues to be one of the most profitable operators in the world. The use of regulatory and legal processes appears to be one way in which Telstra maintains this dominance.

Contributing factors include that:

·                the ACCC cannot set binding terms of access up-front when a service is declared, but has to wait until an access dispute is referred to it for arbitration;

·                arbitration proceedings can take a long time, sometimes years;

·                when arbitrating an access dispute, the ACCC cannot determine terms of access collectively for all access providers and access seekers—its arbitrations are only binding on the parties to the arbitration; and

·                there are multiple steps at which parties can challenge procedural matters and seek judicial review.

The undertaking process is also seen as ineffective by a range of stakeholders.  In total, 36 undertakings have been submitted. Five of these have been accepted by the ACCC (three relating to pay TV services); six were withdrawn prior to the ACCC making a final decision. Five of the decisions to reject an undertaking have been appealed in the Tribunal, four of them unsuccessfully, with one appeal still current.

Voluntary access undertakings were intended to provide an opportunity for increased certainty for access providers, as well as the flexibility to develop their own terms of access for approval by the ACCC. However, certain stakeholders have argued that, instead of the undertaking provisions being used to provide certainty, they have been used to create delays in regulatory processes, and have resulted in a situation where ‘serial’ undertakings are lodged (i.e. repeated undertakings with only minor changes made from previous submissions, even when it is clear that the terms proposed will not be acceptable to the ACCC; this simply delays the process of reaching a proper outcome).

Every undertaking must be considered on its merits by the ACCC. To date the ACCC has rejected most of the undertakings that have been submitted to it on the basis that it was not satisfied that the undertakings met the relevant legislative criteria. To this date, no decision to reject an undertaking has been successfully appealed in the Australian Competition Tribunal.

The deficiencies of the current regime have hindered competitive access, and this has the effect of deterring innovation and investment, thus having a negative impact on the range and price of telecommunications products offered to Australian consumers. 

 

2.         Objectives

The Government’s objective is to facilitate the delivery of affordable, high quality, innovative and reliable telecommunications services in a sustainable competitive market. Outcomes for end-users of telecommunications services will be significantly improved through a regulatory process for access to telecommunications services that operates in a timely and efficient manner and provides a reasonable degree of regulatory certainty for access providers and access seekers.

 

3.         Options

The two main options for reform available to the Government are:

A.  retain the current regime, but make it work more effectively; or

B.  replace the negotiate-arbitrate model with a streamlined process.

 

Option A—Retain the current Part XIC processes—including the negotiate-arbitrate model—but make them work more effectively

Under this approach the current regulatory processes, including the negotiate-arbitrate model, would be retained. However, changes would be made to reduce delays and opportunities for gaming and to encourage the effective use of undertakings. These changes would include:

·                limiting opportunities to challenge procedural matters by exempting certain decisions (e.g. interim access determinations) made by the ACCC from judicial review by the Federal Court;

·                enabling the ACCC to request a party who lodges an undertaking to vary it without requiring the party to lodge a fresh undertaking and effectively ‘restart the clock’ on an already lengthy process;

·                placing a time limit on the ACCC for finalising an arbitration; and

·                allowing the ACCC to specify pricing methodologies for declared services which would be used to determine prices over successive regulatory proceedings or successive undertakings in order to create greater regulatory certainty.

 

Option B—Replace the Part XIC negotiate-arbitrate model with a streamlined regulatory process

This approach would replace the negotiate-arbitrate model with a streamlined regulatory process and provide the ACCC with the ability to make up-front determinations on price and non-price terms of access. Under the new process:

·                the ACCC would determine up-front price and non-price terms and conditions (the access determination) to apply, in general, for a three to five year period;

·                the access determination would apply to all access providers and access seekers of the declared service (although the access determination could specify different terms of access for different access providers and/or access seekers);

·                access providers and access seekers could agree to different terms of access from those in the access determination;

·                the ACCC would have the power to determine fixed principles to apply for a stated period which may extend beyond the duration of the access determination (e.g. how depreciation is treated);

·                the ACCC would have the power to make binding rules of conduct for the supply of declared services which would apply either in addition to, or as a variation of, an access determination.  Such rules could address particular competition issues, such as inadequate exchange access processes or service migration processes;

·                there would no longer be ordinary exemptions from access obligations and no ordinary access undertakings;

·                the ACCC would have the power to request a party that lodges a special access undertaking to vary the undertaking without having to lodge a new undertaking; and

·                merits review would not be available for decisions under Part XIC.

Suitable transition arrangements would be developed for existing declared services.

 

4.         Impact assessment

This section discusses the costs and benefits of the two alternative options put forward in terms of the impact on business, the Government and consumers. It is not possible to precisely quantify the costs and benefits for any party, though both options would, to varying degrees, reduce the amount of resources expended in regulatory processes and litigation. 

Option A—Retain the current Part XIC processes—including the negotiate-arbitrate model—but make them work more effectively

All the proposed reforms under this option would operate to simplify the access regime, and in theory this would allow disputes to be settled more quickly and leave less opportunity for decisions to be appealed. Access seekers would benefit most, and they would have greater confidence in achieving speedy outcomes. However, many avenues would remain open for access providers to ‘game’ the system to their advantage, and the ACCC would probably still have to deal with a significant number of disputes.

Eliminating the right to apply for judicial review of interim access determinations could reduce uncertainty and delay.

In the absence of more sweeping changes to the negotiate-arbitrate model, imposing a time limit on decision-making by the ACCC is one way to encourage all participants in a dispute to avoid time-wasting. This approach is taken by the British regulator, Ofcom, which has four months to resolve disputes.

At present the ACCC is obliged to re-examine all matters involved in making an arbitration determination or undertaking when it expires, even issues that are well-established (such as network costs, depreciation or a regulatory asset base). Allowing the ACCC to specify certain matters for a longer period than the duration of the arbitration determination or undertaking concerned would save having to undertake such re-examination and would provide longer-term investment certainty for all parties.  It could also prevent parties from re-opening long-standing arguments over pricing in an attempt to slow down proceedings.

As noted earlier, almost every undertaking submitted to the ACCC has been rejected - in several cases (notably the ULLS), the same basic undertaking has been knocked back multiple times in slightly altered form. By proposing more streamlined regulatory processes, access providers may be encouraged to avoid going to arbitration and instead submit better undertakings up-front. The fewer the avenues there are for delay, the more likely this is to happen.

While all of these proposed changes should simplify regulatory processes and have the potential to produce financial savings for the ACCC and industry, the primary benefit would be to increase certainty and lower obstacles to achieving competitive access to key bottleneck services. However, this option would still be vulnerable to regulatory gaming by parties that see an advantage in refusing to negotiate terms and using the arbitration process to protect their commercial interests.



Benefits:

·                Should expedite decisions and dispute resolution, which will lower costs and increase certainty in the market.

·                May encourage access providers to lodge undertakings that are likely to meet statutory criteria and be accepted by the ACCC.

·                Broadly maintains the status quo, reducing disruptive costs.

 

Costs:

·                Does not address the central criticism that the negotiate-arbitrate model can continue to be used to delay regulatory decisions.

·                Even under a modified system, the industry may well suffer from a surfeit of long, expensive regulatory actions and administrative appeals, if providers see some benefit to engaging in them.

·                Applicants will continue to be able to use the undertaking process to force the regulator to re-examine the same issues multiple times.

 

While this option would have relatively little cost and result in moderate benefits to industry, it would not resolve most of the issues identified as requiring attention.

 

Option B—Replace the Part XIC negotiate-arbitrate model with a streamlined regulatory process

This option would much more directly address the deficiencies of the current regime and would greatly reduce disputation regarding access. The costs to the industry would be minimal, as the ACCC would be able to set price and non-price terms for a range of services up-front without need for lengthy and repeated adjudications. Operators could still commercially negotiate their own terms of access, but there would be an up-front access determination to fall back on.

Evidence provided by access seekers (including Optus, Primus and the Competitive Carriers' Coalition) suggests that access disputes can cost access seekers hundreds of thousands of dollars per dispute, while Optus estimates that the overall cost to industry of regulatory proceedings over the last 12 years is at least $200 million.

Merits review, which currently applies to a limited number of Part XIC decisions (but not service declarations and access determinations), would be abolished under this option. Introducing merits review for access determinations or maintaining it for other Part XIC decisions would substantially negate many of the benefits of this option as it would defeat the objectives of timely outcomes and greater regulatory certainty. However access to judicial review will continue to be available.

Under the proposed changes, an access determination process would proceed in the following manner:

1.       The ACCC would declare a service, and set standard price and non-price terms of access for the declared service in an access determination.

2.       An access provider would be obliged to offer the declared service to any access seeker on the terms set down in the access determination. The two parties could still negotiate different terms.

3.       The ACCC would be able to specify in the access determination fixed principles for treating certain on-going matters such as the depreciation methodology or the regulatory asset base, which could be set for a longer duration than the duration of the access determination.

4.       The ACCC would not be able to issue ordinary exemptions from the access obligations as it can now; however anticipatory exemptions would still be available.

 

Benefits:

·                A streamlined up-front terms-setting approach would provide greater regulatory certainty for access providers and access seekers.

·                It would eliminate unreasonable delays which frustrate regulatory outcomes.

·                It would also reduce disputation about access matters which is costly both for telecommunications providers and the ACCC.

·                Fewer disputes and greater certainty should enhance competitiveness, which benefits consumers.

 

Costs:

·                The industry would need to adjust to having a regulator with expanded powers to impose price and non-price terms on operators up-front.

·                The regulator may have to devote more resources to market analysis, to determine appropriate price and non-price terms and conditions (although the expected reduction in dispute-handling should offset this).

 

5          Consultation

These two options for reform of Part XIC were included in the discussion paper ‘National Broadband Network: Regulatory Reform for 21 st Century Broadband’. 140 submissions were received during the consultation, many from industry stakeholders.

Of the submissions which commented on the operation of Part XIC, the vast majority supported reforming the access regime (access seekers were particularly strong on this point), and there was broad agreement with the direction laid out in Option B. Most submissions endorsed the general use of ex ante determination of price and non-price terms, the elimination of the negotiate-arbitrate model and the curtailment of appeals processes.

While Telstra supported some of the measures put forward (such as greater streamlining of regulation) it did not endorse either option. Foxtel and News Ltd opposed Option B.

The ACCC submission suggested combining the two options and applying different approaches to different market segments, depending on the degree of vertical integration present. Some declared services would remain under the negotiate-arbitrate model, while others would be regulated in accordance with Option B. However, this would substantially increase the complexity of access regulation without a clear benefit.

 

Detailed summary of submissions

Submitters were overwhelmingly of the opinion that the negotiate-arbitrate model has not worked; however opinions varied about whether and to what extent it should have a continuing role. Unwired and the Seven Network considered that the streamlined process for setting access terms should only apply to vertically integrated providers. Some parties said the ACCC should have the option to choose between a streamlined, up-front price-setting process and the negotiate-arbitrate model. There appeared to be a consensus that any terms of access not determined under the streamlined process should be left to negotiate-arbitrate.

Some submitters, including Hutchison and Macquarie, suggested time limits should apply to the process and there was also support for giving the ACCC flexibility to specify terms of access for a long duration in order to afford greater certainty (for instance TransACT).

A number of parties, including the ACCC, Telstra and Optus, argued that the value of the regulatory asset base be determined up-front and apply to future relevant regulatory decisions, without the need for constant revaluation (perhaps, subject to standard variations for capital and depreciation).

AAPT objected to the ACCC being given the ability to determine different terms of access for different access providers and/or access seekers, arguing that the same terms of access should have to apply across the board.

All submitters who addressed the issue were in favour of letting access providers and access seekers agree different terms of access than those determined by the ACCC.  However, AAPT and Macquarie said that any alternative terms agreed by the parties should require the ACCC’s approval, or should be subject to the ACCC’s veto (respectively). In addition, AAPT said that the access price agreed by the parties should not be allowed to differ from the access price determined by the ACCC by more than 3% to 5% (up or down) to prevent big volume discounts being given to big players only. The Competitive Carriers’ Coalition (CCC) said that the parties should only be allowed to agree a lower access price than that determined by the ACCC if the lower price reflected identifiable and quantifiable economies for the access provider.

In general, submitters did not propose significant changes to the process for declaring services. Vodafone, however, submitted that only services that are supplied by operators with significant market power should be susceptible to declaration.

Optus, Macquarie and AAPT wished to see exemptions abolished, believing that they undermine declarations and create uncertainty.

There was also significant support for abolishing undertakings; this was advocated by Optus, Macquarie, Vodafone, AAPT and the CCC. Telstra expressly supported the proposal to enable the ACCC to request a party who lodged an undertaking to vary it without being required to lodge a fresh undertaking and re-start the process. Telstra also argued that undertakings be deemed acceptable where they are consistent with legislated pricing principles.

Optus, Macquarie, Primus, TransACT and the CCC called for the abolition of merits review of the ACCC’s decisions. The only major telecommunications providers who expressly supported merits review were Vodafone and Hutchison.

Telstra advocated more limited changes to Part XIC than other telecommunications providers, the main elements being: enable the ACCC to deal with access disputes collectively; specify pricing principles in legislation which the ACCC will be bound to apply; and appoint an independent expert to review the ACCC’s and Telstra’s cost models.

 

6.         Recommendation

Having examined the available evidence, the Government agrees with the premise put forward by many stakeholders that the current telecommunications access regime is flawed. Given the sector’s increasingly important role in Australia’s economy, this regulatory failure needs to be addressed.

Based on feedback received from its public consultation process, the Government is persuaded that any reform undertaken must include the removal of the negotiate-arbitrate model from the regime, in favour of more direct ex ante price-setting by the regulator. This will lead to greater certainty, less disputation and more timely and efficient outcomes. It is also more broadly consistent with the access regimes that operate in other key infrastructure industries in Australia, such as gas and electricity, and the role of the telecommunications regulator in other international jurisdictions. Option B’s package of reforms is therefore the recommended alternative, as on balance the benefits to be gained outweigh the potential costs.

 

7.         Implementation & review of the preferred option

The Government will introduce legislation to reform Part XIC of the Trade Practices Act 1974 in accordance with the principles outlined under Option B. This will include transitional arrangements for existing declared services.

The ACCC will be asked to analyse the current market and consult widely with industry on the optimum terms and conditions to apply to each declared service, in advance of any formal determinations being made. Provisions for transitioning current contracts to the new arrangements will be examined, with the most likely approach being that transitional arrangements would provide for determinations to be made on access disputes where the determinations would have retrospective application or would apply to the date of an access determination for the relevant service under the new framework.

A review will be conducted three years after implementation to assess how the new system is working.

   

REGULATION IMPACT STATEMENT

 

REFORM OF PART XIB OF THE TRADE PRACTICES ACT 1974 (COMPETITION ARRANGEMENTS)

 

1.             Issues which give rise to the need for action

Background

Part XIB of the Trade Practices Act 1974 (the Act) sets out a telecommunications-specific anti-competitive conduct regime (and certain information gathering powers). Part XIB prohibits a service provider with a substantial degree of market power from engaging in conduct which has either the effect or purpose of substantially lessening competition.

Telecommunications carriers and carriage service providers are prohibited from engaging in anti-competitive conduct, as defined by section 151AJ of the Act. This is known as the competition rule (section 151AK). If the Australian Competition and Consumer Commission (ACCC) believes a service provider is engaging in anti-competitive conduct in a telecommunications market it may issue a competition notice under Part XIB

Proceedings for enforcing the competition rule, other than proceedings for injunctive relief (that can be instituted at any time), cannot be instituted unless the alleged conduct is of a kind dealt with in a Part A competition notice that was in force at the time the alleged conduct occurred. Before the ACCC issues a Part A competition notice, it must give the provider concerned a consultation notice which describes the alleged anti-competitive conduct in summary form, and must give the provider an opportunity to make submissions (s151AKA(9), (10)).

As an alternative to issuing a Part A competition notice, the ACCC can issue a Part B competition notice. A Part B competition notice sets out the particulars of the contravention, which are prima facie evidence of the matters in any proceedings under or arising out of alleged contraventions of the competition rule. There is no requirement to issue a consultation notice before issuing a Part B competition notice. (However, the ACCC still has a duty under the general law to afford the provider concerned procedural fairness before issuing a Part B competition notice.)

There are some important differences between Part A and Part B competition notices. A Part A notice allows the ACCC to obtain pecuniary penalties under s151BY of the Act and also allows for the recovery of damages under s151CC. In contrast, the issuing of a Part B notice does not allow the recovery of pecuniary penalties or damages.

The recipient of a competition notice can alter its behaviour to take account of the competition notice or it may choose not to change its behaviour. A decision to disregard a competition notice exposes a party to very significant potential penalties, but those penalties would only apply if a court found that the competition rule had been breached. Importantly, as a competition notice does not of itself direct a party to take action, there are no penalties for failing to comply with a competition notice.

Thus, a party who believes that a court would not find it in breach of the competition rule might decide to continue its behaviour unchanged. In practice, both scenarios have occurred, i.e. in some cases the recipient of a competition notice has altered its behaviour, while in one case the party continued its conduct unchanged.

 

The problem

Part A Competition Notice

The Part A competition notice process has been criticised on the grounds that the consultation process is open to being manipulated. The statutory requirement to consult with the intended recipient of a Part A competition notice means the ACCC must take a number of steps prior to issuing this form of competition notice. Specifically, the ACCC must ensure it gives the intended recipient of a competition notice sufficient time to make a submission and must then take that submission into account prior to issuing a competition notice.

A competition notice can be subject to legal challenge on the grounds that the prior consultation notice did not afford sufficient procedural fairness. The potential and incentive exist for the intended recipient of a notice to draw out any consultation to avoid or delay the issue of a Part A competition notice. Such a delay can lead to irreversible damage to competitors that may be affected by any alleged anti-competitive conduct.

For example, the ACCC issued a consultation notice to Telstra in December 2005 with respect to increases in the price of the wholesale line rental service. In April 2006 the ACCC issued a Part A competition notice against Telstra because it had reason to believe that Telstra had engaged, and was engaging, in at least one instance of anti-competitive conduct relating to Telstra's pricing of its wholesale local services products.

Telstra challenged the competition notice, arguing that the issues raised by the ACCC in the competition notice differed from the issues raised in the consultation notice and that, as a result, Telstra had not been provided with procedural fairness. The Federal Court agreed with Telstra and the competition notice was declared invalid.

 

Application of Part XIB to content service providers

Part XIB needs to be responsive to technological changes that are occurring in the industry. At present, it is not explicit that Part XIB applies to ‘content services’ supplied by carriers and carriage service providers. Content services are defined in  section 15 of the Telecommunications Act 1997 and in section 152AC of the TPA (within Part XIC) and include a broadcasting service, online information service, online entertainment service, any other online service, or any other service as determined by the Minister.

Advances in technology have increased the capacity for carriers and carriage service providers to provide content services. Clarifying the scope of Part XIB is beneficial for all parties, as it increases regulatory certainty and reduces the risk of protracted legal disputes on this issue.

The offering of bundled packages (often involving the supply of voice, internet and television) is now commonplace. Bundled packages involving the supply of content services by carriers and carriage service providers may have anti-competitive consequences if a provider’s market power can be leveraged to gain advantage in the market for another service. For example, if a vertically integrated carrier acquires premium content on an exclusive basis this could be a source of significant market power which could be used to stifle investment in new telecommunications infrastructure. In these instances, if the ACCC believes the relevant conduct breaches the competition rule it must be able to take enforcement action without doubts over the application of Part XIB to content services.

 

2.       Objectives

Streamlining the competition notice process under Part XIB

The first objective is to develop a more streamlined process for competition notices so that the ACCC can move quickly to issue a competition notice as soon as it has reason to believe anti-competitive conduct is occurring in the telecommunications industry.

 

Ensuring Part XIB applies to content services

The second objective is to ensure that the ACCC will be in a position to take swift enforcement action in relation to instances of alleged anti-competitive conduct involving content services.

 

3.         Options (regulatory and/or non-regulatory) that may constitute viable means for achieving the desired objectives

 

Streamlining the competition notice process under Part XIB

There were a number of regulatory options considered when examining how to streamline regulatory processes under Part XIB. These reform options include:

A       removing consultation notice requirements for Part A Competition Notices;

B        requiring the ACCC to provide guidance when issuing competition notices;

C        enabling the ACCC to issue binding rules of conduct when issuing a competition notice; and

D       enabling the ACCC to issue binding rules of conduct when it suspects anti-competitive conduct.

 

Ensuring Part XIB applies to content services

E        clarifying the scope of Part XIB.

 

Option A - Removing consultation notice requirement

This option involves removing any requirement for the ACCC to undertake consultation before issuing a Part A competition notice. By removing the requirement for the ACCC to undertake consultation before issuing a Part A competition notice, the party alleged to have taken part in anti-competitive conduct is denied the ability to delay the ACCC’s enforcement activities on procedural grounds. The focus for both parties will therefore be on resolving the alleged illegal conduct, rather than on litigation aimed at challenging the processes followed by the ACCC. If the ACCC commences court proceedings to enforce a Part A competition notice, the ACCC would still have to prove to the court that the competition rule had been breached by the alleged offender.

In addition to removing the specific requirement in s151AKA to issue a consultation notice, it is also necessary to remove the requirement imposed on the ACCC under the common law to provide procedural fairness when issuing a competition notice. Otherwise, the policy objective of more timely outcomes would be frustrated and the risk of a successful challenge to the ACCC’s legal processes would remain. It may be noted that procedural fairness arrangements have previously been removed under s152CPA(3) of the telecommunications access regime. The purpose of the amendment to s152CPA(3) was to allow the ACCC to issue interim determinations quickly so as to avoid competitive damage being incurred as a result of any delays on procedural fairness grounds.

Removing the obligation to issue consultation notices would not be inconsistent with procedural fairness considerations more generally, because:

­           the ACCC will issue a competition notice that specifies the details of the alleged anti-competitive conduct;

­           the ACCC would retain the power to revoke the competition notice if parties can convince the ACCC that the notice was issued in error; and

­           before penalties are applied, the ACCC has to prove to the court that the anti-competitive conduct has occurred.

 

Option B - Requiring the ACCC to provide guidance when issuing a competition notice

This option, which could be implemented separately or in conjunction with Option A, requires the ACCC when issuing a competition notice to provide guidance to the recipient on how to rectify the anti-competitive conduct and have the competition notice removed.

 

Option C - Enabling the ACCC to issue binding rules of conduct when issuing a competition notice

This option involves giving the ACCC the power to impose binding rules of conduct when issuing a competition notice. If the ACCC believed that anti-competitive conduct was taking place, the ACCC could be empowered to issue binding rules of conduct that would compel the recipient to change its conduct. The binding rules of conduct would be forward-looking and would be targeted at preventing future instances of particular anti-competitive conduct. In practice, the ACCC would be able to directly regulate the behaviour of a party or parties, including behaviour relating to the supply of wholesale services.

A competition notice differs from binding rules of conduct, because a competition notice does not direct any party to undertake or refrain from any course of action. It must be enforced by the ACCC in court before the alleged offender can be made to pay damages or penalties.

Binding rules of conduct would provide the ACCC with the ability to clearly specify the conduct that must be followed by a party that has been issued a competition notice. This mechanism would provide for timely outcomes and greater certainty for the parties involved in a dispute.

 

Option D - Enabling the ACCC to issue binding rules of conduct when it suspects anti-competitive conduct

This option involves abolishing the competition notice regime and empowering the ACCC to issue binding rules of conduct where it considers a party is engaging in anti-competitive conduct. Unlike Option C, the ACCC would not be required to issue a competition notice before issuing binding rules of conduct. Therefore, the ACCC could quickly issue binding rules of conduct to address conduct that it believes to be detrimental to competition. Option D would also remove the penalties which currently apply to breaches of the competition rule.

 

Ensuring Part XIB applies to content services

 

Option E - Clarifying the scope of Part XIB

This option involves ensuring that the Part XIB competition notice regime unequivocally applies to content services delivered by carriers and carriage service providers.

 

4.         Impact assessment

This section discusses the costs and benefits of the options put forward in terms of the impact on business, the Government and consumers. It is not possible to precisely quantify the costs and benefits for any party, though all of the options would, to varying degrees, reduce any losses that might arise from anti-competitive behaviour.

The proposed changes to Part XIB will affect the ACCC and potentially any carrier or carriage service provider that is providing telecommunications services. As the proposed reforms aim to achieve greater efficiency under Part XIB, the benefits of a less cumbersome regulatory framework will flow through to consumers in the form of investment leading to better quality services. This is because a market that operates free of anti-competitive practices will achieve more efficient outcomes for the end-users of telecommunications services. Anti-competitive conduct damages the competitive process by potentially eliminating or damaging smaller competitive players. Such damage to the competitive environment will reduce the benefits to consumers that stem from innovation and competitive pricing.

The options discussed below will negatively impact on any access provider that may look to engage in anti-competitive conduct in relation to the supply of telecommunication services. It is believed that this outcome will be of benefit to consumers, because anti-competitive conduct detracts from the benefits that are attained through well-functioning and competitive markets.

Option A - Removing consultation notice requirements for Part A Competition Notices

Benefits:

·          The operation of a more streamlined competition notice process will allow the ACCC to commence enforcement action under Part XIB in a more timely manner.

·          Access seekers and access providers will benefit from the removal of the ACCC’s obligation to issue a consultation notice before it can issue a competition notice. This is because the swift resolution of these disputes will allow for the affected parties to have greater regulatory certainty and this allows for more effective business planning.

·          In the past, the ACCC has stated that Part XIB regulatory processes have taken over 18 months to resolve. For access seekers that are waiting for the outcome of such processes, this uncertainty can be very costly as some instances of competitive harm are irreparable. Therefore, removing such uncertainty can provide some significant benefits for the parties waiting for the dispute to be resolved.

Costs:

·          The current consultation process allows for the recipient of a consultation notice to alter its conduct, potentially removing the need for a competition notice to be issued. When the consultation notice regime works effectively, competition notices do not need to be issued, as the party involved in the alleged illegal conduct can reach an agreement with the ACCC to discontinue any further action.

·          Currently a party that had been issued with a consultation notice could make a submission to the ACCC to explain why a competition notice should not be issued. This process can alleviate the need for further action to be taken, if the recipient of the notice can show its conduct is justifiable. Removal of this consultation process may negatively impact on the recipients of competition notices, as they will no longer be afforded the opportunity to justify their conduct before being issued with a competition notice.

 

Option B - Requiring the ACCC to provide guidance when issuing a competition notice

Benefits:

·          If the recipient of a competition notice uses the guidance provided by the ACCC to alter its conduct, then ACCC resources will be used more efficiently and the anti-competitive conduct can be quickly brought to an end.

Costs:

·          If the ACCC was to provide guidance when issuing a competition notice, this could compromise the ACCC’s enforcement role, either on that occasion or in future instances, i.e. where similar circumstances apply and the conduct remains anti-competitive, but had been modified to avoid the description in the ACCC guidance.

·          The provision of guidance will also be a resource intensive process for the ACCC and the costs imposed on the ACCC may not be justifiable if the guidance provided does not result in the recipient of the guidance altering its conduct.

 

Option C - Enabling the ACCC to issue binding rules of conduct when issuing a competition notice

Benefits:

·          This type of regulatory mechanism could facilitate timely intervention by the ACCC to prevent or mitigate competitive detriment flowing from the anti-competitive conduct. It would provide for a more effective operation of the competition notice regime.

·          This could also deter future instances of anti-competitive conduct.

Costs:

·          This option would in effect allow the ACCC to regulate the supply of wholesale services where competition issues have arisen, regardless of whether these services have been declared under the telecommunications access regime in Part XIC of the TPA. The ACCC would be able to instruct the relevant parties to engage in a specific course of conduct. Regulation of non-declared services in this manner may be considered to be over-reaching and could harm investor confidence.

 

Option D - Enabling the ACCC to issue binding rules of conduct when it suspects anti-competitive conduct

Benefits:

·          This would provide for a much simpler regime without competition notice/consultation notice arrangements which have been criticised for taking too long and being too cumbersome.

·          This would allow the ACCC to provide timely, practical responses to potential competition issues without having to prove that the competition rule has been breached. There should also be more certainty on how matters could be resolved.

Costs:

·          As in Option C, this option would also allow the ACCC to in effect regulate the supply of wholesale services, regardless of whether these services have been declared under the telecommunications access regime in Part XIC of the TPA. Regulation of non-declared services in this manner may be considered to be over-reaching and could harm investor confidence.

·          If the ACCC was able to impose binding rules of conduct on the basis of a reasonable belief that the conduct concerned is anti-competitive conduct, without having to establish in court that the conduct actually is anti-competitive conduct, the result would be that binding rules of conduct could sometimes prevent conduct which constitutes legitimate competition and which is not, in fact, anti-competitive. This would be detrimental to competition and efficiency.  It would also be unfair to the provider concerned, who would be prevented from being able to pursue its legitimate commercial interests.

 

Option E - Clarifying the scope of Part XIB

Benefits:

·          Amending Part XIB in order to confirm it applies to carriers and carriage service providers providing content services would add certainty to the scope of the anti-competitive conduct regime.

Costs:

·          As this provision would give more certainty by clarifying the existing law, no costs have been identified. It is not believed that any parties are benefiting or would seek to benefit from the lack of clarity that currently exists. This amendment is being proposed simply to clarify the scope of Part XIB.

 

5.         Consultation

Suggested reforms for Part XIB have been made by a variety of stakeholders. Some of the suggestions that were provided by stakeholders have been used to develop the reforms to Part XIB. For example, the ACCC stated that “Removing the statutory requirement to undertake consultation prior to issuance of a competition notice would simplify the administrative obligations on the ACCC and could enable it to respond more quickly to anti-competitive conduct.” [96]

Optus has also expressed concern about the drawn out nature of the consultation process that currently operates under Part XIB. Specifically, Optus has argued that “The time required for the ACCC to receive submission(s) from Telstra in response to such notices and consider them allows Telstra many further months in which to continue engaging in anti-competitive conduct, thereby damaging competition in the market.” [97]

Telstra also supported the removal of consultation notices. [98] Telstra also suggested in its submission that it believes the ACCC should be required to give guidance on rectifying behaviour and be required to proceed with legal action on a timely basis. [99] Telstra does not support giving the ACCC power to make binding rules of conduct. It believes this would slow down the issuing and resolution of Competition Notices because of need for due process. [100]

AAPT supported the removal of the consultation notices and supported the introduction of ACCC powers relating to binding rules of conduct when it is issuing a competition notice. [101] The Competitive Carriers Coalition also believes that the consultation notice requirement should be revoked and the ACCC should be given the ability to impose binding rules of conduct when issuing a competition notice. [102]

 

6.         Recommendation

The requirement to issue a consultation notice has resulted in legal challenges and delays that have frustrated the efficacy of the Part A competition notice process. The consultation notice was intended to provide the recipient with certainty in relation to the allegation of alleged anti-competitive conduct. However, the consultation phase has arguably provided the recipient with the ability to delay the issue of a competition notice, whilst trying to maximise the advantage accrued as a result of the relevant alleged anti-competitive conduct.

Such delaying tactics are contrary to the policy intention of Part XIB, which is aimed at achieving the timely resolution of disputes regarding allegations of anti-competitive conduct. It is therefore recommended that Option A be implemented.

It is also recommended that Option E be implemented. Clarifying the scope of Part XIB to include content services will be beneficial for all relevant parties, as it increases regulatory certainty and reduces the risk of protracted legal disputes on this issue.

It is recommended that Option B not be implemented, as the costs of this reform are likely to outweigh the benefits that are derived from this reform. The resource costs imposed on the ACCC are likely to be significant and it is unclear whether the guidance provided by the ACCC will lead to the swift resolution of a dispute. As discussed earlier, it is also believed that Option B could compromise the ACCC’s enforcement role.

The proposed reforms to Part XIB are being made in conjunction with reforms to Part XIC. One of the proposed reforms for Part XIC will provide the ACCC with the power to issue binding rules of conduct to address competition issues relating to the supply of declared services under that Part. It is expected that the ACCC will be able to use that power to effectively resolve some competition issues that may otherwise require the ACCC having to issue a competition notice under Part XIB. Therefore, including a power to issue binding rules of conduct within Part XIB may amount to the creation of superfluous regulation.

It is recommended that Options C and D are not implemented. Binding rules of conduct are best introduced into Part XIC, because this would ensure binding rules of conduct are only issued in relation to declared services. This outcome is preferable, because it ensures that any binding rules of conduct that may be issued by the ACCC are clearly linked to benefiting the long-term interests of end users.

Furthermore, the removal of the consultation notice requirement (as proposed by Option A) will lessen the need for binding rules of conduct to be used under Part XIB. This is because it is believed that removal of the consultation notice requirement will lead to the more timely resolution of disputes under Part XIB.

 

7.         Implementation and review the preferred option

The implementation of Option A and Option E will require amendments to the Act.

Transitional arrangements will not be required. If at the time in which the proposed amendments become law the ACCC has issued a consultation notice, it is intended that the consultation notice would cease to have effect and the ACCC will be able to utilise the streamlined process proposed in Option A.

 

 

REGULATION IMPACT STATEMENT

 

TELECOMMUNICATIONS CONSUMER SAFEGUARDS AND USO AND OTHER LEVY DEREGULATION

UNTIL THE NATIONAL BROADBAND NETWORK IS ROLLED OUT

 

This Regulatory Impact Statement consists of two parts.  Part A deals with strengthening consumer safeguards in the transition to the National Broadband Network (NBN).  Part B deals with reducing red tape by addressing the eligibility of carriers to pay the universal service obligation (USO) levy, the carrier licence fees, the costs of the National Relay Service and funding for the Australian Communications and Media Authority.

 

PART A

 

1.      Issues which give rise to the need for action

 

Changing customer needs

The Universal Service Obligation was set out in the Telecommunications Act 1975 as a requirement on the then Telecom:

 ‘to perform its functions in such a manner as will best meet the social, industrial and commercial needs of the Australian people for telecommunications services and shall, as far as it is, in its opinion, reasonably practical to do so, to make its telecommunications services available throughout Australia for all people who reasonably require those services…[and] to have regard to the special needs for telecommunications services of Australian people who live or work outside the cities.’

 

The concept has its genesis in the development of the telephone network to provide a ubiquitous service throughout the nation.  Prior to the establishment of competition in the 1991 legislation, Telecom and its predecessors financed the development of the network in rural and remote areas.  With the advent of competition it was believed that this policy might become unsustainable as competition in urban areas made the incumbent telephone company uncompetitive compared to providers that did not need to incur the expense of extending the network into remote areas.  It was assumed that extending the telephone network to remote areas meant supplying services in these areas at a commercial loss.

 

To deal with this perceived problem the Telecommunications Act 1991 : (a) enshrined the obligation on the incumbent, Telstra, to maintain services across Australia; and (b) provided for the incumbent, Telstra, to be compensated.   Thus the concept of the USO and the supply of a standard telephone service at a loss was introduced, at least as far as funding was concerned.  The Telecommunications Act 1991 also provided that all carriers contribute to the compensation paid to the USO provider.

 

Currently the USO arrangements have the objective of making access to basic voice telephony services and payphones available across the nation on a reasonable and equitable basis (s.8A of the Telecommunications (Consumer Protection and Service Standards) Act 1999 .

 

The USO is implemented by a legislative requirement that Telstra ‘take all reasonable steps to fulfil’ the obligation, and to the extent necessary, supply services to people on request (ss.12C & 9(2) of the Telecommunications (Consumer Protection and Service Standards) Act 1999 ). 

 

In addition to the USO, where a provider offers a basic telephone service, the Customer Service Guarantee (CSG) provides standards for the time to connect new services, repair faults and keep appointments.  Where the standard is not met, the provider must pay the customer financial compensation.  The CSG does allow providers to supply a service without the CSG applying in some circumstances and there are exemptions from the CSG where providers offer temporary services or are unable to meet repair times due to circumstances beyond their control.

 

The Australian Communications and Media Authority (ACMA) has found, in its various consumer reports, that over recent years overall compliance with the CSG has been falling, particularly repair times for payphones in remote areas [103] .

 

The retail price controls imposed on Telstra under Part 9 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 require Telstra to offer a basic voice telephony service at the same or lower prices in non-metropolitan areas as it offers in metropolitan areas.  Due to its USO obligation, this raises the issues as to whether Telstra provided services in certain areas of Australia at prices below the cost of provision.

 

While traditional fixed-line voice services remain important, people can now purchase a range of standard mobile and satellite services across the nation from commercial suppliers operating outside the USO regime.  These services are available wherever a person resides or works.  They generally provide voice telephony services and often broadband services.  The price and charges for some of these services may be higher than the charges applying to the standard voice service supplied by Telstra.  However, given the take-up of mobile services it is clear that they are generally affordable.

 

Further, in many areas Voice Over the Internet Protocol (VOIP) services - voice telephony supplied using a broadband or bitstream connection - are available.  Excluding the charges for the broadband connection, these services generally provide substantially cheaper voice telephony than the standard voice telephony service provided by Telstra under the USO. 

 

The cost of the USO

The arrangements providing for Telstra to be compensated for its USO obligation involve a levy imposed on all carriers that is proportional to their annual revenue.  The total levy is paid as a subsidy to Telstra.  No arrangements are in place for the benefits accruing to Telstra from being the USO provider to be taken into account.

 

The levy arrangements do, to a certain extent, distort the market, by leading to inefficient prices.  The levy arrangements increase the cost to providers in supplying services, which is likely to be passed on to customers in higher prices.  Given the sensitivity of telecommunications demand to price changes and the importance of telecommunications as an input to economic and business activity, the economic efficiency cost of the levy is likely to be significant.  In addition, to some extent the levy acts as a barrier to market entry.  Although there are provisions for other USO providers to date, no provider has been approved by ACMA as a competing universal service provider.  There are no suppliers, other than Telstra, of fixed cable or fixed wireless terrestrial telephony services in many rural and remote areas.

 

The problem of measuring USO costs

Determination of the USO subsidy amount has always been a matter of dispute.

 

Telstra consistently claims that the cost to it in fulfilling the USO is much higher than the subsidy.  A financial cost model developed by the former Australian Communications Authority for the 1997-98 subsidy estimated the USO cost at $548 million per annum. 

 

Other industry participants claim that the current subsidy level set by the Minister at $145 million for 2007-08 is too high.  They claim that Telstra gains significant benefits from being the USO provider which at least match the USO cost.  These benefits include the marketing advantages of a national presence and status as the USO provider and other benefits such as advertising on payphones.  A 1999/2000 study commissioned by the Australian Communications Authority estimated these benefits to be between $36 and $73 million per annum [104] . This argument has led to numerous calls over many years for Telstra to meet the full cost of the USO. 

 

Estimating the true cost of the USO subsidy is problematic.  Equally difficult would be the task of estimating the number of individuals or businesses who might be disadvantaged by the absence of the USO.  For the years from 1992-3 to 1997-98, when a cost model was used to estimate USO costs, the number of loss making customers was estimated at around 400 000 [105] .  However, many of these consumers would still have purchased a standard telephone service even if the full cost of provision were charged. 

 

Other countries, such as the United States and Canada have USO subsidy arrangements.  However, in some countries the incumbent telecommunications operator is required to meet a universal service standard but it is not compensated for doing so.  The universal service provider does not receive funding in the United Kingdom, Singapore, the Netherlands, Finland or Germany.  While the United Kingdom, Singapore and the Netherlands are small, high population density countries, Finland and Germany have substantial rural populations.

 

Need to upgrade the universal service regime

While the USO covers only standard telephony services and payphones there have been calls for universal service arrangements to apply to digital or bitstream communications access since the late 1990s.  Recently the Regional Telecommunications Independent Review Committee recommended that new universal service arrangements should apply to mobile telephony and broadband. Many submitters to the discussion paper National Broadband Network: Regulatory Reform for 21st Century Broadband (the discussion paper) called for universal arrangements to be extended to broadband.

 

The Regional Telecommunications Independent Review Committee took the view that mobile and broadband services have become as significant and important to Australians as fixed line voice telephony. [106]   The Committee noted that broadband has become an essential service in households across Australia and that in wide areas of Australia access to terrestrial broadband services and satellite broadband services are more expensive and of a lower standard than services available in metropolitan areas.

 

The Regional Telecommunications Independent Review Committee was not in favour of bringing new services specifically under the USO. Instead the Committee recommended a new universal service regime that would involve:

·              reference standards for services which customers should be able to access across the country (the Committee referred to these standards as the Communications Service Standards);

·              Government intervention such as targeted funding programs to ensure services that meet the reference standards are available in areas where the market does not supply them; and

·              arrangements making the Minister transparently accountable to Parliament for the effectiveness of Government interventions in ensuring services meeting the reference standards are available [107] .

 

The Regional Telecommunications Independent Review Committee proposal, if implemented, would indicate where there are service adequacy gaps which the market could fill. Failing that, the Government might address these service gaps through programs such as the Australian Broadband Guarantee or through regulation.

 

The Australian Government has announced its plan for a wholesale-only, open access NBN that will be rolled out over the next eight years.  The new network will:

·         make high speed broadband services available across the nation;

·         provide fibre optic to the home and workplace, supplemented with next generation wireless and satellite technologies to deliver superfast broadband services; and

·         fundamentally change the competitive dynamics of the Australian telecommunications sector.

 

Broadening universal service arrangements at this time could lead to significant higher costs that may be avoided if the reforms were deferred until after the detailed operating arrangement for the NBN had been settled.

 

The Government has announced that once the detailed operating arrangements for the NBN have been settled, the Government will consider the broader range of issues associated with the delivery of universal access in an NBN environment.

 

Maintaining a satisfactory voice telephony USO

The impact of the USO and the retail price controls means there is little incentive on the (USO provider) Telstra, to improve service delivery to consumers, including the provision of payphones. This has resulted in criticism of the USO arrangements particularly from Telstra’s competitors, but also from consumers who argue they have limited choice of provider and are not satisfied with the quality of service received.

 

Successive governments have regulated Telstra’s behaviour, particularly requiring Telstra to supply services in fulfilment of the USO and where there is limited competition.  Examples of such regulation include:

 

·              the Customer Service Guarantee (CSG) which imposes requirements on service providers to supply new service connections and fix faults within specified periods of time and to keep appointments or pay the customer specified financial damages;

·              Priority Assistance which requires Telstra to provide enhanced services to people with life threatening medical conditions;

·              the Network Reliability Framework which requires Telstra to report to the ACMA on performance of its network, and to fix poorly performing local areas and individual services; and

·              the Local Presence Plan which requires Telstra to maintain local presence in regional areas.

 

Past practice has sought to minimise the negative impact on the industry of these legislative requirements by providing substantial flexibility within the regulations. The ACMA is responsible for administering the legislative requirements and is required under section 4 of the Telecommunications Act 1997 (the Act) to regulate telecommunications in a manner that:

a)       promotes the greatest practicable use of industry self-regulation; and

b)       does not impose undue financial and administrative burdens on participants in the Australian telecommunications industry, but does not compromise the effectiveness of regulation in achieving the objects of the Act, such as the object of providing a regulatory framework that promotes the long-term interests of end-users.

 

The USO requires Telstra to only take ‘reasonable steps’ to fulfil the Obligation.  The details on what services will be supplied and in what circumstances are set out in Part 2 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 and in Telstra’s Universal Service Obligation Standard Marketing Plan. 

 

The Standard Marketing Plan and policy are prepared by Telstra and approved by the ACMA. It is largely up to Telstra to decide what is ‘reasonable’.  Controls on Telstra have been criticised as being ineffective. For example, there have been numerous calls to improve the provisions relating to the consultation with local communities before payphones are removed. These concerns may have been heightened in view of the decline in the number of payphones in recent years (see Figure 1).

 

Figure 1: Number of payphones in Australia

(Source: ACMA , Communications Report 2007-08 )

 

The Customer Service Guarantee

The CSG provides for carriage service providers to pay customers compensation for each working day that connections or fault rectifications are delayed beyond the maximum CSG timeframes, or if they fail to keep an appointment. Currently there is no other consequence if there is widespread non-compliance with the CSG timeframes.

 

The Regional Telecommunications Independent Review Committee noted that communities felt carriers were inappropriately using CSG waiver provisions to avoid their CSG responsibilities [108] . In addition there is evidence that some service providers have increased their overall damages payments to consumers which would indicate a preference to pay the damages rather than fix the service for the consumer [109] .  Many of Telstra’s competitors argue that they have difficulty with the CSG requirements because they rely on Telstra’s network and Telstra to repair faults and make new connections.

 

Despite the interventions, service quality monitoring by the ACMA indicates that service quality measures have been falling in recent years.  For example, overall compliance by Telstra with CSG provisions has been steadily falling (see Figure 2).

 

Providers are also increasingly avoiding the CSG in many areas by offering customers alternative services on the condition that the customer agrees to waive rights to the CSG.  Examples include Telstra’s wireless local loop service, Virgin, TransACT, and various VOIP based services. 

 

 

Figure 2: Telstra's quarterly fault repair performance

(Source: ACMA, Telecommunications Performance Bulletin 2005-06—2006-07 and Telecommunications Performance Data March 2008 quarter )

 

Summary

As customers increasingly switch to services supplied using technologies other than Telstra’s fixed local access network, Telstra will be faced with lower revenues from this infrastructure, but will face ongoing costs (and perhaps increased costs due to the aging nature of the network) to maintain the network for remaining customers.  It will be a challenge in this environment to maintain service quality, and Telstra will have increasing incentives to allow service quality to fall to avoid investing or expending maintenance costs on a network that may be obsolete and stranded with the NBN. 

 

The recent report of the Regional Telecommunications Independent Review Committee noted that the current arrangements for the USO are no longer working effectively. Further, there are concerns that Telstra, in particular, is failing to meet its obligations under the CSG with compliance falling in recent years.   Telstra could let its compliance slip further during the rollout of the NBN.

 

2.         Objectives

 

The objectives are:

·         to ensure a basic voice service remains available across Australia;

·         provide clarity and certainty to consumers and industry; and

·         to ensure consumer safeguard regulations are effective and complied with.

 

3.         Options for achieving the desired objectives

 

Three options have been identified concerning the scope of universal service arrangements and three options for funding during the interim period while the NBN is being rolled out.

 

SCOPE OF UNIVERSAL SERVICE

 

The three options identified for interim (pre NBN) universal service arrangements include:

 

A.    expand the scope of universal service arrangements along the lines suggested by the Regional Telecommunications Independent Review Committee;

 

B.    retain the current scope of the arrangements but tighten regulation to ensure existing safeguards are effective in the transition to the NBN; and

 

C.    no change to existing arrangements.

 

Option A - Expand the scope of universal service regime along the lines suggested by the Regional Telecommunications Independent Review Committee

 

A modified version of the Regional Telecommunications Independent Review Committee proposal for Communications Service Standards would be developed.  This would involve amending the Telecommunications (Consumer Protection and Service Standards) Act 1999 to enable the Minister to establish Communications Service Standards in respect of voice telephony, mobile voice telephony, payphones and broadband.  Prior to the rollout of the NBN, any communications service standard developed by the Minister would be limited to broadband and mobile services and should not increase Government demand for safety net programs such as the Australian Broadband Guarantee and the Satellite Phone Subsidy Scheme .  The objective would be to ensure there was no reduction in services available under the current arrangements and to minimise unnecessary costs due to investments in infrastructure supporting broadband supply which would be obsolete with the NBN.

 

Legislative arrangements would also be made to provide that the current USO arrangements for standard telephony (including mobile and broadband services) would cease in areas declared by the Minister.  This would be confined to areas where competition was strong and a range of services were being provided to consumers or where alternative arrangements are in place with services available from the NBN.  It would enable the obligation on Telstra to be gradually wound back in the transition to the NBN.

 

This option would largely address the problems raised by the Regional Telecommunications Independent Review Committee concerning the lack of access by many rural and remote customers to broadband services.

 

Option B - Retain the current scope of the arrangements but tighten regulation to ensure existing safeguards are effective in the transition to the NBN

 

This option involves measures to better protect consumers in the transition to the roll out of the NBN, including by:

·          replacing current unenforceable arrangements which require Telstra to only take reasonable steps to fulfil the USO with a legislated requirement for Telstra to supply specified services when requested by customers and make available public payphones;

·          enabling the Minister to determine in enforceable subordinate instruments the specific characteristics, terms and conditions of the services to be supplied in fulfilment of the USO including connection and repair periods, the reliability of services, payphone placement criteria and performance benchmarks;

·          providing for failure by the universal service provider to meet performance benchmarks or service specifications or criteria to be a contravention of a civil penalty provision, subject to a fine;

·          enabling ACMA to review Telstra decisions on the supply of USO services including removing payphones;

·          legislating minimum performance standards in meeting the CSG with significant penalties to promote compliance;

·          introducing new timeframes for connections and repairs on Telstra where a non-Telstra provider supplying a CSG service relies on Telstra to make the connection or repair the service;

·          clarifying the operation of provisions allowing providers to contract out of the CSG to ensure that the provider may only do so with the customer’s express agreement;

·          enabling the ACMA to issue infringement notices; and

·          retaining the Priority Assistance requirement on Telstra and requiring providers to either offer a Priority Assistance service or inform customers of providers from whom the customer can purchase a priority assistance service if they require it.

 

This option would strengthen the USO requirements to ensure no Australians are worse off in the transition to the NBN environment and largely address the growing problem of falling compliance with the CSG and prevent any further decline in compliance.

 

Option C - No change to existing arrangements

 

Under this option no regulatory changes would be proposed at this stage but major regulatory change would be required in the post NBN environment.

 

USO FUNDING OPTIONS

 

The three funding options are:

 

D.         abolish the universal service levy and subsidy;

 

E.          introduce a new funding model; and

 

F.           roll-over existing funding.

 

Option D - Abolish the universal service levy and subsidy

 

Under this option all provisions for the USO levy and subsidy in the Telecommunications (Consumer Protection and Service Standards) Act 1999 would be abolished.

 

Telstra would be required to fulfil the USO and there would be no provision for any subsidy to Telstra.

 

This option would address the problem of smaller carriers having to meet the burden of the USO when it is unclear that Telstra suffers any net cost in meeting the USO and the USO subsidy helps entrench Telstra’s monopoly.

 

Option E - Introduce a new funding model

 

This would involve the ACMA or the ACCC building a new USO costing model.  The last revision of the model by the former Australian Communications Authority in 1996 cost around $2 million and took around two years to complete. A new model is likely to be more complex in some areas (for example, introducing a greater number of competitors) but less in other areas (for example, it may not need a completely new module to account for incoming calls and ensuring no double counting of revenue).

 

This option would address the problem of estimating the cost of the USO and enable better informed decisions on funding.

 

Option F - Roll-over existing funding

 

The Minister would, after seeking advice from the ACMA, simply issue a Determination for the 2009-2010 subsidy to be $145.1 million, the same as in 2007-08 and 2008-09. 

 

The issue of universal access would then be addressed once the detailed operating arrangements of the NBN were finalised.

 

4.         Impact assessment

 

Option A - Expand the scope of the universal service regime along the lines suggested by the Regional Telecommunications Independent Review Committee

 

Benefits:

 

This option would help address the gap between rural and urban take-up of broadband services.  Australian Bureau of Statistics data shows that the gap in broadband take up between very remote areas and the major cities is between 10 and 20 per cent of households [110] .

 

The Regional Telecommunications Independent Review Committee has commented on the large benefits of broadband services to people in rural and remote areas although it was unable to quantify these.  There have been a large number of studies recently, in Australia and elsewhere, demonstrating very large benefits from broadband services both for consumers and business. [111]   Thus there are likely to be significant economic benefits as well as equity benefits.

 

In summary, the main beneficiaries of Option A are: 

  • Consumers, particularly in rural areas, would have an increased assurance of ongoing availability of broadband services;
  • Telstra who would be able to be released from some legislative requirements where competition is established;
  • Telstra’s competitors who would have a greater chance of competing in rural and remote areas, particularly by supplying mobile and broadband services in competition against Telstra’s fixed network. Non-Telstra providers would also have greater opportunities to receive subsidies for programs such as the Australian Broadband Guarantee if the scope of services being subsidised were widened.

 

Costs:

 

Any broadening of universal service arrangements or government funding programs to provide further broadband services in rural and remote areas is likely to be very costly. For example, subsidies payable under the current Australian Broadband Guarantee (ABG) program are up to $6000 per customer over three years and this is for a minimal broadband service. It is unclear how many USO customers there are, but in the past the number has been as high as 400 000.  Using the lower figure would produce a one off cost estimate of more than $400 million per year.  In addition, some of the costs of Telstra’s existing network would remain even if customers switched to ABG funded broadband services. In fact, Telstra’s USO costs could increase significantly as revenues are likely to fall more if Telstra has to keep its network going for those customers that remain on its network.

 

Of more concern, however, is that any increased investment in broadband services prior to the rollout of the NBN would become obsolete.  The Government has announced a higher standard of services of at least 12 Mbps for the households outside the fibre network fibre to the premise footprint of the NBN.

 

Option B - Retain the current scope of the arrangements but tighten regulation to ensure existing safeguards are effective in the transition to the NBN.

 

Benefits:

 

There is a strong level of concern about the quality of telephony services, particularly in rural and remote areas.  The findings of successive reviews of telecommunications services in regional areas have highlighted this issue.  Further, the ACMA has drawn attention to the decline in standards of service in recent years.

 

All carriers, including Telstra, are required to meet CSG requirements including connection times and timeframes for repairing faults.  For example, Telstra failed to meet the ACMA standard of 90 per cent of faults repaired within CSG timeframes in the December 2007, and the June and September quarters of 2008 [112] .  In 2006, (the latest figures which are available from the ACMA) Telstra took longer than the CSG requirements to repair more 60 000 faults and paid out over $5 million in CSG compensation payments to customers. Compliance has fallen further since then.  The Telecommunications Industry Ombudsman has also noted a large increase in industry complaints in 2007-08 [113] .

 

Option B will strengthen the USO and CSG arrangements and signals the Government’s intention to ensure high quality telecommunications services are provided in regional and rural Australia. 

 

While no statistics are collected of Telstra’s refusal to provide a service on grounds that it was unreasonable, the Regional Telecommunications Independent Review Committee has reported that the ACMA finds enforcement problematic. It also notes that Telstra retains the right to make the final decision on providing a payphone service.  The Committee noted the concerns expressed in submissions about lack of adequate consultation and the need for improvement. 

 

This option would also address these community concerns.  Firstly, it will clarify the obligations for both Telstra and customers.  Secondly, it will provide the opportunity for a review by the ACMA of the process for Telstra’s decisions on new connections and payphone locations, particularly where a decision to remove a payphone is disputed.

 

By including the standards in the Telecommunications (Consumer Protection and Service Standards) Act 1999 and specifying penalties there should be a marked increase in compliance.  By increasing civil penalties in some cases, carriers will be more likely to comply with the obligations rather than pay compensation. Under this proposal, by setting out clearly the standards of service required customers would be given a clearer understanding of their legitimate expectations on service quality and providers would also be given greater certainty.

 

Importantly, option B does not exclude the implementation of Option A at a future date. 

 

Costs:

 

While Option B would provide more protection to customers, it should be acknowledged this option does involve continued investment in, and maintenance of, assets that are likely to be superceded by the rollout of the NBN.  The cost of maintaining the ageing copper network could exceed the costs to customers of additional faults. For example, the costs could greatly exceed the current CSG compensation payments of around $5 million. While some assets, like copper cables and ducts, have a long economic life, other assets such as electronic equipment, switching equipment and IT assets, have shorter lives and so need to be replaced more frequently. 

 

 

Option B would require Telstra, Optus and other carriers to maintain compliance to meet the benchmarks for consumer safeguards on a national basis. However, Telstra’s  compliance with remote fault repair times would need to increase from around 86 per to 90 per cent (December  2008 (latest figures available) [114] ).  Based upon the December 2008 figures, compliance with new connection times will have to be brought up, as only Optus was the only carrier that met the ACMA informal benchmark CSG standard of more than the 90 per cent.  Telstra (88 per cent) and AAPT (82 per cent) did not meet the informal benchmark.  

 

There would be additional resource costs for both the ACMA and the carriers, because they would have to devote more resources to ensuring compliance.  In addition, civil penalties may add to the current compensation fees of $5 million unless carriers change their behaviour.

 

Telstra has been in discussions with the Department about compliance and reporting obligations over the past few years. The main cost increases for Telstra will be potential civil penalties if Telstra does not meet compliance benchmarks and the costs of maintaining the copper network which will be progressively overbuilt by the NBN. It is not possible to quantify these costs, and they will depend on the degree to which the new regulations will require services to be delivered at standards higher than those currently achieved. A further RIS will be prepared for the legislation to implement these arrangements, which will better address these costs, after the detailed regulatory changes have been determined. 

 

Option C - No change to existing arrangements

 

Benefits:

 

There are few benefits to this Option. Consumers will not be protected by strengthened safeguards, which are proposed in Option B.

 

This option leaves decisions on the USO to be taken in the context of the Convergence Review in 2010 which was outlined in the discussion paper.

 

Costs:

 

Option C risks a fall in service quality for customers covered by the USO using Telstra’s voice telephony and payphones. Telstra may seek to minimise maintenance costs of the copper as the NBN is rolled out. This may impact badly on customer services.  The current arrangements may not effectively prevent this.

 

Option D - Abolish the universal service levy and subsidy

 

Benefits:

 

Under this option carriers would no longer be required to contribute to the levy used to subsidise Telstra’s USO costs.

 

There will be administrative and regulatory burden savings in abolishing the Universal Service Fund and the collection of contributions from around 180 carriers, however the industry would still have to file annual returns for other purposes.

 

The abolishment of the USO levy has received much support in recent years from Telstra’s competitors. It should be noted that while carriers support the industry levy being abolished, many support government funding of the USO.  This option has also been supported by the ACMA and was recommended in the Department’s 2004 Review of USO arrangements, although with conditions on the scope of the USO. It is consistent with practices in a number of other countries, including Germany and Finland that have significant rural populations and topographical cost impediments like Australia.

 

The cost to Telstra may be at least partly addressed by the argument that Telstra gains substantial intangible benefits from being the USO provider.  These include: life cycle effects, brand enhancement, payphone advertising, volume discounts, network effects and non-USO services provided to USO customers.  As noted above, these were estimated in 1999-2000 as being in the range of $36 million - $72 million [115]

 

The option also addresses an argument by Telstra’s competitors that the USO subsidy helps entrench Telstra’s monopoly.  At present, in USO areas, competitors have to compete against a subsidised Telstra.  Telstra’s intangible benefits also make it harder for other firms to compete against it.  These add to Telstra’s natural advantages of economies of scale and size.  Other carriers consider they are penalised by having to subsidise Telstra which has these natural advantages.  It is not possible to estimate the competitive advantage that the USO provides to Telstra but it is possible that competitors could provide non-copper based services to some USO customers at a cheaper price than Telstra’s copper fixed line services. This will become more likely as the NBN is rolled out.

 

Costs:

 

Under this option Telstra would no longer receive around $50 million in subsidy payment from other carriers.  This loss would in turn impact on Telstra’s customers, shareholders and employees The customers and shareholders of the other carriers would gain an equal amount.

 

Customers could be further disadvantaged if Telstra used the loss of payments as a pretext for reducing its commitment to the USO.  Telstra could respond by claiming the provision of many loss making services as ‘unreasonable’ and test the enforcement framework.  Additionally, if the net cost of the USO increased, in the absence of the USO funding mechanism, Telstra would bear the risk of meeting these additional costs.

 

This option may open up once again the arguments about the real cost of the USO.  We do not know the true cost and it could be higher than $145 million.  Telstra is likely to argue that this option is particularly inequitable and, if anything, the subsidy should be increased. 

 

The argument about intangible benefits is also not conclusive and on balance, it is not clear that Telstra currently enjoys net benefits from the USO.

 

Although some countries do not provide funding arrangements for their USOs many do, including the United States and Canada which have large rural areas.  Telstra claims in its submission to the Government’s 2007 Review of the USO that, in addition, most regulators such as those in the US, New Zealand and Japan have rejected offsetting intangible benefits against USO costs because they recognise that they are difficult to measure and are small in size [116] .  

 

Option E - Introduce a new funding model

 

Benefits:

 

A new USO cost model would enable the actual cost of the USO, including those intangible benefits that can be substantiated, to be ascertained. This would enable policy decisions to be made with more certainty. 

 

Only Telstra has advocated the development of a new cost model although the Department’s 2004 review of the USO noted that a new model was required if a costing approach was to be used in future.

 

A new cost model would provide evidence as to whether the USO cost has increased or decreased relative to the level found in the 1997-98 run of the last cost model - $548 million.

 

Costs:

 

There are a number of difficulties with building a new cost model.  The last model that was developed in 1995 cost $2 million and took two years to complete. Any new model may only be useful for a relatively short period because of the changes in the industry structure as a result of the rollout of the NBN.

 

One of the main obstacles to a new model is the likely difficulty of obtaining consensus within the industry on key model inputs.  The history of cost modelling has been replete with argument over such inputs including the Weighted Average Cost of Capital, the valuations of assets, the allocation of joint and common costs and the required sample size of exchanges, and the appropriate allocation of risk.

 

Unless agreement can be achieved within the industry, and the ACMA is accepted as the umpire, there is little likelihood of the cost model approach being widely accepted.

 

Option F - Roll-over existing funding

 

Benefits:

 

This option leaves future USO arrangements to be decided once further detail is known of NBN arrangements.  Thus it avoids any costs associated with changing arrangements in the meantime. 

 

There would be a small reduction in administration costs for the ACMA as it would not have to calculate a different total subsidy figure.  However, the levy for each carrier would still have to be calculated from their eligible revenue statements. (Note that part B of the RIS recommends that only large carriers pay the levy in future).

 

Costs:

 

Telstra’s competitors would continue paying a levy which they consider too high and Telstra would receive a subsidy that it considers too low. 

 

Some or all of the measures under Option B will still be required to ensure that compliance does not continues to fall.

 

5          Consultation

 

In April 2009 the Government called for submissions on its National Broadband Network: Regulatory Reform for 21st Century Broadband discussion paper.  The issues covered in this RIS formed Chapter 4 of that discussion paper.  All the options except some elements of Option B are raised there.

 

The discussion paper elicited over 130 submissions from a wide range of industry carriers, consumer groups, State and local government bodies and individuals.

 

The main views expressed in the submissions were:

 

Scope of Universal Service

 

Most of the industry support the USO continuing in the interim but consider that changes will be necessary after the NBN rollout. Industry stakeholders noted that:

 

  • the NBN could take responsibility for the USO;
  • the USO could be shared between NBN Co and Telstra;
  • new arrangements could be established such as government funding;
  • The USO could be reduced to a safety net.

 

Telstra opposes any extension of the obligation - rather it supports reducing regulations associated with the USO.  Some carriers supported the Communications Service Standard approach but others see the USO being gradually phased out as the NBN is rolled out (Competitive Carriers Coalition) or restricted to providing a safety net (Hutchison). 

 

There was fairly widespread support among consumer groups for the Communications Service Standard approach as well as from some State Governments. The ACCC argued that the Communications Service Standard could be a tool for reducing the regulatory burden in the area of consumer safeguards, by removing unnecessary regulation and/or streamlining regulatory requirements such as the Network Reliability Framework and the Customer Service Guarantee. 

 

The Communications, Electrical and Plumbing Union, however, opposed this approach noting the cost and likelihood of insufficient funding.  However, it also believed the NBN had overtaken the concept of the Communications Service Standard and is concerned that the Communications Service Standard might not provide the current level of certainty to consumers, at least for those services now included in the USO.  The Communications Alliance supports research on the appropriateness of consumer protections before the obligation is broadened. 

 

Consumer groups generally favour the Communications Service Standard. The Australian Telecommunications Users Group favoured both a voice and a broadband guarantee. 

 

Customer Service Guarantee

 

Telstra and Australian Telecommunications Users Group supported strengthening the CSG with significant penalties.  The Tasmanian Government opposed it.  TransACT supports the CSG being the sole regulatory safeguard.

 

Consumer groups supported introducing CSG performance benchmarks. This proposal was also supported by Telstra. Other providers tended to oppose introducing CSG performance benchmarks.  In many cases they do not have control over repairs to services because Telstra is the underlying carrier.  The proposal to require Telstra to meet CSG timeframes for services provided at a wholesale level to other providers should address this concern.

 

Option B was not mentioned in the discussion paper and so was not commented on.  However, this option is consistent with the main argument of the submission to retain the current arrangements in the lead-up to the NBN.  The proposal to tighten the USO and CSG arrangements is a reasonable response to the potential risk of Telstra running down its network.

 

The ACMA, which will implement the measures in Option B, has been consulted.  It is in favour of the measures in Option B although would seek additional funding to match the additional administrative work involved.  It also supports Option D

 

6.         Recommendation

 

Scope of Universal Service

Option B is recommended because it is critical to protect consumers as the NBN is progressively rolled out and new universal service arrangements can be developed. 

 

The changes proposed should provide more certainty to consumers and greater clarity of their rights because they will be less reliant on Telstra’s decisions as to what it deems is reasonable.  Consumers should also gain more confidence in that they can seek a review by the ACMA of Telstra’s USO decisions that adversely affect them.  It is acknowledged that this option will impose some extra costs on carriers, particularly Telstra, in ensuring compliance with USO and CSG requirements.  It is also not possible to quantify the impacts on customers of the benefits of greater carrier compliance nor the costs on the USO provider.

 

The main reason Option A is not recommended is because of the potential large increase in cost.  The costs could be in excess of $1 billion while the benefits are uncertain.  There is also a large risk that network upgrades could become obsolete with the rollout of the NBN and this would result in considerable costs due to wasted investment. 

 

The costs of Option B are likely to be much smaller than those of Option A, or negligible if Telstra alters its behaviour. Possible civil penalties may add to the current compensation payments of $5 million or alternatively, there will be costs to Telstra of bringing compliance up to standard to avoid civil penalties. In total these costs should be of an order of magnitude less than those of Option A and the costs will be offset by increases in benefits to consumers.

 

Option C was not supported as it would allow service quality to continue to fall. Further it would expose consumers to further declines in service quality should Telstra allow service quality to decline as the NBN is rolled out.  Should this occur, consumers would face considerable costs due to an inability to get a new service connected, or an existing service repaired, in a reasonable timeframe.

 

7.         Implementation and review of the preferred option

 

The proposed legislative changes are designed to apply for the interim period while the NBN is being rolled out. The legislative arrangements for tightening consumer protection measures will be implemented immediately.

 

The ACMA will be required to administer the changes proposed in Options B.  As noted above, Option B will entail some resourcing issues for the ACMA.  The ACMA has estimated the cost at about $1.5 million per year.

 

Future USO arrangements will be considered once the detailed operating arrangements for the NBN have been settled in early 2010.

 

PART B - DEREGULATION OF USO LEVY, CARRIER LICENCE CHARGES AND NATIONAL RELAY SERVICE LEVY ARRANGEMENTS

 

1.         Issues which give rise to the need for action

 

As noted above, the current USO is financed by a levy on all carriers, including Telstra. The total levy is paid as a subsidy to Telstra for fulfilling the USO.

 

Under section 20 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 , all carriers must lodge an annual eligible revenue return which provides information on the carrier’s ‘eligible revenue’.  ‘Eligible revenue’ is used to determine each carrier’s levy contribution.  It is also used to determine carrier payments for the National Relay Service (NRS) levy and the variable component of the carrier licence charge.

 

The telecommunications industry is highly concentrated.  Of approximately 180 carriers in the telecommunications industry around 150 carriers lodged eligible revenue in 2007-08 of less than $10 million and around 40 carriers lodged returns with eligible revenue of zero.  This compares with around 10 carriers with eligible revenue of greater than $100 million.

 

Preparation of the eligible revenue returns is a considerable expense for smaller carriers.  It is estimated that it costs at least $7000 just for auditing the returns.  Given that there are around 30 carriers with eligible revenue of zero, and around 70 carriers with eligible revenue of less than $100 000, this is a significant impost on them.   Audit costs alone would amount to over $1 million per annum but preparation of the returns could add significantly to this.

 

The ACMA believes that the burden of the levies and the reporting process is a factor in the high level of non-compliance in ACMA overall reporting requirements.  Around 95 per cent of non-compliance is due to small carriers.

 

Currently there is a threshold of $10 million set for payment of the National Relay Service Levy.

 

2.                   Objective

 

The objective is to reduce the administrative costs involved in preparing the ‘eligible revenue’ returns and to remove the USO and NRS levy burden on a large number of smaller carriers.  This should encourage more competition in the industry.

 

3.                   Options for achieving the desired objective

 

The four options identified for the USO levy, carrier licence charges and NRS levy arrangements include:

 

A.     exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $10 million.

 

B.      exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $25 million.

 

C.      exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $50 million.

 

D.     no change to the existing arrangements.

 

Option A - Exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $10 million.

 

Under this option telecommunications legislation would be amended including section 20 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 to provide an exemption for carriers with revenues of less than $10 million. 

 

Option B - Exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $25 million.

 

This would work in a similar manner to option A except the cut off would be $25 million. This would align the revenue threshold more closely with the reporting threshold set in the Corporations Act 2001 .

 

Option C - Exempt carriers from carrier licence fees and the costs of the USO and NRS if their revenues are less than $50 million.

 

This would work in a similar manner to option A except the cut off would be $50 million.

 

Option D - No change to the existing arrangements

 

Under this option there would be no change to the existing carrier licence fees, USO levy and NRS levy arrangements.

 

4.         Impact assessment

 

Option A - Exemption for carriers earning under $10 million

 

Benefits

 

Under this option around 150 carriers (based on eligible revenue returns for 2007-08) out of a total of around 180, would be exempt from providing their eligible revenue returns.  This would remove a significant impost on these carriers.  It should then enable these firms to better compete in the marketplace.

 

There may be a saving in administrative costs for the ACMA.

 

A $10 million threshold would bring all the levies in line with the National Relay Service.

 

Costs

 

On the basis of the 2007-08 USO subsidy of $145 million and the Carrier Licence Charge of $37 million, approximately 32 carriers with eligible revenue in excess of $10 million would have their levy payments increased by approximately 0.6 per cent.

 

Telstra would have to bear the biggest absolute increase in USO levy (around $560 000) and Carrier Licence Charge (around $140 000).  For Optus the increases would be around $170 000 for the USO levy and $42 000 for the Carrier Licence Charge.

 

Option B - Exemption for carriers earning under $25 million

 

Benefits

 

Under Option B around 160 carriers (based on eligible revenue returns for 2007-08) would be exempt from providing their eligible revenue returns.  Only the largest 22 carriers would have to file returns and make levy payments. Thus a further 10 or 11 firms would not have to provide the returns or pay the levies.

 

The saving in administrative costs for the ACMA would be similar to those under Option A as would the boost to competition.

 

A $25 million exemption would align more closely with the reporting processes mandated for Australian business under federal government legislation and regulation. It will allow the ACMA to align its requirements with section 292 of the Corporations Act 2001 so that a company required to submit a return under that section would be required to submit a return to the ACMA.  This could streamline the reporting process for the companies involved and for the ACMA.

 

Costs

 

On the basis of the 2007-08 USO subsidy of $145 million and the Carrier Licence Charge of $37 million carriers with eligible revenue in excess of $25 million would have their levy payments increased by approximately 1.33 per cent.

 

Telstra will have to bear the biggest absolute increase in USO levy (around $1.2 million) and Carrier Licence Charge (around $310 000).  For Optus the increases would be around $360 000 for the USO levy and $94 000 for the Carrier Licence Charge.

 

Option C - Exemption for carriers earning under $50 million

 

Benefits

 

Around 166 carriers (based on eligible revenue returns for 2007-08) would be exempt from providing their eligible revenue returns and the USO levy and Carrier Licence Charge.  Compared with Option B, six further carriers would be relieved of providing the returns and paying the levies.

 

The saving in administrative costs for the ACMA and the impact on competition in telecommunications would be similar to that of Options A and B.

 

Costs

 

Under this option the 16 major carriers would have to pay an increase of 2.13 per cent in their USO levy and Carrier Licence Charges based on 2007-08 figures. 

 

For Telstra, the increases would be around $1.970 million in USO levy and around $500 000 in Carrier Licence Charges.  For Optus the increases would be around $600 000 for the USO levy and $151 000 for the Carrier Licence Charge.

 

Option D - No change to the existing arrangements

 

Benefits:

 

This option would more closely meet the object set out in s.8A (e) of the Telecommunications (Consumer Protection and Service Standards) Act 1999 , which states that providers of telecommunications services should contribute, in a way that is equitable and reasonable, to the funding of the USO.

 

Costs:

 

The current arrangements impose an unnecessary burden on smaller carriers - for example, more than 30 carriers have zero eligible revenue and yet have to provide eligible revenue returns.  More than 60 have an eligible revenue less than $100 000 for which the cost of lodging the return represents a significant proportion of their total revenue.

 

This option would not address the complaints of industry that the existing arrangements are inequitable because small carriers are subsidising Telstra and entrenching Telstra’s monopoly position in USO areas.

 

5.         Consultation

 

The option of a $10 million exemption was raised in the NBN discussion paper although comment was not specifically sought on a particular amount, only whether smaller carriers should be exempt.  Some submissions supported Telstra funding the USO itself (for example, AAPT and Optus).  Of the other submitters, some supported industry funding (for example the Communications, Electrical and Plumbing Union), some government funding (for example Vodafone and Hutchison and the Australian Telecommunications Users Group) and others supported both industry and government (for example, the Australian Computer Society).  None specifically raised the issue of a funding threshold.

 

The ACMA has suggested a funding threshold, and favours a $25 million cut off.

 

6.                   Recommendation

 

There is little between Options A, B or C.  All three options will enable administrative cost savings and remove a significant burden on small carriers without a significant impact on the remaining large carriers.  Option B is recommended because the cut off of $25 million would align more closely the revenue threshold more closely with the reporting threshold set in the Corporations Act 2001.

 

7.                   Implementation of preferred option

 

It is envisaged that the proposed changes would apply from the eligible claim period 2009-10.  The levy calculations are made after the end of each financial year.

 

 

 

 



ABBREVIATIONS

 

 

The following abbreviations are used in this explanatory memorandum:

 

ACCC:                                    Australian Competition and Consumer Commission

 

ACMA:                                   Australian Communications and Media Authority

 

AIA:                                        Acts Interpretation Act 1901

 

Bill:                                         Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009

 

BSA:                                       Broadcasting Services Act 1992

 

Consumer Protection Act       Telecommunications (Consumer Protection and Service Standards) Act 1999

 

CSG:                                       Customer service guarantee

 

CSP:                                        Carriage service provider

 

Interception Act:                     Telecommunications (Interception and Access) Act 1979

 

LIA                                         Legislative Instruments Act 2003

 

Minister:                                  Minister for Broadband, Communications, and the Digital Economy

 

NTN Sale Act:                        National Transmission Network Sale Act 1998

 

Radcom Act                            Radiocommunications Act 1992

 

Tel Act:                                   Telecommunications Act 1997

 

TPA:                                        Trade Practices Act 1974

 

Tribunal:                                  Australian Competition Tribunal

 

USO:                                       Universal service obligation

 

VOIP:                                     Voice over Internet Protocol

 

 

 

 

 

 



NOTES ON CLAUSES

 

Clause 1 - Short title

 

Clause 1 provides that the Bill, when enacted, may be cited as the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2009 .

 

Clause 2 - Commencement

 

Clause 2 of the Bill provides for the commencement of this Bill.

 

Clauses 1-3 of the Bill and any other provisions not covered in the table provided at subclause 2(1), would commence on the day on which the Bill receives the Royal Assent.

 

Parts 2, 3 and 8 of Schedule 1 will commence on the day after this Bill receives the Royal Assent.

 

Parts 4, 5, 6 and 7 of Schedule 1 of the Bill will commence on 1 July 2010.  The operation of each of these Parts is dependent on a number of legislative instruments coming into force.  Delaying the commencement of these Parts will allow time for those instruments to be drafted and, in reliance on section 4 of the AIA, to be made in advance of the amendments made by those Parts to the Tel Act and the Consumer Protection Act.

 

Division 1 of Part 1 of Schedule 1 of the Bill would commence on the day on which the Bill receives the Royal Assent.

 

Division 2 of Part 1 of Schedule 1 of the Bill would commence immediately after a functional separation undertaking comes into force under Part 9 of Schedule 1 to the Tel Act (see item 22 of Schedule 1).  That Division makes changes to the Tel Act and the TPA that are necessary as a consequence of the commencement of a functional separation undertaking.  The Minister is required to announce, by notice published in the Gazette, when a final functional separation undertaking comes into force. 

 

Division 2 of Part 1 of Schedule 1 of the Bill would commence immediately after an undertaking comes into force under proposed section 577A of the Tel Act (see item 21 of Schedule 1).  That Division makes changes to the Tel Act and the TPA that are necessary as a consequence of the commencement of an undertaking under proposed section 577A.  The Minister is required to announce, by notice published in the Gazette, when such an undertaking comes into force.

 

Clause 3 - Schedule(s)

 

Clause 3 provides that each Act that is specified in a Schedule to the Bill is amended or repealed as set out in that Schedule and any other item in a Schedule has effect according to its terms. There is one Schedule to the Bill which amends the Tel Act, the TPA, the Consumer Protection Act and the NTN Sale Act.

 

Schedule 1—Amendments

 

Part 1—Amendments relating to Telstra

 

Part 1 of Schedule 1 of the Bill makes a number of amendments to the Radcom Act, the Tel Act and the TPA to address the current structure of the telecommunications sector. 

 

Division 1—Amendments commencing on the day after this Act receives the Royal Assent

 

Radiocommunications Act 1992

 

Item 1 - After subsection 58(1)

 

Item 1 amends section 58 of the Radcom Act by inserting proposed subsection 58(1A).

 

Subsection 58(1) deals with spectrum licence allocation by the ACMA following conversion of an apparatus licence into a spectrum licence. 

 

Proposed subsection 58(1A) makes it clear that spectrum licence allocation pursuant to subsection 58(1) of the Radcom Act is subject to the provisions in proposed section 577J of the Tel Act.  Proposed section 577J limits the allocation of certain spectrum licences to Telstra and is discussed under item 21 below.

 

Item 2 - At the end of section 60

 

Item 2 amends section 60 of the Radcom Act by inserting proposed subsection 60(15).

 

Section 60 deals with procedures for spectrum licence allocation by the ACMA.

 

Proposed subsection 60(15) makes it clear that any spectrum licence allocation procedures determined by the ACMA under section 60 would be subject to the provisions in proposed section 577J of the Tel Act.

 

Item 3 - At the end of section 62

 

Item 3 amends section 62 of the Radcom Act by inserting proposed subsection 62(4).

 

Section 62 deals with the allocation of spectrum licences by the ACMA.

 

Proposed subsection 62(4) makes it clear that any spectrum licence allocation by the ACMA under section 62 would be subject to the provisions in proposed section 577J of the Tel Act.

 

Item 4 - At the end of section 68

 

Item 4 amends section 68 of the Radcom Act by inserting proposed subsection 68(5).

 

Section 68 authorises third party use of a spectrum licence subject to conditions specified under that section. 

 

Proposed subsection 68(5) makes it clear that third party use of a spectrum licence under section 68 is subject to the provisions in proposed section 577K of the Tel Act.  Proposed section 577K puts limits on the use of certain spectrum licences by Telstra and is discussed under item 21 below.

 

Item 5 - Subsection 85(1)

 

Section 85 of the Radcom Act deals with trading of spectrum licences.

 

Item 5 amends subsection 85(1) to make the assignment or dealing with spectrum licences subject to proposed section 577L of the Tel Act. Proposed section 577L limits the assignment of certain spectrum licences to Telstra and is discussed under item 21 below.

 

Telecommunications Act 1997

 

Item 6 - Section 7

 

Item 6 inserts a proposed definition of ‘designated part of the spectrum’ in section 7 of the Tel Act referring to proposed section 577H of the Tel Act.  This definition is discussed below under the explanatory note for proposed section 577H under item 21.

 

Item 7 - Section 7

 

Item 7 inserts a proposed definition of ‘draft functional separation undertaking’ in section 7 of the Tel Act by reference to proposed Division 2 of Part 9 of Schedule 1.  Proposed Division 2 of Part 9 of Schedule 1 includes provisions dealing with the contents of a draft final functional separation undertaking, the provisions it must contain and the principles with which it must comply. 

 

Item 8 - Section 7

 

Item 8 inserts a proposed definition of ‘final functional separation undertaking’ in section 7 of the Tel Act by reference to proposed Division 2 of Part 9 of Schedule 1.  Proposed Division 2 of Part 9 of Schedule 1 includes provisions dealing with the contents of a final functional separation undertaking, the provisions it must contain and the principles with which it must comply.

 

Item 9 - Section 7

 

Item 9 inserts a proposed definition of ‘hybrid fibre-coaxial network’ under section 7 of the Tel Act.  This new definition underpins the proposed amendments to be made to the Tel Act by Part 1 of this Bill which enable the ACCC to accept an undertaking by Telstra in relation to control of  hybrid fibre-coaxial networks.  The proposed definition is not restricted to Telstra’s current hybrid fibre-coaxial network, but could also apply to any such network Telstra builds in future or hybrid fibre-coaxial networks owned by other parties. 

 

Item 10 - Section 7

 

Item 10 inserts a proposed definition of ‘internet carriage service’ in section 7 of the Tel Act.

 

Item 11 - Section 7

Item 12 - Section 7

Item 13 - Section 7

Item 14 - Section 7

 

Items 11 to 14 insert proposed definitions of ‘radiocommunications device’, ‘spectrum’, ‘spectrum licence’ and ‘subscription television broadcasting licence’ in section 7 of the Tel Act, adopting the same meaning for those terms as they have in the Radcom Act.

 

Item 15 - Before subsection 69(7)

 

Subsection 69(1) of the Tel Act and its related provisions under section 69 authorise the ACMA to issue a remedial direction to a carrier that is contravening, or has contravened, a condition of its carrier licence.

 

Item 15 amends section 69 by inserting proposed subsection 69(6B). 

 

Proposed subsection 69(6B) prevents current subsection 69(1) from applying to the condition set out in proposed clause 84 of Schedule 1 (which deals with control by Telstra of certain spectrum licences). 

 

The effect of proposed subsection 69(6B) is that the ACMA would not be authorised to issue a remedial direction to Telstra in the event it contravened proposed clause 84 of Schedule 1. The reason for this restriction is that it is intended that only the ACCC (and the Minister, where appropriate) will have authority to take action against Telstra for breach of proposed clause 84 of Schedule 1.  The condition in proposed clause 84 of Schedule 1 is associated with amendments proposed under Part 1 of this Bill to address Telstra’s level of dominance in telecommunications markets and the negative impact this has had on the development of effective competition in the telecommunications industry.  It is therefore a matter for which it is appropriate the ACCC be given regulatory responsibility.  

 

Item 16 - Before subsection 70(4)

 

Subsection 70(1) of the Tel Act authorises the ACMA to issue formal warnings to carriers that have contravened a condition of their carrier licence. 

 

Item 16 amends section 70 by inserting proposed subsection 70(3B).

 

Proposed subsection 70(3B) indicates that current subsection 70(1) does not apply to the condition set out in clause 84 of Schedule 1.  The effect of proposed subsection 70(3B) is that the ACMA would not be authorised to issue a formal warning to Telstra in the event it contravened proposed clause 84 of Schedule 1.  The reason for this restriction is the same as that outlined under the explanatory note under item 15 above.

 

Item 17 - After paragraph 564(3)(b)

 

Item 17 amends section 564 by inserting proposed paragraph 564(3)(ba).

 

Under current subsection 564(3) the ACMA is not entitled to apply for an injunction in relation to a contravention of a carrier licence condition or service provider rule listed under that subsection.

 

Proposed paragraph 564(3)(ba) adds the licence condition under proposed clause 84 of Schedule 1 to the list of licence conditions and service provider rules in subsection 564(3).  This means that the ACMA would not be entitled to apply for an injunction in relation to a contravention of clause 84 of Schedule 1.  The reason for this restriction is the same as that outlined in the explanatory note under item 15 above.

 

Item 18 - Subsection 564(3) (after note 2)

 

Item 18 adds a proposed note to section 564 in relation to proposed paragraph 564(3)(ba) (under item 17 above) to assist the reader.

 

Item 19 - After paragraph 571(3)(b)

 

Item 19 amends section 571 by inserting proposed paragraph 571(3)(ba). 

 

Under current subsection 571(3) the ACMA is not entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of a carrier licence condition or service provider rule listed under that subsection. 

 

Proposed paragraph 571(3)(ba) adds the licence condition in proposed clause 84 of Schedule 1 to the list of licence conditions and service provider rules in subsection 571(3).  This means that the ACMA would not be entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of the carrier licence condition in proposed clause 84 of schedule 1.  The reason for this restriction is the same as that outlined in the explanatory note under item 15 above.

 

Item 20 - Subsection 571(3) (after note 2)

 

Item 20 adds a proposed note to section 571 in relation to proposed paragraph 571(3)(ba) (under item 19 above) to assist the reader.

 

Item 21 - After Part 32

 

Item 21 inserts proposed Part 33 into the Tel Act.

 

Proposed Part 33—Voluntary undertakings given by Telstra

 

The provisions under Part 33 are intended to address the level of Telstra’s vertical and horizontal integration. Telstra’s high-level of integration has hindered the development of effective competition in the Australian telecommunications market. The Government intends to correct this unique market structure, by introducing a set of measures designed to promote competition across the various telecommunications platforms while providing Telstra with the flexibility to choose its future path.

 

Part 33 will prevent Telstra from acquiring specified bands of spectrum, which could be used for advanced wireless broadband services, unless it provides undertakings accepted by the ACCC, to structurally separate, divest its hybrid fibre-coaxial cable network and divest its interests in Foxtel.

 

If the Minister is satisfied that a structural separation undertaking given by Telstra is sufficient to address concerns about the degree of Telstra’s power in telecommunications markets, the Minister may remove either or both of the requirements for Telstra to divest its hybrid fibre-coaxial cable network and divest its interests in Foxtel.

 

Proposed Division 1—Introduction

 

Proposed section 577    Simplified outline

 

Proposed section 577 provides a simplified outline of proposed Part 33 to assist the reader.

 

Proposed Division 2—Structural separation

 

Proposed section 577A    Acceptance of undertaking about structural separation

 

Proposed subsection 577A(1) allows the ACCC to accept a written undertaking given by Telstra regarding structural separation. Structural separation is regarded, under proposed paragraph (1)(a), as Telstra, at all times after a specified day, ceasing to supply fixed-line carriage services to retail customers using a telecommunications network over which Telstra is in a position to exercise control.  Additionally, Telstra must take all reasonable steps to ensure that a company over which Telstra is in a position to exercise control will not supply fixed-line carriage services to retail customers using such a telecommunications network. 

 

A ‘fixed-line carriage service’ is defined in proposed subsection 577A(14) to mean a carriage service supplied using a line to premises occupied or used by an end-user.

 

The meaning of ‘control’ and ‘control of a company’ for the purposes of proposed Part 33 is addressed in proposed sections 577N and 577P respectively.

 

Under proposed paragraph 577A(1)(b), Telstra is required, under a structural separation undertaking, to set out specified action it will take and/or refrain from taking in order to comply with the structural separation undertaking.  It is intended that Telstra would set out, in any structural separation undertaking purported to be given under section 577A, the action it will take or refrain from taking, in order to achieve structural separation as described under paragraph 577A(1)(a). This may involve a series of steps in the lead up to full structural separation and milestones and timeframes for achieving each of those steps.

 

There are a number of ways in which Telstra might propose to undertake structural separation under proposed subsection (1).  A few examples are:

  • Telstra may elect to facilitate the transfer of the provision of fixed-line carriage services to its retail customers to another carriage service provider, over which Telstra is not in a position to exercise control.
  • Telstra may establish a new company to supply fixed-line carriage services to its retail customers and divest enough of its interests in that company to ensure  that it is no longer in a position to exercise control of that company.
  • Telstra may elect to progressively migrate the traffic of its retail customers to another national network for the provision of fixed-line carriage services, such network being a network over which Telstra is not in a position to exercise control

 

Proposed subsection 577A(2) sets out the matters the ACCC must have regard to when deciding whether to accept a structural separation undertaking. Under proposed paragraph 577A(2)(a), the Minister can set out matters that the ACCC must have regard to in deciding whether to accept a structural separation undertaking. Proposed paragraph 577A(2)(b) requires the ACCC to have regard to such other matters that it considers relevant.

 

Proposed subsection 577A(3) authorises the Minister to set out the matters in writing that the Minister will require the ACCC to consider under proposed paragraph 577A(2)(a).  For the avoidance of doubt, an instrument under proposed subsection (3) is not a legislative instrument (subsection 577A(13)).  This reflects the fact that a direction from a Minister to any person is not subject to disallowance (see section 44 of the LIA) and the fact that the instrument made by the Minister under proposed subsection 577A(3) operates like a direction to the ACCC to consider the specified matters.

 

Proposed subsection 577A(4) sets out the day to be specified by Telstra in an undertaking under proposed subsection (1) as the day by which Telstra will at all times meet the requirements of paragraphs 577A(1)(a) and 577A(1)(b).  That day is 1 July 2018 or another day, if specified by the Minister by legislative instrument.

 

Proposed subsection 577A(5) indicates that the undertaking must be expressed to be an undertaking under section 577A, so that when the ACCC receives the undertaking there can be no doubt as to whether the undertaking was intended to be given in accordance with proposed section 577A.

 

Proposed subsection 577A(6) provides that the undertaking comes into force when it is accepted by the ACCC.  Until the undertaking is accepted by the ACCC, there is no obligation upon Telstra to comply with the undertaking.  Once the undertaking is accepted by the ACCC, Telstra must comply with the undertaking and will become subject to proposed section 577G which deals with Telstra’s compliance with the undertaking.

 

Proposed subsection 577A(7) provides that the undertaking may not be withdrawn.  This provision is aimed at ensuring that careful consideration has been given to the matters proposed in the undertaking before it is given, in the knowledge that if the undertaking is accepted by the ACCC, the undertaking will become final.  Given that the matters proposed under the undertaking are likely to have a significant impact on the telecommunications industry and the acceptance of the undertaking by the ACCC would have the effect of triggering the operation of a number of provisions proposed under this Bill there is a need for certainty and therefore a need for the undertaking to be final (note: the undertaking can be varied to a limited degree - see notes for proposed section 577B).

 

Proposed subsection 577A(8) provides that the ACCC must publish the undertaking on its website as soon as practicable after it comes into force.  This provision recognises that it is important to publicise the undertaking as soon as practicable, given the potential impact it will have on the telecommunications industry.

 

Proposed subsection 577A(9) confirms that Part 9 of Schedule 1 to the Tel Act does not, by implication, limit the matters that may be included in an undertaking under proposed section 577A.  Part 9 deals with the functional separation of Telstra, which is a different separation model to the model of structural separation referred to under section 577A.  However, there should be no implication that any model proposed under an undertaking provided in accordance with subsection 577A(1) cannot include similar matters to those set out in Part 9.

 

Proposed subsection 577A(10) authorises the Minister to exempt from the structural separation undertakings made under 577A(1) a fixed-line carriage service which has been set out in a legislative instrument. Proposed subsection 577A(14) defines a ‘fixed-line carriage service’. This provision will enable flexibility to exempt certain fixed-line carriage services from the structural separation requirements, if appropriate to do so.

 

Proposed subsection 577A(11) authorises the Minister to exempt from the structural separation undertakings made under 577A(1) a telecommunications network which has been set out in a legislative instrument. This provision will enable flexibility to exempt certain telecommunications networks from the structural separation requirements, if appropriate to do so.

 

Proposed subsection 577A(12) requires the Minister to cause a copy of his or her instrument under proposed subsection 577A(3) to be published on the Department’s website.

 

Proposed section 577B    Variation of undertaking about structural separation

 

Proposed section 577B contains provisions setting out the circumstances under which a structural separation undertaking in force under proposed section 577A could be varied.

 

Proposed subsection 577B(1) provides that proposed section 577B only applies if an undertaking is in force under proposed section 577A.

 

Proposed subsection 577B(2) allows Telstra to give the ACCC a variation of the undertaking in so far as the undertaking is covered by proposed paragraph 577A(1)(b).  This means Telstra is permitted to propose variations as to the action it will take or refrain from taking in order to comply with structural separation.  Given that the undertaking may require Telstra to take action, or refrain from taking action, under paragraph 577A(1)(b) over the course of several years, it is appropriate that a mechanism be included to vary the nature of the obligations applying to Telstra during that period if necessary to do so. However, Telstra is not permitted to propose variations that alter the character of the undertaking as described by reference to proposed paragraph 577A(1)(a).

 

Proposed subsection 577B(3) provides that after considering the variation, the ACCC must either accept or reject the variation, having regard to the matters

(if any) set out in an instrument in force under proposed subsection 577B(5) (proposed paragraph 577B(4)(a)) and such other matters (if any) the ACCC considers relevant (proposed paragraph 577B(4)(b)).

 

Proposed subsection 577B(5) authorises the Minister to set out the matters in writing that he or she requires the ACCC to consider for the purposes of proposed paragraph 577B(4)(a).  For the avoidance of doubt, and for the same reasons noted with respect to instruments under proposed subsection 577A(3), an instrument under proposed subsection 577B(5) is not a legislative instrument (subsection 577B(9)).

 

Proposed subsections 577B(6) and (7) confirm that the variation takes effect when it is accepted by the ACCC and that the ACCC must publish the variation on its website as soon as practicable.

 

Proposed subsection 577B(8) requires the Minister to cause a copy of his or her instrument under proposed subsection 577B(5) to be published on the Department’s website.

 

Proposed Division 3—Hybrid fibre-coaxial networks

 

Proposed section 577C    Acceptance of undertaking about hybrid fibre-coaxial networks

 

Proposed subsection 577C(1) allows the ACCC to accept a written undertaking by Telstra that Telstra will cease to be in control of a hybrid fibre-hybrid coaxial network at all times after the period specified in the undertaking.  Under proposed paragraph 577C(1)(b) Telstra is required, in its undertaking, to set out specified action that it will take and/or refrain from taking in order to comply with the undertaking.

 

Proposed subsection 577C(2) indicates that the period specified in the undertaking must not be longer than 12 months.

 

Proposed subsection 577C(3) indicates that the undertaking must be expressed to be an undertaking under section 577C, so that when the ACCC receives the undertaking there can be no doubt as to whether the undertaking was intended to be given in accordance with proposed section 577C.

 

Proposed subsection 577C(4) provides that the undertaking comes into force when it is accepted by the ACCC.  Until the undertaking is accepted by the ACCC, there is no obligation upon Telstra to comply with the undertaking.  Once the undertaking is accepted by the ACCC, Telstra must comply with the undertaking and will become subject to proposed section 577G which deals with Telstra’s compliance with the undertaking.

 

Proposed subsection 577C(5) provides that the undertaking may not be withdrawn.  This provision is aimed at ensuring that careful consideration has been given to the matters proposed in the undertaking before it is given, in the knowledge that if the undertaking is accepted by the ACCC, the undertaking will become final.  Given that the matters proposed under the undertaking are likely to have a significant impact on the telecommunications industry and the acceptance of the undertaking by the ACCC would have the effect of triggering the operation of a number of provisions proposed under this Bill there is a need for certainty and therefore a need for the undertaking to be final (note: the undertaking can be varied to a limited degree - see notes for proposed section 577D).

 

Proposed subsection 577C(6) provides that the ACCC must publish the undertaking on its website as soon as practicable after it comes into force.  This provision recognises that it is important to publicise the undertaking as soon as practicable, given the potential impact it will have on the telecommunications industry.

 

Proposed section 577D    Variation of undertaking about hybrid fibre-coaxial networks

 

Proposed section 577D contains provisions setting out the circumstances under which an undertaking about hybrid fibre-coaxial networks in force under proposed section 577C could be varied.

 

Proposed subsection 577D(1) provides that proposed section 577D only applies if an undertaking is in force under proposed section 577C.

 

Proposed subsection 577D(2) allows Telstra to give the ACCC a variation of the undertaking in so far as the undertaking is covered by proposed paragraph 577C(1)(b).  This means Telstra is permitted to propose variations as to the action it will take or refrain from taking in order to comply with the requirement set out in proposed paragraph 577C(1)(a).  However, Telstra is not permitted to propose variations that alter the character of the undertaking as described by reference to proposed paragraph 577C(1)(a).

 

Proposed subsection 577D(3) provides that after considering the variation, the ACCC must either accept or reject the variation.

 

Proposed subsections 577D(4) and (5) confirm that the variation takes effect when it is accepted by the ACCC and that the ACCC must publish the variation on its website as soon as practicable.

 

 

Proposed Division 4—Subscription television broadcasting licences

 

Proposed section 577E    Acceptance of undertaking about subscription television broadcasting licences

 

Proposed subsection 577E(1) allows the ACCC to accept a written undertaking that  Telstra will cease to be in a position to exercise control of a subscription television broadcasting licence at all times after the end of the period specified in the undertaking.  Under such an undertaking, it is envisaged Telstra would no longer be able to actively participate in the subscription television market.  Under proposed paragraph 577E(1)(b) Telstra is required, in its undertaking, to set out specified action that it will take or refrain from taking in order to comply with the undertaking.

 

Proposed subsection 577E(2) indicates the period specified in the undertaking must not be longer than 12 months.

 

Proposed subsection 577E(3) indicates that the undertaking must be expressed to be an undertaking under section 577E, so that when the ACCC receives the undertaking there can be no doubt as to whether the undertaking was intended to be given in accordance with proposed section 577E.

 

Proposed subsection 577E(4) provides that the undertaking comes into force when it is accepted by the ACCC.  Until the undertaking is accepted by the ACCC, there is no obligation upon Telstra to comply with the undertaking.  Once the undertaking is accepted by the ACCC, Telstra must comply with the undertaking and will become subject to proposed section 577G which deals with Telstra’s compliance with the undertaking.

 

Proposed subsection 577E(5) provides that the undertaking may not be withdrawn.  This provision is aimed at ensuring that careful consideration has been given to the matters proposed in the undertaking before it is given, in the knowledge that if the undertaking is accepted by the ACCC, the undertaking will become final.  Given that the matters proposed under the undertaking are likely to have a significant impact on the telecommunications industry and the acceptance of the undertaking by the ACCC would have the effect of triggering the operation of a number of provisions proposed under this Bill there is a need for certainty and therefore a need for the undertaking to be final (note: the undertaking can be varied to a limited degree - see notes for proposed section 577EA).

 

Proposed subsection 577E(6) provides that the ACCC must publish the undertaking on its website as soon as practicable after it comes into force.  This provision recognises that it is important to publicise the undertaking as soon as practicable, given the potential impact it will have on the telecommunications industry.

 

Proposed subsection 577E(7) provides that for the purposes of section 577E, the question of whether Telstra is in a position to exercise control of a subscription television broadcasting licence is to be determined under Schedule 1 to the BSA.

 

Proposed section 577F    Variation of undertaking about subscription television broadcasting licences

 

Proposed section 577F contains provisions setting out the circumstances under which an undertaking about subscription television broadcasting licences in force under proposed section 577E could be varied.

 

Proposed subsection 577F(1) provides that proposed section 577F only applies if an undertaking is in force under proposed section 577E.

 

Proposed subsection 577F(2) allows Telstra to give the ACCC a variation of the undertaking in so far as the undertaking is covered by proposed paragraph 577E(1)(b).  This means Telstra is permitted to propose variations as to the action it will take or refrain from taking in order to comply with the requirement set out in proposed paragraph 577E(1)(a).  However, Telstra is not permitted to propose variations that alter the character of the undertaking as described by reference to proposed paragraph 577E(1)(a).

 

Proposed subsection 577F(3) provides that after considering the variation, the ACCC must either accept or reject the variation.

 

Proposed subsections 577F(4) and (5) confirm that the variation takes effect when it is accepted by the ACCC and that the ACCC must publish the variation on its website as soon as practicable.

 

Proposed Division 5—Enforcement of undertakings

 

Proposed section 577G    Enforcement of undertakings

 

To enforce the undertakings, proposed subsection 577G(1) permits the ACCC to apply to the Federal Court for an order under proposed subsection 577G(2) in the event the ACCC considers that Telstra has breached an undertaking in force under proposed section 577A, 577C or 577E.

 

Proposed subsection 577G(2) sets out the orders that the Federal Court may make if it is satisfied that Telstra has breached an undertaking.  The Federal Court may make any or all of the orders set out.  Given the importance of an undertaking in force under proposed Part 33 and the potential negative impact on competition in the telecommunications industry if an undertaking is breached, the Federal Court has been given extensive powers in the range and nature of the orders it may make.

 

Proposed subsection 577G(3) provides that in addition to the Federal Court’s powers under proposed subsection 577G(2), the Federal Court has power to make an order directing any person to do or refrain from doing a specified act and the power to make an order containing such ancillary or consequential provisions as the court thinks just.

 

Proposed subsection 577G(4) provides that before making an order under proposed section 577G, the Federal Court may direct that notice of the application be given to such persons as it thinks fit and/or be published in such manner as it thinks fit.

 

Proposed subsection 577G(5) provides that the Federal Court may rescind, vary, discharge, or suspend the operation of an order under proposed section 577G. 

 

Proposed Division 6—Limits on allocation of spectrum licences etc.

 

Proposed section 577H    Designated part of the spectrum

 

Proposed subsection 577H(1) sets out ranges of radiocommunications frequencies that are to be regarded as a ‘designated part of the spectrum’ for the purposes of the Tel Act.  The frequencies identified are considered to be capable of being used for the provision of advanced wireless broadband services. In particular, they include frequencies that may become available for allocation as a result of the cessation of analog television broadcasting.

 

Proposed subsection 577H(2) provides that proposed subsection 577H(1) has effect subject to proposed subsection 577H(3), which authorises the Minister to determine, by legislative instrument, that a specified part of the spectrum is not a ‘designated part of the spectrum’ for the purposes of the Tel Act.  As a large range of spectrum is identified in proposed subsection 577H(1), it is anticipated that it may be possible to reduce the amount of spectrum regarded as ‘designated part of the spectrum’ for the purposes of proposed Part 33.  It is considered that a ministerial determination is the appropriate device to decrease the spectrum regarded as a ‘designated part of the spectrum’ as this allows for flexibility, as spectrum needs change over time.

 

Proposed subsection 577H(4) authorises the Minister to determine, by legislative instrument, that a specified part of the spectrum is a ‘designated part of the spectrum’ for the purposes of the Tel Act.  The ACMA has the ability, under the Radcom Act, to vary the parameters governing the allocation of spectrum.  Also, new frequency ranges of spectrum can be identified as useful for particular technologies as those technologies develop.  Therefore, it is important that there be the capacity to include additional spectrum in the ‘designated part of the spectrum’ for the purposes of proposed Part 33, particularly if that spectrum is suitable for advanced wireless broadband services.  It is considered that a ministerial determination is the appropriate device to increase the spectrum regarded as a ‘designated part of the spectrum’ as this allows for flexibility, as spectrum needs change over time.

 

Proposed section 577J    Limits on allocation of certain spectrum licences to Telstra

 

Proposed subsection 577J(1) provides that the ACMA must not allocate a spectrum licence to Telstra if the licence relates to a designated part of the spectrum.  The ACMA is required to determine procedures for allocation of spectrum licences under section 60 of the Radcom Act and allocate the relevant licences in accordance with those procedures under section 62 of the Radcom Act.  In determining procedures under section 60 of the Radcom Act, the ACMA would be required to accommodate the restriction in proposed subsection 577J(1) and allocate spectrum licences accordingly (see notes under items 2 and 3, which discuss consequential amendments to sections 60 and 62 of the Radcom Act confirming these matters). 

 

Proposed subsection 577J(2) provides that the restriction in subsection (1) does not apply if an undertaking given by Telstra is in force under proposed section 577A and one of the following combinations of undertakings and/or declarations is also in force:

-           undertakings under proposed sections 577C and 577E; or

-           an undertaking under proposed section 577C and a declaration under proposed subsection 577J(5); or

-           an undertaking under proposed section 577E and a declaration under proposed  subsection 577J(3); or

-           declarations under proposed subsections 577J(3) and (5).

 

The undertakings in question must be in force: that is they must have been accepted by the ACCC.  It is not sufficient that they have been given to the ACCC.

 

By means of the exemption declaration provisions in subsections 577J(3) and (5) (discussed below), the Minister can determine (subject to proposed subsections 577J(4) and (6), discussed below) whether or not Telstra is required to provide undertakings under either or both proposed sections 577C and 577E in addition to the undertaking required under proposed section 577A. 

 

Proposed subsection 577J(3) allows the Minister, by written declaration, to exempt Telstra from the requirement to have an undertaking under proposed section 577C, which is an undertaking regarding hybrid fibre-coaxial networks.

 

Proposed subsection 577J(4) provides that the Minister must not make a declaration under proposed subsection 577J(3) unless the Minister is satisfied that an undertaking in force under proposed section 577A is sufficient to address concerns about the degree of Telstra’s power in telecommunications markets.  This would require the Minister to give consideration to an undertaking in force under proposed section 577A and the characteristics of the structural separation model set out under that undertaking.

 

Proposed subsection 577J(5) allows the Minister, by written declaration, to exempt Telstra from the requirement to have an undertaking under proposed subsection 577E, which is an undertaking regarding subscription television broadcasting licences.

 

Proposed subsection 577J(6) provides that the Minister must not make a declaration under proposed subsection (5) unless the Minister is satisfied that an undertaking in force under proposed section 577A is sufficient to address concerns about the degree of Telstra’s power in telecommunications markets.  This would require the Minister to give consideration to an undertaking in force under proposed section 577A and the characteristics of the structural separation model set out under that undertaking.

 

Proposed subsection 577J(7) confirms, for the avoidance of doubt, that a declaration under proposed subsection (3) or (5) is not a legislative instrument.

 

Proposed subsection 577J(8) provides a definition of ‘telecommunications market’ for the purposes of proposed section 577J by reference to the definition in Part XIB of the TPA. That definition will be clarified by the amendment in Part 3 of Schedule 1 of this Bill: see the notes on item 158.

 

Proposed section 577K    Limits on use of certain spectrum licences by Telstra

 

Proposed subsection 577K(1) prohibits licensees of spectrum licences from authorising Telstra to operate radiocommunications devices under a licence that relates to a designated part of the spectrum. 

 

Under section 68 of the Radcom Act, licensees of spectrum licences may allow other persons to operate radiocommunications devices under their licence. 

 

Proposed subsection 577K(1) has the effect of excluding Telstra from the persons who may be authorised to operate radiocommunications devices under section 68 of the Radcom Act, where the licence relates to a designated part of the spectrum.

 

Proposed subsection 577K(2) provides that the rule in subsection (1) does not apply if an undertaking given by Telstra is in force under proposed section 577A and one of the following combinations of undertakings and/or declarations is also in force:

-           undertakings under proposed sections 577C and 577E; or

-           an undertaking under proposed section 577C and a declaration under proposed subsection 577J(5); or

-           an undertaking under proposed section 577E and a declaration under proposed  subsection 577J(3); or

-           declarations under proposed subsections 577J(3) and (5).

 

The undertakings in question must be in force: that is they must have been accepted by the ACCC.  It is not sufficient that they have been given to the ACCC.

 

By means of the exemption declaration provisions in proposed subsections 577J(3) and (5) (discussed above) and subject to proposed subsections 577J(4) and (6), the Minister can determine whether or not Telstra is required to provide undertakings under either or both proposed sections 577C and 577E in addition to the undertaking required under proposed section 577A.

 

Proposed subsection 577K(3) prohibits a person from aiding, abetting, counselling or procuring a contravention of proposed subsection 577K(1), or from otherwise being involved in a contravention of proposed subsection 577K(1) as set out in proposed paragraphs 577K(3)(b) to (d).

 

Proposed subsection 577K(4) indicates that proposed subsections 577K(1) and (3) are civil penalty provisions.  Accordingly, a person who breached a provision in proposed subsection 577K(1) or (3) would be subject to the provisions dealing with breaches of civil penalty provisions under the Tel Act, including pecuniary penalties for breaches of civil penalty provisions under Part 31 of the Tel Act.

 

Proposed section 577L    Limits on assignment of certain spectrum licences to Telstra etc.

 

Proposed subsection 577L(1) prohibits the licensee of a spectrum licence from assigning the whole or part of that licence to Telstra or otherwise dealing with Telstra in relation to the whole or part of the licence, where the licence relates to a designated part of the spectrum. 

 

Under section 85 of the Radcom Act, licensees of spectrum licences are authorised to assign or otherwise deal with the whole or part of their spectrum licence.  Proposed subsection 577L(1) has the effect of excluding Telstra from the persons who may be assigned or otherwise dealt an interest in the whole or part of a spectrum licence, where the licence relates to a designated part of the spectrum.

 

Proposed subsection 577L(2) provides that the rule in subsection (1) does not apply if an undertaking given by Telstra is in force under proposed section 577A and one of the following combinations of undertakings and/or declarations is also in force:

-           undertakings under proposed sections 577C and 577E; or

-           an undertaking under proposed section 577C and a declaration under proposed subsection 577J(5); or

-           an undertaking under proposed section 577E and a declaration under proposed  subsection 577J(3); or

-           declarations under proposed subsections 577J(3) and (5).

 

The undertakings in question must be in force: that is they must have been accepted by the ACCC.  It is not sufficient that they have been given to the ACCC.

 

By means of the exemption declaration provisions in proposed subsections 577J(3) and (5) (discussed above) and subject to proposed subsections 577J(4) and (6), the Minister can determine whether or not Telstra is required to provide undertakings under either or both proposed sections 577C and 577E in addition to the undertaking required under proposed section 577A. 

 

Proposed subsection 577L(3) prohibits a person from aiding, abetting, counselling or procuring a contravention of proposed subsection 577L(1), or from otherwise being involved in a contravention of proposed subsection 577L(1) as set out in proposed paragraphs (3)(b) to (d).

 

Proposed subsection 577L(4) indicates that proposed subsections 577L(1) and (3) are civil penalty provisions.  Accordingly, a person who breached a provision in proposed subsection 577L(1) or (3) would be subject to the provisions dealing with breaches of civil penalty provisions under the Tel Act, including pecuniary penalties for breaches of civil penalty provisions under Part 31 of the Tel Act.

 

Proposed Division 7—Other provisions

 

Proposed section 577M    Associate

 

Proposed subsection 577M(1) provides a definition for an associate of Telstra in relation to the control of a hybrid fibre-coaxial network, another telecommunications network, or a company, for the purposes of proposed Part 33.  This definition has been modelled from the definition of associate in section 6 of the BSA.

 

Proposed subsection 577M(2) provides that persons are not associates of each other if the ACCC is satisfied that the persons do not act together in any relevant dealings relating to the network or company and neither of the persons is in a position to exert influence over the business dealings of the other in relation to the network or company.   Subsection 577M(2) recognises that the definition of ‘associate’ in proposed subsection 577M(1) is only intended to be applied in respect of dealings relating to a network or company.  The ACCC is therefore given the discretion to ensure the definition is not applied too widely.

 

Proposed section 577N    Control

 

Proposed section 577N provides a definition for ‘control’ for the purposes of proposed Part 33.  This definition is modelled from the definition in section 6 of the BSA.

 

Proposed section 577P    Control of a company

 

Proposed section 577P provides that the question of whether a person is in a position to exercise control of a company is to be determined under Schedule 1 to the BSA.

However, the definition of ‘associate’ in proposed section 577M applies for this purpose.

 

Proposed section 577Q    When Telstra is in a position to exercise control of a network

 

Proposed section 577Q sets out rules for determining the question of whether Telstra is in position to exercise control of a hybrid fibre-coaxial network or another telecommunications network.  The rules set out have been modelled from clause 2 of Schedule 2 of the BSA and adapted for the purposes of proposed Part 33.

 

Item 22 - At the end of Schedule 1

 

Item 22 adds proposed Part 9 at the end of Schedule 1 to the Tel Act.  Under proposed Part 9, Telstra is required to functionally separate its business so that:

·          Telstra conducts its network operations and wholesale functions at arm’s length from the rest of Telstra;

·          Telstra provides equivalent information on price and non-price terms to its retail business and non-Telstra wholesale customers; and

·          this equivalence of treatment is made transparent to the regulator and competitors via strong internal governance structures.

 

As functional separation is intended as a proxy for structural separation, Telstra will not be required to submit to functional separation under proposed Part 9 of Schedule 1 if it provides a structural separation undertaking which is accepted by the ACCC under proposed section 577A of the Tel Act (proposed section 577A is discussed under item 21).

 

The functional separation of Telstra would be brought about through a series of steps set out under proposed Part 9 of Schedule 1.

 

Within 90 days of the commencement of the provisions in Part 2 of Schedule 2 of the Bill, the Minister must make a determination setting out additional functional separation requirements.

 

Initially, Telstra would be required to prepare a draft functional separation undertaking setting out, amongst other things, how it will implement functional separation.  The draft functional separation undertaking must comply with any requirements that are set out in the requirements determination. 

 

The Minister will then approve, vary or replace the draft functional separation undertaking. It then becomes a final functional separation undertaking .

 

Telstra is required to comply with a final functional separation undertaking as a condition of its carrier licence.

 

Item 22 also adds proposed Part 10 of Schedule 1 to the Tel Act, which inserts into that Schedule new carrier licence conditions applying to Telstra that relate to the control and use by Telstra of certain spectrum licences.

 

Proposed Part 9 Functional separation of Telstra

 

Proposed Division 1—Introduction

 

Proposed clause 68    Simplified outline

 

Proposed clause 68 provides a simplified outline of proposed Part 9 of Schedule 1 to the Tel Act, to assist the reader.

 

Proposed clause 69    Definitions

 

Proposed clause 69 inserts a number of proposed definitions for the purposes of proposed Part 9 of Schedule 1.  Some of the proposed definitions are discussed under the explanatory notes for proposed clause 74, below.

 

Proposed clause 70    Declared network services

 

Proposed clause 70 provides that a ‘declared network service’, for the purposes of proposed Part 9 of Schedule 1, is a service specified in a legislative instrument made by the Minister.  Under the functional separation model in proposed Part 9 of Schedule 1, any declared network service must be provided solely by Telstra’s wholesale/network business unit (as defined under proposed clause 69), in accordance with the functional separation principles set out in proposed subclause 74(b) and (c) (discussed below).

 

Proposed clause 71    Regulated services

 

Proposed subclause 71(1) provides a definition of the term ‘regulated service’, for the purposes of proposed Part 9 of Schedule 1, by reference to the definition of ‘declared service’ within the meaning of Part XIC of the TPA. 

 

Proposed subclause 71(2) provides that proposed subclause 71(1) has effect subject to proposed subclause 71(3), which authorises the Minister, by legislative instrument, to determine a specified service is not a regulated service for the purposes of proposed Part 9 of Schedule 1.  The proposed provisions for the functional separation of Telstra are naturally more limited in scope than the telecommunications access regime under Part XIC of the TPA which has a different and wider application.  It therefore may be the case that not all of the declared services under the TPA will need to be regulated under the proposed functional separation model in proposed Part 9 of Schedule 1.  Accordingly, it is considered appropriate that the Minister be authorised to determine specified services are not regulated services for the purposes of proposed Part 9 of Schedule 1.

 

Proposed subclause 71(4) authorises the Minister, by legislative instrument, to determine that a specified eligible service is a regulated service for the purposes of proposed Part 9 of Schedule 1.  This will allow services to be regulated under proposed Part 9 of Schedule 1 that are not declared services under the TPA.  For example, a newly developed eligible service may be identified as a service that should be regulated under proposed Part 9 of Schedule 1.  It may be that the identified service is not a declared service under the TPA on the basis that the ACCC has not yet completed the public inquiry and report required under section 152AL of the TPA before it can declare the service.  The naming of that service as a regulated service under proposed Part 9 of Schedule 1 of the Tel Act in a timely manner by way of ministerial determination would assist by potentially correcting any unfair competitive advantage before that advantage becomes well established.  This mechanism is appropriate for proposed Part 9 of Schedule 1, given its limited application when compared against the application of Part XIC of the TPA.

 

Proposed clause 72    Notional contracts

 

Proposed clause 72 confirms that notional contracts between Telstra’s business units are to be treated as if they are actual contracts and any terms and conditions in such notional contracts are to be treated as if they are actual terms and conditions.  This proposed clause is linked to the principle that there should be equivalence in relation to the supply by Telstra of regulated services to Telstra’s wholesale customers and Telstra’s retail business units (proposed subclause 74(1)).  Under the principle of equivalence Telstra must contract with its wholesale customers on the same terms and conditions upon which it contracts with its own business units.  Proposed clause 72 facilitates comparisons between the terms and conditions upon which Telstra supplies services to its own retail business units and the terms and conditions upon which it provides services to its wholesale customers, in the interest of ensuring the principle of equivalence is adhered to.

 

Proposed Division 2—Functional separation undertaking

 

Proposed clause 73    Contents of draft or final functional separation undertaking

 

Proposed subclause 73(1) specifies matters that must be included in a draft or final functional separation undertaking and also confirms that a draft or final functional separation undertaking must comply with the functional separation principles (set out in proposed clause 74) and such requirements as are specified in a functional separation requirements determination (under proposed clause 75).  Proposed subclause 73(1) sets parameters for the content of the draft or final functional separation undertaking.  When deciding whether or not to approve a draft functional separation undertaking, the Minister would have regard to proposed subclause 73(1). The Minister would not approve a draft functional separation undertaking under proposed clause 77 unless, at a minimum, it fits within the parameters outlined in proposed  subclause 73(1). 

 

Proposed paragraph 73(1)(b) indicates that a draft or final functional separation undertaking must contain provisions requiring Telstra to establish and maintain a committee to be known as the Oversight and Equivalence Board.  It is envisaged the Oversight and Equivalence Board would monitor and support Telstra in complying with the final functional separation undertaking.  It is envisaged that requirements relating to the Oversight and Equivalence Board, including such things as duties of the Board and the appointment of members to the Board, would be specified in the functional separation requirements determination under proposed clause 75.

 

Proposed paragraph 73(1)(c) indicates that a draft or final functional separation undertaking must contain provisions which require the Oversight and Equivalence Board to prepare reports about the extent to which Telstra has complied with the final functional separation undertaking.  Reports in accordance with subparagraph 73(1)(c) are to be prepared on a quarterly basis and copies of the reports must be given to the ACCC and to Telstra’s board of directors.  This reporting obligation is aimed at ensuring the Oversight and Equivalence Board closely monitors Telstra’s compliance with the final functional separation undertaking and that Telstra is encouraged to put in place policies and procedures which:

·          support compliance with the final functional separation undertaking

·          allow for effective monitoring of Telstra’s level of compliance with the final functional separation undertaking

·          allow Telstra to take remedial action as soon as possible to rectify any compliance issues in relation to the final functional separation undertaking.

 

The requirement for Telstra to provide a copy of the report to the ACCC provides a high level of accountability and allows the ACCC to take appropriate enforcement action in regard to Telstra’s compliance with the final functional separation undertaking where considered necessary. 

 

Proposed subclause 73(2) confirms that for the purposes of subparagraph 73(1)(c)(i) (which requires Telstra to provide quarterly reports), if a final functional separation undertaking is taken to be in force throughout a part, but not a whole, of a particular quarter, the part of the quarter in question is taken to be a quarter in its own right.  For example, if a final functional separation undertaking came into force on 1 September of any year, the period from the beginning to the end of September would be taken to be a quarter in its own right and Telstra would be required to provide a report for that period (proposed clause 69 provides a definition for ‘quarter’).

 

Proposed clause 74    Functional separation principles

 

Proposed clause 74 sets out the functional separation principles that apply in regard to the manner in which the functional separation of Telstra is to be achieved and maintained.  Under proposed paragraph 73(1)(a) any draft or final functional separation plan must comply with the functional separation principles. When considering whether or not to approve a draft functional separation undertaking, it is intended that the Minister would have regard to the degree to which the draft undertaking complies with the functional separation principles. 

 

The principle of equivalence - proposed paragraph 74(a)

 

The first principle (in proposed paragraph 74(a)) is that there should be equivalence in relation to the supply by Telstra of its regulated services to Telstra’s wholesale customers and Telstra’s retail units. 

 

Telstra currently operates a wholesale business unit which arranges for the supply of network services to Telstra’s wholesale customers.  However, Telstra currently provides network services to itself via its own fully integrated business framework.  This means that Telstra is in a position to take advantage of its level of vertical integration when developing and supplying products to its retail customers.  It also means that Telstra has the ability and incentive to favour its own retail business over its wholesale customers when providing access to network services.

 

It is intended that the details of how equivalence would be achieved will be set out in a functional separation requirements determination under proposed clause 75. 

 

Telstra would be required to provide specified network services to itself via its wholesale/network unit on the same terms and conditions upon which it provides those services to its wholesale customers.  Those services would be supplied in accordance with ‘notional contracts’ established between Telstra’s retail and wholesale/network business units similar to the contracts between Telstra and its wholesale customers (proposed clause 72 deals with the treatment of notional contracts). 

 

The principle of separate retail and wholesale/network business units - proposed paragraph 74(b)

 

The second principle (proposed paragraph 74(b)) is that Telstra should maintain one or more retail business units and a separate wholesale/network business unit.

 

A business unit is defined under proposed clause 69 as a part of Telstra.  This recognises that in managing its business, Telstra organises different roles and parts of the company into individual business units.

 

This principle requires Telstra to maintain a single wholesale/network business unit, in accordance with the definition in proposed clause 69,:

-           that supplies:

·          fault detection, handling and rectification;

·          service activation and provisioning;

·          declared network services,

to Telstra’s retail business units and Telstra’s wholesale customers, in relation to eligible services; and

-           by which Telstra deals with its wholesale customers.

 

The wholesale/network business unit must be separate from Telstra’s retail business units.  Under the proposed definition in clause 69 a retail business unit is a unit by which Telstra deals with its retail customers.

 

The separation of Telstra’s retail business units from its wholesale/network unit, together with the treatment of notional contracts under proposed clause 72, would support the principle of equivalence (discussed above) by facilitating comparisons between the terms and conditions upon which Telstra supplies eligible services from its wholesale/business unit to its retail unit and its wholesale customers.

 

The principle of arm’s length functional separation between each of Telstra’s retail and wholesale/network business units - proposed paragraph 74(c)

 

The third principle (proposed paragraph 74(c)) is that Telstra should maintain arm’s length functional separation between its wholesale/network business unit and its retail business units.  The principle is directed towards ensuring that Telstra does not favour its retail business over its wholesale customers in the provision of regulated services.  Under this principle, Telstra’s wholesale/network business unit is expected to interact with its retail business units in the same manner that it would interact with another carrier or carriage service provider.  This includes Telstra ensuring that it puts measures in place to protect information and knowledge in the possession of its wholesale/network business unit from its retail business units in the same manner it would protect that information and knowledge from another carrier or carriage service provider.

 

The principle of systems, procedures and practices - proposed paragraph 74(d)

 

The fourth principle (proposed paragraph 74(d)) is directed towards ensuring that Telstra has sufficient systems, procedures and practices in place which support and facilitate compliance with a final functional separation undertaking.  It is also important that measures are put in place to allow Telstra’s compliance with a final functional separation undertaking to be monitored, assessed and audited so that assessments can be made of Telstra’s adherence to the functional separation principles and Telstra’s observance of the requirements set out in the proposed functional separation requirements determination.

 

The principle of equal consultation - proposed paragraph 74(e)

 

The fifth principle (proposed paragraph 74(e)) requires Telstra to consult equally with its retail business and wholesale customers about proposed services to be supplied by Telstra’s wholesale/network business unit or developments in connection with those services.  This provision seeks to allow Telstra’s wholesale customers to compete with Telstra on a fair and equal basis when supplying services to their customers which make use of regulated services.

 

Proposed clause 75    Functional separation requirements determination

 

Proposed clause 75 allows the Minister to make a determination (a functional separation requirements determination) specifying requirements to be complied with by a draft or final functional separation undertaking.

 

Matters that may be dealt with in a functional separation requirements determination may include the manner in which the functional separation principles are to be implemented (proposed subclause 75(2)) and the manner in which a requirement relating to the proposed Oversight and Equivalence Board, set out in proposed paragraph 73(1)(b) or (c) is to be met (proposed subclause 75(3)).  Proposed subclause 75(4) makes it clear that proposed subclauses 75(2) and 75(3) are simply examples of the matters that may be included in a functional separation requirements determination and that they do not limit the matters that may be specified by the Minister in a functional separation requirements determination.

 

Under proposed subclause 75(5), the Minister must ensure that a functional separation requirements determination comes into force within 90 days of the commencement of proposed clause 75.  It is envisaged a functional separation requirements determination would provide further details regarding the manner in which the functional separation of Telstra is to be achieved and maintained and would provide further guidance to Telstra in formulating its draft functional separation undertaking, as required under proposed clause 76.

 

Proposed subclause 75(6) provides that a functional separation requirements determination is not a legislative instrument.  This reflects the fact that a direction from a Minister to any person is not subject to disallowance (see section 44 of the LIA) and the fact that the instrument made by the Minister under proposed subclause 75(6) operates as a direction to Telstra to include certain requirements in its draft undertaking.

 

Proposed clause 76    Draft functional separation undertaking

 

Proposed subclause 76(1) indicates that Telstra must give the Minister a draft functional separation undertaking within 90 days after the first functional separation requirements determination comes into force or a longer period, if specified in accordance with proposed subclause 76(3).

 

Proposed subclause 76(2) provides that the requirement to provide the draft functional separation undertaking does not apply if an undertaking given by Telstra is in force under proposed section 577A, which allows Telstra to provide, and the ACCC to accept, a structural separation undertaking. If a structural separation undertaking were in force under proposed section 577A, it would be unnecessary for Telstra to functionally separate.  This is because structural separation is the strongest form of organisational separation, which would require Telstra to make changes to its activities or its company structure.  Therefore, structural separation is the preferred form of organisational separation for achieving an open access, wholesale-only market structure.

 

Proposed subclause 76(3) allows the Minister to specify in writing a longer period in which a draft functional separation undertaking is required to come into force for the purposes of proposed paragraph 76(1)(b). 

 

Proposed subclause 76(4) sets out the circumstances in which the Minister can extend the period in which a draft functional separation undertaking is required to come into force.   Before extending the period, the Minister must be satisfied that Telstra is preparing a structural separation undertaking under proposed section 577A or the ACCC has received an undertaking under section 577A and is still deciding whether or not to accept that undertaking.  The mechanism for extension under proposed subclause 76(3) combined with the requirements under proposed subclause 76(4) is desirable so that the functional separation of Telstra is not precipitously brought into being which has the effect of delaying or making more difficult, the implementation of a more preferred model of structural separation.  

 

Proposed subclause 76(5) allows the Minister to vary an instrument under proposed subclause 76(3).  This allows the Minister to increase or decrease the relevant extension period where it is considered necessary or desirable to do so.

 

Proposed subclause 76(6) provides that a period specified in proposed subclause 76(3) may be ascertained wholly or partly by reference to the occurrence of a specified event.  Such an event could be, for example, a decision by the ACCC not to accept a structural separation undertaking.  If the Minister delays the requirement for Telstra to provide a draft functional separation undertaking because Telstra has submitted a structural separation undertaking to the ACCC, but the ACCC has not yet accepted or rejected the undertaking, the Minister may want to trigger the requirement to provide the draft functional separation undertaking if the ACCC rejects the structural separation undertaking.  This provision would permit the Minister to set a date with reference to that event (such as, “within 90 days of a rejection by the ACCC of the structural separation undertaking submitted to it by Telstra”).

 

Proposed subclause 76(7) makes it clear that the Minister does not have a duty to consider whether to make or vary an instrument under proposed subclause 76(3).  For example, if Telstra or some other person requested that the Minister consider exercising his power under proposed subclause 76(3), the Minister would have no duty to consider that request.

 

Proposed subclause 76(8) provides for publication of an instrument under proposed subclause 76(3) or (5) on the Department’s website.

 

Proposed subclause 76(9) provides, for the avoidance of doubt, that an instrument under proposed subclause 76(3) or (5) is not a legislative instrument.

 

Proposed clause 77    Approval of draft functional separation undertaking by Minister

 

Proposed clause 77 sets out the manner in which a draft functional separation undertaking may be approved, varied or replaced and includes publication and consultation provisions. 

 

After receiving a draft functional separation undertaking (original undertaking), the Minister must approve the original undertaking; vary the original undertaking and approve the original undertaking as varied; or replace the original undertaking with another draft functional separation undertaking (replacement undertaking) and approve the replacement undertaking (proposed subclause 77(2)).  It is envisaged the Minister would exercise his or her power to vary or replace the draft functional separation undertaking if the draft functional separation undertaking was considered deficient with regard to compliance with the functional separation principles or any requirements specified in the functional separation requirements determination.  The Minister would be able to add or change measures in the draft functional separation undertaking to address any shortcomings in the draft functional separation undertaking, or replace the draft functional separation undertaking altogether if considered necessary or desirable. In particular, it is intended that if the Minister considered that the draft functional separation undertaking complied with a functional separation principle to a minimal degree, the Minister might decide to vary or replace the draft undertaking in a way that would require Telstra to meet the principle to a significantly higher degree.

 

Proposed subclause 77(3) provides that before making a decision under proposed subclause 77(2), the Minister must publish a notice on the Department’s website setting out the original undertaking and inviting submissions about the original undertaking, with submissions to be provided within 14 days after publication of the original undertaking.  The Minister is required to give the ACCC a copy of the notice and consider any advice about the original undertaking given to him or her by the ACCC within the 44 days after the notice is published.  The Minister must have regard to any advice given by the ACCC. It is expected that the ACCC would consider the submissions provided to the Minister before giving its advice to the Minister.

 

Proposed subclause 77(4) requires the Minister, before approving an original undertaking as varied under proposed paragraph 77(2)(b), to give Telstra a notice setting out the original undertaking as proposed to be varied and inviting Telstra to make submissions to the Minister regarding the original undertaking as proposed to be varied within 14 days after receiving the notice.  The Minister is further required to consider any submissions received from Telstra within that 14-day time period.

 

Proposed subclause 77(5) requires the Minister, before approving a replacement undertaking under proposed paragraph 77(2)(c), to give Telstra a notice setting out the proposed replacement undertaking and inviting Telstra to make submissions to the Minister regarding the proposed replacement undertaking within 14 days after receiving the notice.  The Minister is further required to consider any submissions received from Telstra within that 14-day time period.

 

The consultation provisions in subclauses 77(3), (4) and (5) provide Telstra, the ACCC and the public with an opportunity to make submissions which the Minister must consider before approving an original undertaking, and provide for additional  consultation with Telstra before the Minister approves an original undertaking as varied or a replacement undertaking.  These provisions are aimed at ensuring the measures set out in the final functional separation undertaking are robust whilst ensuring the consultation process is undertaken in a timely and efficient manner.

 

Proposed subclause 77(6) confirms that the Minister may ask the ACCC to give the Minister advice, which is additional to any advice received from the ACCC after a request for advice under proposed paragraph 77(3)(e), about a matter arising under proposed clause 77. 

 

Proposed subclause 77(7) requires the Minister to notify Telstra in writing of a decision under subclause 77(2) as soon as practicable.

 

Proposed subclause 77(8) provides, for avoidance of doubt, that an instrument under subclause 77(2) is not a legislative instrument.

 

Proposed clause 78    Time limit for making an approval decision

 

Proposed subclause 78(2) requires the Minister to use his or her best endeavours to make a decision under proposed subclause 77(2) in relation to a draft functional separation undertaking within 6 months after the draft undertaking was given to the Minister.  This subclause recognises the importance of ensuring that the functional separation of Telstra is achieved in a timely manner, but also appreciates that the Minister will need adequate time to:

  • consider the draft functional separation undertaking and check that it complies with proposed clause 73
  • possibly make changes to a draft functional separation undertaking, which may be influenced by submissions received under proposed subclause 77(3) or advice received from the ACCC
  • consult with Telstra before making changes to a draft functional separation undertaking
  • seek additional advice from the ACCC concerning a draft functional separation undertaking, and consider that advice.

 

Proposed clause 79    Effect of approval

 

Proposed subclause 79(1) confirms that once a draft functional separation undertaking is approved under subclause 77(2) it becomes a final functional separation undertaking. 

 

Proposed subclause 79(2) confirms that a final functional separation undertaking comes into force on the day after the notice of the Minister’s decision under subclause 77(2) is given to Telstra in accordance with subclause 77(6). 

 

Proposed subclause 79(3) provides that a final functional separation undertaking may not be withdrawn.  Given that the implementation of the functional separation of Telstra is likely to have a significant impact on the telecommunications industry and the approval of a draft functional separation undertaking (resulting in the undertaking becoming a final functional separation undertaking) would have the effect of triggering the operation of a number of provisions proposed under this Bill there is a need for certainty and therefore it is important the a final functional separation undertaking cannot be withdrawn. 

 

For the avoidance of doubt, subclause 79(4) confirms that a final functional separation undertaking is not a legislative instrument.

 

Proposed clause 80    Variation of final functional separation undertaking

 

Proposed clause 80 describes the manner in which a variation to a final functional separation undertaking may be made.  A final functional separation undertaking may be made by the Minister, in writing, where Telstra or another person has requested the variation, or on the Minister’s own initiative (proposed subclause 80(2)). 

 

Proposed subclause 80(3) confirms that the Minister does not have a duty to consider whether to make a variation under proposed clause 80, whether or not the Minister has received a request from Telstra or by any other person, or in any other circumstances. 

 

The publication, consultation and notice requirements relating to a proposed variation (proposed subclauses 80(4) and (8)), except in relation to minor variations, are the same as those outlined in proposed clause 77.

 

Subclause 80(5) indicates that the publication, consultation and notice requirements under subclause 80(4) do not apply in respect of variations to a final functional separation undertaking that are of a minor nature.   

 

Where a proposed variation is of a minor nature and is not made at the request of Telstra, under proposed subclause 80(6) the Minister is required to give Telstra a notice setting out the proposed variation and inviting Telstra to make submissions to the Minister about the proposed variation within 14 days after the notice is given.  The Minister must then consider any submission received within that 14 day period. 

 

Proposed subclause 80(7) confirms that the Minister may ask the ACCC to give the Minister advice, which is additional to any advice received from the ACCC after a request for advice under proposed paragraph 80(3)(e), about a matter arising under proposed clause 80. 

 

Proposed subclause 80(9) confirms that a variation of a final functional separation undertaking comes into force the day after notice of the variation is given to Telstra.

 

For the avoidance of doubt, proposed subclause 80(10) confirms that a variation of a final functional separation undertaking is not a legislative instrument.

 

Proposed clause 81    Publication of final functional separation undertaking

 

Proposed subclause 81(1) provides that Telstra must publish a copy of a final functional separation undertaking on its website as soon as practicable after it comes into force. 

 

Similarly, under subclause 81(2), Telstra is required to publish a variation of a final functional separation undertaking on its website as soon as practicable after it comes into force.

 

Proposed clause 82    Compliance with final functional separation undertaking

 

Proposed subclause 82(1) provides that if a final separation undertaking is in force, Telstra must comply with the undertaking.  Proposed subclause 82(1) will be within Schedule 1 to the Tel Act, which contains the standard carrier licence conditions.  A breach of a final separation undertaking by Telstra would therefore be a breach of Telstra’s carrier licence conditions.  Compliance with carrier licence conditions is a civil penalty provision under section 68 of the Tel Act.  Proposed subclause 82(1) would have the effect of making Telstra subject to the penalties outlined in Part 31 of the Act for breach of civil penalty provisions.  Telstra would also be subject to additional enforcement provisions in the Tel Act for breach of proposed subclause 82(1) (for example sections 69A and 70, as amended by this Bill).

 

Proposed subclause 82(2) indicates that subclause 82(1) would not apply if an undertaking given by Telstra is in force under proposed section 577A.  This provision confirms that Telstra would not be required to comply with a final functional separation undertaking if a structural separation undertaking was in force under proposed section 577A.  This is because functional separation of Telstra would be unnecessary in the event Telstra were to structurally separate.  Structural separation is a stronger form of organisational separation, which would require Telstra to make changes to its activities or company structure.  Therefore, structural separation is the preferred form of organisational separation for achieving an open access, wholesale-only market structure.  The enforcement provisions relating to the structural separation of Telstra under proposed section 577A are discussed under the explanatory note for proposed subsection 577F, above.

 

Proposed Part 10 Control and use by Telstra of certain spectrum licences

 

Proposed Part 10 of Schedule 1 to the Tel Act inserts into that Schedule new carrier licence conditions applying to Telstra that relate to the control and use by Telstra of certain spectrum licences.

 

Proposed Division 1—Introduction

 

Proposed clause 83    Simplified outline

 

Proposed clause 83 provides a simplified outline of proposed Part 10 of Schedule 1 to assist the reader.

 

Proposed Division 2—Control and use by Telstra of certain spectrum licences

 

Proposed clause 84    Control by Telstra of certain spectrum licences

 

Proposed subclause 84(1) provides that Telstra must not be in a position to exercise control of a licence that relates to a designated part of the spectrum.  The meaning of control of a spectrum licence, for the purposes of proposed Part 10 of Schedule 1 is addressed under proposed clause 88.

 

Proposed subclause 84(2) provides that the restriction in subclause (1) does not apply if an undertaking given by Telstra is in force under proposed section 577A and one of the following combinations of undertakings and/or declarations is also in force:

-           undertakings under proposed sections 577C and 577E; or

-           an undertaking under proposed section 577C and a declaration under proposed subsection 577J(5); or

-           an undertaking under proposed section 577E and a declaration under proposed  subsection 577J(3); or

-           declarations under proposed subsections 577J(3) and (5).

 

The undertakings in question must be in force: that is they must have been accepted by the ACCC.  It is not sufficient that they have been given to the ACCC.

 

By means of the exemption declaration provisions in subsections 577J(3) and (5) (which are discussed in the explanatory note for proposed section 577J), the Minister can effectively determine, subject to proposed subsections 577J(4) and (6), whether or not Telstra is required to provide undertakings under either or both proposed sections 577C and 577E in addition to the undertaking required under proposed section 577A. 

 

Proposed clause 85    Use by Telstra of certain spectrum licences

 

Proposed subclause 85(1) provides that Telstra must not supply a carriage service using a radiocommunications device authorised for use under a spectrum licence if that licence relates to a designated part of the spectrum.

 

Proposed subclause 85(2) provides that the restriction in subclause (1) does not apply if an undertaking given by Telstra is in force under proposed section 577A and one of the following combinations of undertakings and/or declarations is also in force:

-           undertakings under proposed subsections 577C and 577E; or

-           an undertaking under proposed section 577C and a declaration under proposed subsection 577J(5); or

-           an undertaking under proposed section 577E and a declaration under proposed  subsection 577J(3); or

-           declarations under proposed subsections 577J(3) and (5).

 

The undertakings in question must be in force: that is they must have been accepted by the ACCC.  It is not sufficient that they have been given to the ACCC.

 

By means of the exemption declaration provisions in subsections 577J(3) and (5) (discussed in the explanatory notes for proposed section 577J), the Minister can determine, subject to proposed subsections 577J(4) and (6), whether or not Telstra is required to provide undertakings under either or both proposed sections 577C and 577E in addition to the undertaking required under proposed section 577A. 

 

Proposed Division 3—Other provisions

 

Proposed clause 86    Associate

 

Proposed subclause 86(1) provides a definition for an ‘associate’ of Telstra in relation to the control of a spectrum licence for the purposes of proposed Part 10 of Schedule 1.  This definition has been modelled from the definition of ‘associate’ in section 6 of the BSA.

 

Proposed subclause 86(2) provides that persons are not associates of each other if the ACCC is satisfied that the persons do not act together in any relevant dealings relating to the spectrum licence and neither of them is in a position to exert influence over the business dealings of the other in relation to spectrum licence.  Proposed subclause 86(2) recognises that the definition of ‘associate’ in proposed subclause 86(1) is only intended to be applied in respect of dealings relating to a spectrum licence.  The ACCC is therefore given the discretion to ensure the definition is not applied too widely.

 

Proposed clause 87    Control

 

Proposed clause 87 provides a definition for ‘control’ for the purposes of proposed Part 10 of Schedule 1.  This definition is taken from section 6 of the BSA.

 

Proposed clause 88    When Telstra is in a position to exercise control of a spectrum licence

 

Proposed clause 88 sets out mechanisms for determining the question of whether Telstra is in a position to exercise control of a spectrum licence.  Proposed section 88 is modelled on the control rules set out in clause 2 of Schedule 1 of the BSA and adapted for the purposes of proposed Part 10 of Schedule 1.

 

Trade Practices Act 1974

 

Item 23 - Subsection 4(1)

 

This item amends subsection 4(1) of the TPA by inserting a definition for ‘Telstra’, by reference to the meaning in the Telstra Corporation Act 1991 .

 

Item 24 - Subsection 151BTA(13) (definition of Telstra )

 

This item repeals subsection 151BTA(13) as a result of the amendment proposed under item 23 above.

 

Item 25 - Section 151BUAAA

 

Item 25 would repeal section 151BUAAA of the TPA.  Section 151BUAAA authorises the Minister to give a special direction to the ACCC to make rules requiring Telstra to keep and retain particular records and prepare reports consisting of information in those records.  As a result of the amendments proposed under Part 1 of this Bill, section 151BUAAA of the TPA is no longer required.  Telstra will have new record-keeping and reporting requirements under the functional separation model in proposed Part 9 of Schedule 1, which will replace Part 8 of Schedule 1(for example, see proposed paragraph 73(1)(c) and subparagraph 74(d)(ii)).

 

Item 26 - At the end of Part XIB

 

Item 26 would add proposed Division 15 at the end of Part XIB of the TPA, containing proposed section 151CQ.

 

Proposed Division 15—Voluntary undertakings given by Telstra

 

Proposed section 151CQ    Voluntary undertakings given by Telstra

 

Proposed subsection 151CQ(1) provides that section 151CQ applies if Telstra has engaged in conduct in order to comply with an undertaking in force under proposed section 577A, 577C or 577E of the Tel Act.

 

Proposed subsection 151CQ(2) requires the ACCC, in performing a function, or exercising a power under proposed Part XIB to have regard to the conduct of Telstra in complying with an undertaking to the extent that conduct is relevant.  This provision recognises the inter-relationship between Telstra’s conduct when complying with an undertaking given by Telstra in force under sections 577A, 577C or 577E of the Tel Act and the provisions Telstra is subject to under the telecommunications industry anti-competitive conduct and record keeping rules under Part XIB of the TPA.

 

Item 27 - At the end of Part XIC

 

Item 27 would add proposed section 152ER at the end of Part XIC of the TPA.

 

Proposed section 152ER    Voluntary undertakings given by Telstra

 

Proposed section 152ER is identical to proposed section 151CQ, except that it is expressed to apply for the purposes of Part XIC of the TPA, rather than Part XIB of the TPA.

 

This provision recognises the inter-relationship between Telstra’s conduct when complying with an undertaking given by Telstra in force under sections 577A, 577C or 577E of the Tel Act and the provisions Telstra is subject to under the telecommunications access regime under Part XIC of the TPA.

 

Item 28 - Transitional—continuation of special Telstra directions

 

Item 28 is a transitional provision that confirms that the repeal of section 151BUAAA of the TPA would not affect the continuity of a special Telstra direction referred to in that section that was in force immediately before the section was repealed.  This means if a special Telstra direction had been given prior to the repeal of section 151BUAAA, the ACCC would still be required to comply with that direction and Telstra would still be required to comply with any rules made by the ACCC in accordance with that direction. As a special Telstra direction is given effect through a Ministerial direction under section 151BUAA, any special Telstra direction will cease to have effect when action is taken to revoke the relevant direction given under section 151BUAA.

 

Division 2—Amendments commencing immediately after a final functional separation undertaking comes into force

 

Division 2 of Part 1 of Schedule 1 of this Bill contains amendments to the Tel Act and the TPA that are necessary as a result of the entry into force of a functional separation undertaking, such as the repeal of Part 8 of Schedule 1 to the Tel Act, which deals with operational separation and will no longer be required.  In the event that a functional separation does not come into force (because a structural separation undertaking is accepted by the ACCC under proposed section 577A), Division 3 would make many (but not all) of the amendments proposed by Division 2.

 

Telecommunications Act 1997

 

Item 29 - Subsection 61(1)

Item 30 - Subsections 61(2), (3) and (4)

 

These items repeal subsections 61(2), (3) and (4) and make a consequential amendment to subsection 61(1).  Subsections 61(2), (3) and (4) deal with the Minister’s ability to declare that current Part 8 of Schedule 1 to the Tel Act ceases to have effect on a particular day.  Part 8 of Schedule 1 will be repealed (see Item 44), therefore the subsections are no longer required.

 

Item 31 - Section 61A

 

This item repeals section 61A.  This section contains provisions requiring before 1 July 2009, the Minister to cause to be conducted a review of the operation of Part 8 of Schedule 1. The Minister caused the review to be conducted on 7 April 2009 with the release of the National Broadband Network: Regulatory Reform for 21st Century Broadband discussion paper. At the time of introduction of this Bill, a report of the review is being prepared.

 

Item 32 - After subsection 69(6)

 

This item inserts proposed subsection 69(6A) into the Tel Act.  Proposed subsection 69(6A) confirms that subsection 69(1) does not apply to a condition set out in Part 9 of Schedule 1 (which deals with the functional separation of Telstra). 

 

Subsection 69(1) of the Tel Act and its related provisions under section 69 authorise the ACMA to issue remedial directions to a carrier that is contravening, or has contravened, a condition of its carrier licence. 

 

The effect of proposed subsection 69(6A) is that the ACMA would not be authorised to issue a remedial direction to Telstra in the event it contravened a condition set out in proposed Part 9 of Schedule 1. The reason for this restriction is that it is intended that only the ACCC (and the Minister, where appropriate) will have authority to take action against Telstra for breach of a condition set out in Part 9 of Schedule 1. 

 

Item 33 - Subsection 69A(1)

 

This item omits “Part 8” from subsection 69A(1) and substitutes “Part 9”.  An alteration to the heading to section 69A is also proposed by omitting “operational” and substituting “functional”.  Subsection 69A(1) and its related provisions under section 69A authorise the ACCC to issue remedial directions to Telstra if Telstra is contravening, or has contravened a condition set out in Part 8 of Schedule 1.  The effect of the amendments proposed under this item is that the ACCC would be authorised to issue remedial directions to Telstra if Telstra is contravening, or has contravened a condition set out in proposed Part 9 of Schedule 1, which relates to the proposed functional separation of Telstra.  The reference to Part 8 of Schedule 1 in section 69A will no longer be required given that Part 8 of Schedule 1 will be repealed under this Bill (see item 44).

 

Item 34 - Section 69B

 

This item repeals section 69B. Section 69B contains provisions allowing Telstra to apply to the Tribunal seeking a review of a direction relating to operational separation given to it by the ACCC under section 69A. It is not intended to enable review by the Tribunal of the exercise of remedial directions powers in relation to functional separation. Providing for such review would be contrary to the objective of moving quickly to implement stronger organisational separation arrangements for Telstra.

 

Item 35 - After subsection 70(3)

 

This item inserts proposed subsection 70(3A) into the Tel Act.  Proposed subsection 70(3A) provides that subsection 70(1) does not apply to a condition set out in Part 9 of Schedule 1.  Subsection 70(1) of the Tel Act authorises the ACMA to issue formal warnings to carriers that have contravened a condition of their carrier licence.  The effect of proposed subsection 70(3A) is that the ACMA would not be authorised to issue a formal warning to Telstra in the event it contravened a condition set out in proposed Part 9 of Schedule 1.  The reason for this restriction is the same as that outlined in the explanatory note under item 32 above.

 

Item 36 - Paragraph 70(5)(ba)

 

This item omits “Part 8” from paragraph 70(5)(ba) and substitutes “Part 9”.  Current subsection 70(5) authorises the ACCC to issue a formal warning to a carrier that contravenes any of the carrier licence conditions listed under that subsection. 

 

The amendment proposed under this item will allow the ACCC to issue a formal warning to Telstra if it contravenes a condition set out in proposed Part 9 of Schedule 1.  The reference to Part 8 is no longer required given that Part 8 of Schedule 1 will be repealed under this Bill (see item 44).

 

Item 37 - Subsection 70(6)

 

This item repeals subsection 70(6).  That subsection states that paragraph 70(5)(ba) does not limit subsection 70(1).  However, with the proposed insertion of subsection 70(3A) (see item 35 above), it is now intended that paragraph 70(5)(ba) (when read together with proposed subsection 70(3A)) will limit subsection 70(1) so that ACMA would not be authorised to issue a formal warning to Telstra in the event it contravened a condition set out in proposed Part 9 of Schedule 1.  Therefore it is necessary to repeal subsection 70(6).

 

Item 38 - Section 104

 

Item 38 would amend section 104, which contains a simplified outline of Part 5 of the Tel Act.  An additional summary point is proposed to be included in the simplified outline to reflect the ACCC’s monitoring and reporting obligations regarding Telstra’s compliance with a final functional separation undertaking (see item 39, below)

 

Item 39 - At the end of Part 5

 

Proposed section 105B    Monitoring of compliance by Telstra with a final functional separation undertaking

 

Item 39 would insert proposed section 105B, which deals with monitoring of compliance by Telstra with a final functional separation undertaking.

 

Proposed subsection 105B(1) provides that the ACCC must monitor Telstra’s compliance with a final functional separation undertaking and report each financial year to the Minister on Telstra’s compliance.

 

Proposed subsection 105B(2) requires the ACCC to give a report under proposed subsection 105B(1) to the Minister as soon as practicable after the end of each financial year concerned.

 

Proposed subsection 105B(3) requires the Minister to table a copy of a report under proposed subsection 105B(1) in each House of Parliament within 15 sitting days of that House after receiving the report from the ACCC.

 

Item 40 - After paragraph 564(3)(b)

 

This item inserts proposed paragraph 564(3)(ba).  Under current subsection 564(3) the ACMA is not entitled to apply for an injunction in relation to a contravention of a carrier licence condition or service provider rule listed under that subsection. The proposed paragraphs adds a licence condition set out in proposed Part 9 of Schedule 1 to the list of licence conditions and service provider rules in subsection 564(3).  This means the ACMA would not be entitled to apply for an injunction in relation to a contravention of a carrier licence condition set out in proposed Part 9 of Schedule 1.

 

The reason for this restriction is that it is intended that only the ACCC (and the Minister) will have authority to take action against Telstra for breach of a condition set out in proposed Part 9 of Schedule 1, given that proposed Part 9 of Schedule 1 contains provisions to address Telstra’s level of dominance in telecommunications markets and the negative impact this has had on competition in the telecommunications industry.  It is therefore a matter for which it is appropriate for the ACCC to be given regulatory responsibility.  

 

Item 41 - Subsection 564(3) (after note 2)

 

This item adds a note to section 564 in relation to proposed paragraph 564(3)(ba) (under item 40 above) to assist the reader.

 

Item 42 - After paragraph 571(3)(b)

 

This item inserts paragraph 571(3)(ba).  Under current subsection 571(3) the ACMA is not entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of a carrier licence condition or service provider rule listed under that subsection.  The proposed paragraph adds a licence condition set out in proposed Part 9 of Schedule 1 to the list of licence conditions and service provider rules in subsection 571(3).  This means the ACMA would not be entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of a carrier licence condition set out in proposed Part 9 of Schedule 1.

 

The reason for this restriction is that it is intended that only the ACCC (and the Minister) will have authority to take action against Telstra for breach of a condition set out in proposed Part 9 of Schedule 1, given that proposed Part 9 of Schedule 1 contains provisions to address Telstra’s level of dominance in telecommunications markets and the negative impact this has had on competition in the telecommunications industry.  It is therefore a matter for which it is appropriate for the ACCC to be given regulatory responsibility.  

 

Item 43 - Subsection 571(3) (after note 2)

 

This item adds a note to section 571 in relation to proposed paragraph 564(3)(ba) (under item 42 above) to assist the reader.

 

Item 44 - Part 8 of Schedule 1

 

This item repeals Part 8 of Schedule 1 to the Tel Act, on the basis that Part 8 (which contains provisions relating to the operational separation of Telstra) will no longer be required given the new form of organisational separation that Telstra will be required to undertake when a final functional separation undertaking comes into force.

 

Trade Practices Act 1974

 

Item 45 - Division 14 of Part XIB

 

Item 45 would repeal Division 14 of Part XIB and substitute a new proposed Division 14, containing a provision (proposed section 151CP) relating to the functional separation of Telstra.

 

Proposed Division 14—Functional separation for Telstra

 

Proposed section 151CP    Functional separation for Telstra

 

Proposed subsection 151CP(1) provides that section 151CP applies if Telstra has engaged in conduct in order to comply with a final functional separation undertaking.

 

Proposed subsection 151CP(2) requires the ACCC, in performing a function, or exercising a power under proposed Part XIB to have regard to the conduct of Telstra in complying with a final functional separation undertaking to the extent that conduct is relevant.  This provision recognises the inter-relationship between Telstra’s conduct when complying with a final separation undertaking under the Tel Act and the provisions Telstra is subject to under the telecommunications industry-specific anti-competitive conduct regime and record keeping rules under Part XIB of the TPA.

 

Item 46 - After section 152EP

 

Item 46 would insert proposed section 152EPA into the TPA.  Proposed section 152EPA relates to the proposed independent telecommunications adjudicator.

 

Proposed section 152EPA    Assistance to independent telecommunications adjudicator

 

Proposed subsection 152EPA(1) provides that the independent telecommunications adjudicator is a company that is limited by guarantee and is identified in a final functional separation undertaking as the independent telecommunications adjudicator for the purpose of proposed section 152EPA.

 

Proposed subsection 152EPA(2) provides that the ACCC may assist the independent telecommunications adjudicator.

 

It is envisaged that the independent telecommunications adjudicator would be a non-statutory body created to assist with establishing the technical parameters and arrangements for access and the resolution of disputes relating to access to an access provider’s network and wholesale products and services. The body would be created in accordance with the requirements of a final functional separation undertaking.

 

Proposed subsection 152EPA(3) provides a list of types of assistance that the ACCC may provide to the independent telecommunications adjudicator.  The list is not intended to be exhaustive, but illustrative of the type of assistance the ACCC may provide in accordance with proposed section 152EPA.  It includes the making available of resources and facilities, which is intended to include accommodation, and the provision of information.

 

Item 47 - Section 152EQ

 

Item 47 would repeal section 152EQ and substitute a new proposed section 152EQ.

 

Proposed section 152EQ    Functional separation for Telstra

 

Proposed section 152EQ refers to conduct engaged in by Telstra in complying with a final functional separation undertaking and is identical to proposed subsection 152CP (discussed above), except that it is expressed to apply for the purposes of Part XIC of the TPA, rather than Part XIB of the TPA. 

 

This provision recognises the inter-relationship between Telstra’s conduct when complying with a final functional separation undertaking under the Tel Act and the provisions Telstra is subject to under the telecommunications industry anti-competitive conduct and record keeping rules under Part XIC of the TPA.

 

Proposed section 152EQ will replace the current section 152EQ, which contains similar provisions but refers to Telstra’s final operational separation plan in force under Part 8 of Schedule 1 of the Tel Act, which will cease to have effect once a final functional separation undertaking comes into force under proposed Part 9 of Schedule 1 of the Tel Act.

 

Item 48 - After subsection 155(7B)

 

Item 48 would amend section 155 by inserting proposed subsection 155(7C).

 

Proposed subsection 155(7C) provides that current subsection 155(7B) does not apply in relation to the production by Telstra of a document if the document would disclose information that is relevant to the extent to which Telstra has complied, or is complying with a final functional separation undertaking. 

 

Section 155 of the TPA deals with the powers of the ACCC to obtain information, documents and evidence.  Subsection 155(7B) exempts a person from having to produce a document to the ACCC if that document would disclose information that is subject to legal professional privilege.  The effect of proposed subsection 155(7C) is that Telstra would be obliged to produce a document to the ACCC under section 155 regardless of whether that document would disclose information that is subject to legal professional privilege, but only if the document in question would disclose information that is relevant to the extent to which Telstra has complied, or is complying with a final functional separation undertaking.  Proposed subsection 155(7C) would allow the ACCC to more closely examine issues relating to Telstra’s compliance with a final functional separation undertaking, by having greater potential access to relevant documents under section 155. The amendment is proposed as there is the potential for Telstra to delay the operation of the functional separation regime if the ACCC is unable to obtain and use documents for the purposes of monitoring and enforcing Telstra’s compliance with its final functional separation undertaking due to claimed legal professional privilege.

 

Division 3—Amendments commencing immediately after an undertaking about structural separation comes into force

 

As noted above, Division 2 of Part 1 of Schedule 1 of this Bill contains amendments to the Tel Act and the TPA that are necessary as a result of the entry into force of a functional separation undertaking under proposed Part 9 of Schedule 1 to the Tel Act, such as the repeal of Part 8 of Schedule 1 to that Act, which deals with operational separation and will no longer be required.  Given that a functional separation undertaking may not come into force if the ACCC accepts an undertaking given by Telstra under proposed section 577A of the Tel Act (relating to structural separation, see item 21), Division 3 of Part 1 of Schedule 1 of this Bill makes changes to the TPA and the Tel Act in the event that a structural separation undertaking, not a functional separation undertaking, comes into force.

 

The amendments made by Division 3 are also included in Division 2.  However, some amendments that would be made by Division 2 are only relevant in a situation where there is in force a functional separation undertaking (not a structural separation undertaking).  For this reason, not all of the amendments in Division 2 are included in Division 3.

 

Telecommunications Act 1997

 

Item 49 - Subsection 61(1)

Item 50 - Subsections 61(2), (3) and (4)

 

These items repeal subsections 61(2), (3) and (4) and make a consequential amendment to subsection 61(1).  Subsections (2), (3) and (4) deal with the Minister’s ability to declare that current Part 8 of Schedule 1 relating to operational separation ceases to have effect on a particular day.  Part 8 of Schedule 1 is repealed by item 54, therefore the subsections are no longer required.

 

Item 51 - Sections 61A, 69A and 69B

 

This item repeals sections 61A, 69A and 69B.

 

Section 61A contains provisions requiring before 1 July 2009, the Minister to cause to be conducted a review of the operation of Part 8 of Schedule 1. The Minister caused the review to be conducted on 7 April 2009 with the release of the National Broadband Network: Regulatory Reform for 21st Century Broadband discussion paper. At the time of introduction of this Bill, a report of the review is being prepared.

 

Section 69A authorises the ACCC to issue remedial directions to Telstra, if Telstra is contravening, or has contravened a condition set out in Part 8 of Schedule 1.  That section is no longer required given Part 8 of Schedule 1 will be repealed (see item 54).

 

Section 69B contains provisions allowing Telstra to apply to the Tribunal seeking a review of a direction given to it by the ACCC under section 69A.  That section is no longer required, given the repeal of section 69A.

 

Item 52 - Paragraph 70(5)(ba)

 

This item repeals paragraph 70(5)(ba), which authorises the ACCC to issue a formal warning to a carrier that contravenes a carrier licence condition set out in Part 8 of Schedule 1.  That paragraph is no longer required, given the repeal of Part 8 of Schedule 1 (see item 54).

 

Item 53 - Subsection 70(6)

 

This item repeals subsection 70(6), which is a provision regarding the operation of paragraph 70(5)(ba).  The provision is no longer required, given the amendment proposed under item 52 above.

 

Item 54 - Part 8 of Schedule 1

 

This item repeals Part 8 of Schedule 1, on the basis that this Part (which contains provisions relating to the operational separation of Telstra) will no longer be required given the new form of organisational separation that Telstra will be required to undertake when a structural separation undertaking comes into force.

 

Trade Practices Act 1974

 

Item 55 - Division 14 of Part XIB

 

This item repeals Division 14 of Part XIB.  Division 14 contains provisions relating to the operational separation of Telstra under Part 8 of Schedule 1 of the Tel Act.  Those provisions are no longer required given that Part 8 of Schedule 1 is repealed by item 54.

 

Item 56 - Section 152EQ

 

This item repeals section 152EQ.  That section contains provisions relating to the operational separation of Telstra under Part 8 of Schedule 1 of the Tel Act.  Those provisions are no longer required given that Part 8 of Schedule 1 is repealed by item 54.

 



Part 2—Telecommunications access regime

 

Part 2 of Schedule 1 of the Bill makes a number of amendments to the telecommunications access regime in Part XIC of the TPA.  Necessary consequential amendments are also made to the Tel Act and the NTN Sale Act.

 

Division 1 - Amendments

 

Division 1 of Part 2 of Schedule 1 to the Bill contains proposed amendments to the telecommunications access regime under Part XIC of the TPA, and associated amendments to other Acts. 

 

National Transmission Network Sale Act 1998

 

The National Transmission Network Sale Act 1998 (NTN Sale Act) facilitated the sale of the national transmission network and set in place a regulatory framework for the provision of national broadcasting and other transmission services after the sale.   

 

Part 3 of the NTN Sale Act applies an access regime, based on the telecommunications access regime in Part XIC of the TPA, to:

·        certain carriage services supplied by a National Transmission Company (being a company to which assets or liabilities are transferred under the provisions of the NTN Sale Act) or declared successor; and

·        the provision of access to sites and towers by a National Transmission Company or declared successor;

in favour of certain nominated customers (for example, the ABC, the SBS and Radio for the Print Handicapped).

 

Part 2 of Schedule 1 of this Bill makes a number of changes to Part XIC of the TPA, including replacing the negotiate/arbitrate model with a power for the ACCC to set up front the terms and conditions of access to declared services in access determinations.  The amendments to the structure and operation of Part XIC of the TPA by Part 2 of Schedule 1 of this Bill will not apply to the telecommunications access regime insofar as it is adopted by Part 3 of the NTN Sale Act.  The effect of items 57 and 58 is that Part XIC of the TPA as it operated before this Bill will continue to apply as the telecommunications access regime that is adopted by Part 3 of the NTN Sale Act.

 

Item 57 - Section 3 (paragraphs (a) and (b) of the definition of telecommunications access regime )

 

Item 57 of the Bill amends the definition of ‘telecommunications access regime’ in section 3 of the NTN Sale Act.  Currently that term is defined to mean Part XIC of the TPA (paragraph (a) of the definition), any other provision of the TPA that relates to Part XIC (paragraph (b)), certain sections and Parts of the Tel Act (paragraph(c)), and any other provisions that relate to those sections and Parts of the Tel Act (paragraph (d)).

 

Item 57 amends paragraphs (a) and (b) of this definition to provide that the reference to Part XIC of the TPA in the definition of the term ‘telecommunications access regime’ means Part XIC of the TPA as in force immediately before the commencement of Part 2 of Schedule 1 of this Bill.

 

Item 58 - At the end of section 16

 

Section 16 of the NTN Sale Act provides that certain provisions of the TPA do not apply to the telecommunications access regime in Part 3 of that Act.  Item 58 amends section 16 to provide that a reference to the TPA in that section is a reference to that Act as in force immediately before the commencement of Part 2 of Schedule 2 of this Bill.

 

Telecommunications Act 1997

 

Item 59 - After section 62

 

Included in the proposed amendments made by Part 2 of Schedule 1 of this Bill to Part XIC of the TPA are additional carrier licence conditions and service provider rules, which are specific to the telecommunications access regime and are therefore to be located in Part XIC of the TPA.

 

Items 59 through to item 70 contain proposed consequential amendments to the Tel Act to accommodate the additional carrier licence conditions and service provider rules that are proposed to be inserted into Part XIC of the TPA.

 

Item 59 inserts proposed sections 62A, 62B and 62C into the Tel Act. 

 

Proposed section 62A    Condition of carrier licence set out in section 152BCO of the Trade Practices Act 1974

Proposed section 62B    Condition of carrier licence set out in section 152BDF of the Trade Practices Act 1974

Proposed section 62C    Condition of carrier licence set out in section 152BEC of the Trade Practices Act 1974

 

Proposed sections 62A, 62B and 62C of the Tel Act provide that a carrier licence is subject to the conditions set out in proposed sections 152BCO, 152BDF and 152BEC of the TPA, respectively.   These provisions are inserted as part of the proposed Division 4 of Part XIC of the TPA that is inserted by item 116.

 

Proposed sections 152BCO and 152BDF of the TPA set out carrier licence conditions requiring a carrier to comply with any access determinations applicable to it, and any binding rules of conduct applicable to it.  Proposed section 152BEC sets out carrier licence conditions requiring a carrier to comply with proposed sections 152BEA and 152BEB of the TPA which relate to the lodgment of access agreements with the ACCC and the notification to the ACCC of the termination of access agreements .

 

The effect of proposed sections 62A and 62B of the Tel Act, together with proposed sections 152CO and 152BDF of the TPA, is that a carrier must comply with an access determination and with binding rules of conduct, and that failure to do so would render the carrier subject to the enforcement provisions in the Tel Act relating to breach of carrier licence conditions.  Equally, the effect of proposed section 62C of the Tel Act is that failure by a carrier to comply with proposed sections 152BEA and 152BEB would render the carrier subject to those enforcement provisions.

 

Item 60 - After subsection 69(7)

 

Item 60 inserts proposed subsections 69(7A), (7B) and (7C) into the Tel Act.  The effect of these new provisions is that subsection 69(1) does not apply to the carrier licence conditions set out in proposed section 152BCO, 152BDF or 152BEC of the TPA.  Subsection 69(1) of the Tel Act and related provisions under section 69 authorise the ACMA to issue a remedial direction to a carrier that is contravening, or has contravened, a condition of its carrier licence.  The effect of proposed subsections 69(7A), (7B) and (7C) is that the ACMA would not be authorised to issue a remedial direction to a carrier that is contravening or has contravened a licence condition under proposed sections 152BCO, 152BDF or 152BEC of the TPA.  The reason for this restriction is that it is intended that only the ACCC and the Minister will have authority to take action against a carrier for breach of a licence condition under proposed sections 152BCO, 152BDF or 152BEC of the TPA.  The identified licence conditions are specific to the telecommunications access regime under Part XIC of the TPA, for which the ACCC has regulatory responsibility.  It is therefore appropriate that the ACCC, and not the ACMA, will have powers to take action against carriers for breach of those licence conditions.

 

Item 61 - After subsection 70(4)

 

Item 61 inserts proposed subsections 70(4A), (4B) and (4C) into the Tel Act.  The effect of these provisions is that subsection 70(1) does not apply to the conditions set out in proposed sections 152BCO, 152BDF and 152BEC of the TPA.  Subsection 70(1) of the Tel Act authorises the ACMA to issue formal warnings to carriers that contravene a condition of their carrier licence.  The effect of proposed subsections 70(4A), (4B) and (4C) is that the ACMA would not be authorised to issue a formal warning to a carrier that has contravened a carrier licence condition set out in proposed sections 152BCO, 152BDF or 152BEC of the TPA.  The reason for this restriction is the same as that outlined in the explanatory note under item 60 above.

 

Item 62 - At the end of subsection 70(5)

 

This item inserts proposed paragraphs 70(5)(d), (e) and (f).  The proposed paragraphs have the effect of adding the conditions set out in proposed sections 152BCO, 152BDF and 152BEC as licence conditions for which the ACCC may issue formal warnings to a carrier under subsection 70(5), where that carrier contravenes a licence condition.  As the conditions to be included by proposed sections 152BCO, 152BDF and 152BEC are specific to the telecommunications access regime under section Part XIC of the TPA, it is appropriate that the ACCC be given a formal warning power under subsection 70(5) in relation to those licence conditions.

 

Item 63 - At the end of section 98

 

This item inserts proposed subsections 98(3), (4) and (5) into the Tel Act.  The proposed subsections indicate that the rules set out in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA are to be included as service provider rules for the purposes of the Tel Act and its regulations.  Proposed sections 152BCP, 152BDG and 152BED are inserted into proposed Division 4 of Part XIC of the TPA by item 116.  The rules in these proposed provisions mirror the conditions set out in proposed sections 152BCO, 152BDF and 152BEC of the TPA.  They require service providers to comply with access determinations and binding rules of conduct that are applicable, and require service providers to comply with proposed sections 152BEA and 152BEB of the TPA which relate to the lodgment of access agreements with the ACCC and the notification to the ACCC of the termination of access agreements.

 

Under subsection 101(1) of the Tel Act a service provider must comply with all service provider rules that apply to that service provider.  Subsection 101(1) is also a civil penalty provision.  Proposed subsections 98(3), (4) and (5) have the effect of making the rules set out in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA subject to the civil penalty provisions under the Tel Act and other provisions under the Tel Act dealing with service provider rules, including provisions relating to enforcement.

 

Item 64 - After subsection 102(6)

 

This item inserts proposed subsections 102(6A), (6B) and (6C) into the Tel Act.  These provisions indicate that subsection 102(1) does not apply to the rules set out in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA.  Subsection 102(1) of the Tel Act and related provisions under section 102 authorise the ACMA to issue a remedial direction to a service provider that is contravening, or has contravened, a service provider rule.  The effect of proposed subsections 102(7A), (7B) and (7C) is that the ACMA would not be authorised to issue a remedial direction to a service provider that is contravening or has contravened a service provider rule under proposed subsections 152BCP(2), 152BDG(2) or 152BED(2) of the TPA.  The reason for this restriction is that it is intended that only the ACCC and the Minister will have authority to take action against a service provider for breach of a service provider rule under proposed subsections 152BCP(2), 152BDG(2) or 152BED(2) of the TPA.  The identified service provider rules are specific to the telecommunications access regime under Part XIC of the TPA, for which the ACCC has regulatory responsibility.  It is therefore appropriate that only the ACCC will have powers to take action against service providers for breach of those service provider rules.

 

Item 65 - After subsection 103(3)

 

This item inserts proposed subsections 103(3A), (3B) and (3C) into the Tel Act.  These provisions indicate that subsection 103(1) does not apply to the rules set out in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA.  Subsection 103(1) of the Tel Act authorises the ACMA to issue a formal warning to a person that breaches a service provider rule.  The effect of proposed subsections 103(3A), (3B) and (3C) is that the ACMA would not be authorised to issue a formal warning to a person that breaches a service provider rule set out in proposed subsections 152BCP(2), 152BDG(2) or 152BED(2) of the TPA.  The reason for this restriction is the same as that outlined in the explanatory note under item 64 above.

 

Item 66 - After subsection 103(4)

 

This item inserts proposed subsections 103(4A), (4B) and (4C) into the Tel Act.  The proposed subsections have the effect of adding the rules set out in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) as service provider rules for which the ACCC may issue a formal warning to a service provider under section 103, where that service provider has contravened a service provider rule.  As the rules set out under proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) are specific to the telecommunications access regime under section Part XIC of the TPA, it is appropriate that the ACCC be given a formal warning power under subsections 103(4A), (4B) and (4C) in relation to those service provider rules.

 

Item 67 - At the end of subsection 564(3) (before the notes)

 

This item inserts proposed paragraphs 564(3)(f), (g), (h), (i), (j) and (k).  Section 564 of the Tel Act permits the Minister, the ACMA or the ACCC to apply to the Federal Court for an injunction concerning a person’s contravention of the Tel Act.  Under current subsection 564(3) the ACMA is not entitled to apply for an injunction in relation to a contravention of certain carrier licence conditions and service provider rules that are listed under that subsection.  The proposed paragraphs add the licence conditions in sections 152BCO, 152BDF and 152BEC of the TPA and the service provider rules in subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA to the list of licence conditions and service provider rules in subsection 564(3).  This means the ACMA would not be entitled to apply for an injunction in relation to a contravention of a carrier licence condition in proposed sections 152BCO, 152BDF or 152BEC of the TPA or a service provider rule in proposed subsections 152BCP(2), 152BDG(2) or 152BED(2) of the TPA.  The Minister and the ACCC would, however, be entitled to apply for an injunction in relation to a contravention of these carrier licence conditions and service provider rules.  The reason for this restriction is outlined in the explanatory notes under items 60 and 64 above.

 

Item 68 - At the end of subsection 564(3) (after the notes)

 

This item adds notes to section 564 in relation to proposed paragraphs 564(3)(f), (g), (h), (i), (j) and (k) (under item 67 above) to assist the reader.

 

Item 69 - At the end of subsection 571(3) (before the notes)

 

This item inserts paragraphs 571(3)(f), (g), (h), (i), (j) and (k).  Section 571 of the Tel Act permits the Minister, the ACMA or the ACCC to institute proceedings in the Federal Court for the recovery on behalf of the Commonwealth of a pecuniary penalty for breach of a civil penalty provision.  Under current subsection 571(3) the ACMA is not entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of a carrier licence condition or service provider rule listed under that subsection.  The proposed paragraphs add the licence conditions in proposed sections 152BCO, 152BDF and 152BEC of the TPA and the service provider rules in proposed subsections 152BCP(2), 152BDG(2) and 152BED(2) of the TPA to the list of licence conditions and service provider rules in subsection 571(3).  This means the ACMA would not be entitled to institute a proceeding for recovery of a pecuniary penalty in relation to a contravention of a carrier licence condition in proposed sections 152BCO, 152BDF or 152BEC of the TPA or a service provider rule in proposed subsections 152BCP(2), 152BDG(2) or 152BED(2) of the TPA.  The reason for this restriction is outlined in the explanatory notes under items 60 and 64 above.

 

Item 70 - At the end of subsection 571(3) (after the notes)

 

This item adds notes to section 571 in relation to proposed paragraphs 571(3)(f), (g), (h), (i), (j) and (k) (under item 69 above) to assist the reader.

 

Trade Practices Act 1974

 

Item 71 - Section 152AA

 

Item 71 amends the outline of Part XIC of the TPA at section 152AA to take account of the changes to that Part made by the items that follow.

 

Item 72 - Section 152AC

 

Item 72 includes in section 152AC of the TPA a reference to ‘access agreement’, which is a term defined in proposed section 152BE (see item 116).

 

Item 73 - Section 152AC

 

Item 73 includes in section 152AC of the TPA a definition of the term ‘access determination’.  An access determination is a determination made under proposed section 152BC, inserted as part of proposed Division 4 of Part XIC (see item 116).

 

Item 74 - Section 152AC (definition of access undertaking )

 

Item 74 amends the definition of ‘access undertaking’ in section 152AC of the TPA to remove reference to an ordinary access undertaking.  As a result of the amendments made to Part XIC of the TPA by this Bill, ordinary access undertakings will no longer be a part of the telecommunications access regime.  Only special access undertakings will be available.

 

Item 75 - Section 152AC

 

Item 75 inserts in section 152AC of the TPA a definition of ‘binding rules of conduct’, and provides that this term refers to rules made under proposed subsection 152BD(1), inserted as part of proposed Division 4A of Part XIC (see item 116).

 

Item 76 - Section 152AC

 

Item 76 inserts into section 152AC of the TPA a definition of the term ‘final access determination’, and provides that this term refers to an access determination other than an ‘interim access determination’ (the definition of this term is also included in section 152AC by this Bill - see item 78).

 



Item 77 - Section 152AC

 

Item 77 includes in section 152AC of the TPA a definition of the term ‘fixed principles provision’, which is a term defined in proposed section 152BCD, inserted as part of proposed Division 4 of Part XIC (see item 116).

 

Item 78 - Section 152AC

 

Item 78 inserts into section 152AC of the TPA a definition of the term ‘interim access determination’, and provides that this term refers to an access determination that is expressed to be an interim access determination.  The requirement for interim access determinations is set out in proposed section 152BCG.

 

Item 79 - Section 152AC (definition of ordinary access undertaking )

 

Item 79 repeals the definition of ‘ordinary access undertaking’.  Ordinary access undertakings are dealt with in the current Subdivision A of Division 5 of Part XIC, which is repealed by item 117.

 

Item 80 - Section 152AC (definition of telecommunications access code )

 

Item 80 repeals the definition of ‘telecommunications access code’.  Telecommunications access codes are dealt with in the current Division 4 of Part XIC.  As a result of the amendment made by item 116, current Division 4 of Part XIC is repealed and replaced. 

 

Item 81 - Section 152AC

 

Item 81 inserts a definition of ‘variation agreement’ into section 152AC.  This term has the meaning given to it by proposed subsection 152BE(3).

 

Item 82 - At the end of section 152AF

 

Item 82 inserts new subsections 152AF(3) and (4).  Section 152AF deals with ‘access’, and provides (at subsection 152AF(2)) that anything done by a carrier or a CSP in fulfilment of a standard access obligation is taken to be an aspect of access to a declared service.

 

Proposed subsections 152AF(3) and (4) provide that anything done by a carrier or CSP in fulfilment of a requirement that is imposed on the carrier or CSP by an access determination or by binding rules of conduct is taken to be an aspect of access to a declared service.

 

Item 83 - After section 152AH

 

Item 83 inserts proposed section 152AI into Part XIC of the TPA.

 

Proposed section 152AI    When public inquiry commences

 

Proposed section 152AI clarifies, for the purposes of Part XIC, when a public inquiry held by the ACCC under Part 25 of the Tel Act commences.  This provision is necessary as, under the amendments made to Part XIC by this Bill, the ACCC is subject to certain timeframes that apply from the commencement of a public inquiry.  For example, under proposed section 152BCG, the ACCC must make an interim access determination if it is unlikely that the final access determination in relation to a newly declared service will be in place six months after the commencement of the public inquiry relating to the making of the access determination.

 

Item 84 - Subsection 152ALA(2)

 

Item 84 repeals current subsection 152ALA(2) and replaces it with proposed subsection 152ALA(2) .  Currently, subsection 152ALA(2) provides that an access declaration made by the ACCC under section 152AL must specify an expiry date that occurs within the five-year period beginning when the access declaration was made.  The effect of proposed subsection 152ALA(2) is to allow an access declaration to specify an expiry date that is more than five years after the declaration was made.  However, the proposed subsection also provides that in specifying an expiry date, the ACCC is to have regard to the principle that an access declaration should be between three and five years, unless the ACCC considers that there are circumstances that warrant making an access declaration with a duration shorter than three years or longer than five years.  The ACCC may also have regard to other matters it considers relevant in specifying an expiry date.

 

This amendment is intended to enable the ACCC to provide longer-term regulatory certainty, where appropriate, to promote competition and investment.

 

Item 85 - After subsection 152ALA(6)

 

Item 85 inserts proposed subsection 152ALA(6A).  Subsection 152ALA(6) clarifies that, if an access declaration made by the ACCC under section 152AL expires, the ACCC is not prevented from making a fresh declaration under section 152AL in the same terms as the expired determination.  The effect of proposed subsection 152ALA(6A) is that the fresh declaration is taken to ‘replace’ the expired declaration.  The concept of a fresh declaration replacing an expired declaration is relevant in determining the duration of an access determination (see proposed subsection 152BCF(3)), and is also relevant to the automatic revocation of an access determination (see proposed subsections 152BCF(7) and (8)).

 

Item 86 - Paragraph 152ALA(7)(a)

 

Item 86 amends paragraph 152ALA(7)(a).  Currently paragraph 152ALA(7)(a) requires the ACCC, within the 12-month period ending on the expiry of a declaration, to hold a public inquiry under Part 25 of the Tel Act about whether to extend, further extend, revoke or vary a declaration.  The amendment made to paragraph 152ALA(7)(a) would extend the time period for holding this inquiry, so that the ACCC must hold it within the 18-month period ending on the expiry of a declaration.  This would make the period for holding the inquiry consistent with the 18-month period during which the ACCC is required to hold a public inquiry into making an access determination (see proposed subsection 152BCI(3)).

 

Item 87 - After subparagraph 152ALA(7)(a)(v)

 

Item 87 makes a further amendment to paragraph 152ALA(7)(a) by inserting proposed subparagraph 152ALA(7)(a)(vi), the effect of which is that, after holding a public inquiry, the ACCC can make a decision to extend (or further extend) the expiry date of a declaration by 12 months or less and allow the declaration to expire.  Where the ACCC decides that a service should no longer be declared, this provision will enable it to extend the declaration for a short time to enable access seekers to transition to other services, and removes the need for an additional inquiry prior to the extended expiry date.

 

Item 88 - Subsection 152AM(3)

 

Item 88 repeals current subsection 152AM(3) and replaces it with proposed subsection 152AM(3).  Section 152AM applies to public inquiries that the ACCC holds about declaring services (under paragraph 152AL(3)(a)) or about the extension, variation, revocation, or expiry of a declaration (under paragraph 152ALA(7)(a)).  Subsection 152AM(2) provides that the ACCC may hold an inquiry on its own initiative, or if requested in writing to do so by any person.  Subsection 152AM(3) currently requires the ACCC, if it decides not to hold an inquiry after a person has requested it to do so, to notify the person in writing of its decision and its reasons for the decision.  Item 79 repeals and replaces subsection 152AM(3).  Proposed subsection 152CM(3) provides that the ACCC does not have a duty to consider whether to hold an inquiry about a proposal to declare a service under paragraph 152AL(3)(a) if it is requested to do so by a person.  This amendment is intended to streamline the operation of sections 152AL and 152ALA, by removing the requirements for the ACCC to consider each request that it receives to hold an inquiry and to provide reasons if it decides not to proceed with an inquiry.

 

Item 89 - Subsection 152AQ(3)

Item 90 - Subsections 152AQ(4), (5) and (6)

 

Section 152AQ requires the ACCC to keep a Register of declarations made under section 152AL.  Item 90 repeals subsections 152AQ(4), (5) and (6), which provide for the inspection and copying of the Register, and replaces them with proposed subsection 152AQ(4), which provides that the Register is to be made available for inspection on the ACCC website, and proposed subsection 152AQ(5), which clarifies that the Register is not a legislative instrument.  Item 89 makes a related change to subsection 152AQ(3), with the effect that the ACCC is required to (rather than permitted to) maintain the Register by electronic means.

 

Item 91 - Sections 152AQA and 152AQB

 

Section 152AQA requires the ACCC to determine in writing principles that relate to the price of access to a declared service (‘pricing principles’).  Section 152AQB requires the ACCC to make a determination setting out model terms and conditions for certain specified declared services.  The ACCC is required to have regard to both relevant pricing principles and model terms and conditions if it is required to arbitrate an access dispute under Division 8 of Part XIC.  As Division 8 of Part XIC is being repealed by this Bill, item 91 makes a consequential amendment to repeal both sections 152AQA and 152AQB.

 

Item 92 - Subsection 152AR(12) (definition of pre-request right )

 

Item 92 makes a change to the definition of ‘pre-request right’ at subsection 152AR(12) that is necessary as a consequence of the repeal of Division 8 of Part XIC by item 136 below.

 

Item 93 - Section 152AS

 

One of the reforms to Part XIC implemented by this Bill is to change the system of exemptions from the standard access obligations.  As a result of the changes made to Part XIC by this Bill ordinary exemptions from the standard access obligations will no longer be available.  An ordinary exemption is an exemption that applies in relation to a service that is a declared service at the time the exemption determination is made by the ACCC.  Following the reforms made by this Bill, the ACCC will only be able to issue anticipatory exemptions.  An anticipatory exemption is an exemption that applies to a service that is not a declared service at the time the exemption determination is made.  An anticipatory exemption provides that, in the event the service in question is declared by the ACCC under section 152AL, a particular carrier/CSP (under section 152ATA) or members of a class of carriers/CSPs (section 152ASA) are exempt from the requirements to comply with the standard access obligations in relation to the declared service.

 

Item 93 repeals section 152AS, which provides for ordinary class exemptions from the standard access obligations in section 152AR.  The need for ordinary class exemptions is removed because the ACCC will be able to include provisions in an access determination which remove or limit the obligation of carriers or CSPs to comply with some or all of the standard access obligations (see proposed paragraph 152BC(3)(h)).

 

Item 94 - After subsection 152ASA(1)

 

Item 94 clarifies the intended operation of section 152ASA (which provides for anticipatory class exemptions from the standard access obligations), and clarifies the effect of the repeal of section 152AS, by including proposed subsection 152ASA(1A), which states that a service must not be specified in an anticipatory class exemption determination if, at the time the determination is made, the service is a declared service.

 

Item 95 - After subsection 152ASA(2)

 

Item 95 provides that an anticipatory class exemption may include a provision (an “entrenching provision”) stating either that the exemption must not be varied or revoked (proposed paragraphs 152ASA(2A)(a) and 152ASA(2B)(a)) or that the exemption must not be varied or revoked except in certain specified circumstances (proposed paragraphs 152ASA(2A)(b) and 152ASA(2B)(b)).  

 

An entrenching provision in an anticipatory class exemption may itself not be varied or removed, and nor may the anticipatory class exemption be varied in a manner that is inconsistent with an entrenching provision: proposed subsections 152ASA(11B) and (11C).

 

An entrenching provision will enable anticipatory class exemptions to afford a higher degree of regulatory certainty to the exempted carriers or CSPs.

 

Item 96 - Subsection 152ASA(8)

 

Item 96 makes a consequential amendment to subsection 152ASA(8), necessary as a result of the repeal of section 152AS by item 93.

 

Item 97 - After subsection 152ASA(11)

 

Item 97 inserts proposed subsections 152ASA(11A), (11B) and (11C).  The effect of these provisions is to alter the operation of subsection 33(3) of the AIA as it relates to the ACCC’s power to vary or revoke orders concerning anticipatory class exemptions.  The effect of subsection 33(3) of the AIA is altered to give effect to the amendments made by item 84AA, which provide that the ACCC may choose to nominate certain provisions of an anticipatory class exemption as entrenching provisions.

 

Item 98 - Subsection 152ASA(12)

 

Item 98 revokes subsection 152ASA(12), which provides that an anticipatory class exemption instrument is a disallowable instrument for the purposes of the LIA, and replaces it with a provision stating that such an instrument is not a legislative instrument for the purposes of the LIA.

 

Under the LIA, legislative instruments are subject to Parliamentary disallowance which would not be appropriate for instruments made under Part XIC.  Where the ACCC uses a number of inter-related instruments to deal with a matter, disallowance of one instrument could result in inconsistent and undesirable regulatory outcomes.  The Bill provides for consultation and termination of the instruments (other key features of the LIA).

 

Item 99 - Subsection 152ASA(13) (note)

 

Item 99 repeals the note at subsection 152ASA(13).  It is no longer necessary as a result of the amendment made by item 97.

 

Item 100 - Section 152AT

 

Item 100 repeals section 152AT, which provides for ordinary individual exemptions from the standard access obligations at section 152AR.  The consequences of, and reasons for, the repeal of ordinary exemptions are discussed above at item 93.

 

Item 101 - After subsection 152ATA(3)

 

Item 101 clarifies the intended operation of section 152ATA (which provides for anticipatory individual exemptions from the standard access obligations), and clarifies the effect of the repeal of section 152AT, by including proposed subsection 152ATA(3A), which states that a service must not be specified in an anticipatory individual exemption order if, at the time the order is made, the service is a declared service.

 

Item 102 - After subsection 152ATA(4)

 

Item 102 provides that an anticipatory individual exemption may include a provision (an “entrenching provision”) stating that either that the exemption must not be varied or revoked (proposed paragraphs 152ATA(4A)(a) and 152ATA(4B)(a)) or that the exemption must not be varied or revoked except in certain specified circumstances (proposed paragraphs 152ATA(4A)(b) and 152ATA(4B(b)).  

 

An entrenching provision in an anticipatory individual exemption may itself not be varied or removed, and nor may the anticipatory individual exemption be varied in a manner that is inconsistent with an entrenching provision: proposed subsections 152ATA(16B) and (16C).

 

An entrenching provision will enable anticipatory individual exemptions to afford a higher degree of regulatory certainty to the exempted carriers or CSPs.

 

Item 103 - After subsection 152ATA(6)

 

Item 103 inserts proposed subsection 152ATA(7), which provides a mechanism for the ACCC to refuse to consider serial anticipatory individual exemptions.  Where the ACCC rejects one application for an anticipatory individual exemption by a person, and the person subsequently makes another application for an anticipatory individual exemption, and the first application and the later application are materially similar, or the grounds on which the person made the first application are materially similar to the grounds on which the person made the later application, then the ACCC can refuse to consider the later application.  This provision is intended to ensure that the ACCC does not have to devote time and resources to reconsidering an application for an anticipatory individual exemption that is likely to be rejected.

 

Item 104 - Subsection 152ATA(10)

 

Item 104 makes a consequential amendment to subsection 152ATA(10), necessary as a result of the repeal of section 152AT by item 100.

 

Item 105 - After subsection 152ATA(16)

 

Item 105 inserts proposed subsections 152ATA(16A), (16B) and (16C).  The effect of these provisions is to alter the operation of subsection 33(3) of the AIA as it relates to the ACCC’s power to vary or revoke orders concerning anticipatory individual exemptions.  The effect of subsection 33(3) of the AIA is altered to give effect to the amendments made by item 102, which provide that the ACCC may choose to nominate certain provisions of an anticipatory individual exemption as entrenching provisions.

 

Item 106 - Subsection 152ATA(18) note

 

Item 106 repeals the note at subsection 152ATA(18).  It is no longer necessary as a result of the amendment made by item 105.

 

Item 107 - Subsection 152AU(1)

 

Item 107 makes a consequential amendment to subsection 152AU(1), necessary as a result of the repeal of section 152AT by item 100.

 

Item 108 - Sections 152AV to 152AX

 

Item 108 provides for the repeal of sections 152AV, 152AW and 152AX.  These sections deal with the review by the Australian Competition Tribunal of ACCC decisions relating to ordinary and anticipatory individual exemptions.  Ordinary individual exemptions will no longer be available after the amendments made by this Bill: see item 100.  The effect of item 108 is therefore to remove merits review in the Australian Competition Tribunal of ACCC decisions relating to anticipatory individual exemptions.

 

Merits review of ACCC decisions under the TPA can contribute to delays and regulatory uncertainty.  This is problematic in the telecommunications sector which is characterised by rapid technological advances and changing market conditions.  The ACCC’s decisions are subject to judicial review by the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 .

 

Item 109 - Subsection 152AXA(1)

Item 110 - Paragraph 152AXA(1)(a)

Item 111 - Subsection 152AXA(2)

 

Items 109, 110 and 111 make consequential changes to section 152AXA, which are necessary as a result of the repeal of section 152AT by item 100 and the repeal of provisions allowing merits review for anticipatory individual exemptions by item 108.

 

Item 112 - Section 152AY

 

As a result of amendments made elsewhere in Part 2 of Schedule 1 of this Bill, item 112 repeals and replaces section 152AY, which sets out the terms and conditions on which a carrier/CSP must comply with the standard access obligations.

 

Under the proposed amendments to Part XIC made by this Bill, the terms and conditions on which a carrier/CSP must comply with the standard access obligations may be dealt with in different documents that exist at the same time.  The proposed section 152AY establishes a hierarchy between those documents for identifying the terms and conditions on which a carrier/CSP must comply with the standard access obligations.

 

The effect of proposed section 152AY is that those terms and conditions are identified by answering a number of questions:

-           Is there in place an access agreement between the carrier/CSP and an access seeker that specifies terms and conditions relating to a particular matter ?

o    If so, then the terms and conditions relating to that matter are as set out in the access agreement.

o    If not, then…

-           …is there a special access undertaking given by the carrier/CSP that is in force and that specifies terms and conditions relating to that matter?

o    If so, then the terms and conditions are as set out in the undertaking.

o    If not, then…

-           …are there binding rules of conduct that specify terms and conditions relating to that matter?

o    If so, then the terms and conditions relating to that matter are as set out in the binding rules of conduct.

o    If not, then…

-           …is there an access determination that specifies terms and conditions relating to that matter?

o    If so, then the terms and conditions relating to that matter are as set out in the access determination.

o    If not, then the terms and conditions relating to that matter will need to be dealt with using one of the three methods above. 

 

This means that where terms and conditions relating to a matter are not currently covered by an access agreement, a special access undertaking, binding rules of conduct or an access determination, those terms and conditions will need to be addressed using one of those mechanisms.  For example, in this circumstance the parties to an access agreement could vary their access agreement to take account of the matter and include additional terms and conditions.  Or, the ACCC could include terms and conditions relating to the matter in new binding rules of conduct or a new or varied access determination.

 

The provisions in proposed Division 4A relating to binding rules of conduct are intended to allow the ACCC to make urgent and temporary arrangements to deal with terms and conditions of access to declared services: this may include dealing with the situation where the terms and conditions on which a carrier/CSP must comply with the standard access obligations are not currently specified elsewhere.

 

Three notes are included at the end of proposed section 152AY.

 

The first note alerts the reader that, before considering the hierarchy that is set out at proposed subsection 152AY(2) and is described above, it is necessary to consider certain listed provisions of Part XIC that are inserted by this Bill, and that specify how inconsistency is to be addressed.  For example, proposed section 152CBIC provides that an access agreement will prevail over a special access undertaking, to the extent of any inconsistency in the terms and conditions set out in them.  So if an access agreement between a carrier/CSP and an access seeker and a special access undertaking given by that carrier/CSP both provide terms and conditions dealing with a particular matter, in considering the application of the hierarchy at proposed section 152AY in such a circumstance, in effect the special access undertaking is taken not to address the matter: it has no effect to the extent of the inconsistency.

 

The second note highlights that although, under the hierarchy described above, binding rules of conduct take precedence over an access determination, it is expected that the ACCC will only make binding rules of conduct on an occasional basis.  As noted above, binding rules of conduct are intended to deal with urgent matters.  They have a maximum duration of 12 months.  It is expected that access determinations will be the usual way that the ACCC specifies up-front terms and conditions of access, including terms and conditions for complying with the standard access obligations.

 

The third note indicates that transitional provisions are included in Division 2 of Schedule 1 of this Bill.  Specifically, item 155 of the Bill deals with the hierarchy that is to apply in the transition from the operation of the current Part XIC, including provisions for the ACCC to make arbitration determinations, to the operation of Part XIC as amended by this Bill.

 

Item 113 - Paragraph 152BBAA(1)(a)

Item 114 - Paragraph 152BBAA(1)(b)

 

Items 113 and 114 make consequential amendments, necessary as a result of the repeal of sections 152AS and 152AT by items 93 and 100.

 

Item 115 - Subsection 152BBC(5)

 

Item 115 makes a consequential amendment to section 152BBC, necessary as a result of the repeal of Division 8 of Part XIC by item 136.  It repeals subsection 152BBC(5), which refers to arbitrations of access disputes under Division 8.

 

Item 116 - Division 4 of Part XIC

 

Current Division 4 of Part XIC deals with telecommunications access codes.  Item 116 repeals current Division 4 and replaces it with:

-           proposed Division 4, which deals with access determinations;

-           proposed Division 4A, which deals with binding rules of conduct; and

-           proposed Division 4B, which deals with access agreements.

 

Telecommunications access codes specify model terms and conditions of access that can be adopted by an ordinary access undertaking.  As it is proposed to abolish ordinary access undertakings (see item 117), there is no longer a need for telecommunications access codes.

 

Proposed Division 4—Access determinations

 

A key reform made by this Bill to Part XIC is the removal of the ACCC’s role in arbitrating access disputes between access providers and access seekers, and the introduction of a power for the ACCC to set up front the terms and conditions of access to declared services to apply to all access providers and all access seekers. 

 

Proposed Division 4 contains provisions that:

-           enable the ACCC to make access determinations setting out the terms and conditions of access for declared services;

-           specify particular requirements and limitations relating to the content of access determinations;

-           set out the process the ACCC is required to follow in making access determinations; and

-           deal with the variation, revocation and enforcement of access determinations.

 

Proposed Subdivision A—Commission may make access determinations

 

Proposed Subdivision A of proposed Division 4 of Part XIC includes provisions dealing with the ACCC’s power to make access determinations.

 

Proposed section 152BC    Access determinations

 

Proposed section 152BC provides that the ACCC may make written determinations relating to access to a declared service, to be known as access determinations. 

 

A list of matters that may be included in access determinations is set out at proposed subsection 152BC(3), and is based on the list of matters that can be dealt with under an arbitration determination made by the ACCC (which are set out at subsection 152CP(2)).  (Note that subsection 152CP(2) (and the rest of Division 8 of Part XIC) is being repealed by item 136.)   Access determinations may specify the terms and conditions on which a carrier/CSP is to comply with any of the standard access obligations that apply to that carrier/CSP (see also proposed section 152AY).

 

Notably, an access determination can impose other requirements relating to access to a declared service on a carrier/CSP, in addition to the standard access obligations, and can specify the terms and conditions on which the carrier/CSP is to meet those other requirements.  An access determination can restrict or limit the application of one or more of the standard access obligations to a carrier/CSP.

 

The list of matters at proposed subsection 152BC(3) does not limit the matters that may be included in an access determination (see proposed subsection 152BC(4)).

 

The terms and conditions that are specified in an access determination must include terms and conditions relating to price or a method of ascertaining price, which provides the ACCC with flexibility in how it addresses pricing issues (proposed subsection 152BC(8)). 

 

While the intention is that access determinations will include provisions that apply to all carriers/CSPs and access seekers, it is recognised that there may be instances where the ACCC needs to craft particular provisions that apply specifically to particular carriers/CSPs or access seekers, or to classes of carriers/CSPs or access seekers.  For this reason, proposed subsection 152BC(5) provides that an access determination may make different provision with respect to different carriers/CSPs, or different access seekers, or different classes of carriers/CSPs or access seekers.  Proposed subsection 152BC(6) clarifies that proposed subsection 152BC(5) does not, by implication, affect the operation of subsection 33(3A) of the AIA, which provides that, where legislation confers a power to make an instrument with respect to particular matters, the power includes a power to make the instrument with respect to only some of those matters or a class or classes of those matters, and to make different provision with respect to different matters or different classes of matters.

 

An access determination may provide for the ACCC to perform functions or exercise powers (proposed subsection 152BC(7)).  This enables an access determination, for example, to specify that particular complex or changing matters can be determined or approved by the ACCC at intervals during the duration of the access determination.  An access determination might set an up-front regulatory asset base and provide that any additions to the regulatory asset base during the period of the determination must be approved by the ACCC.

 

Proposed subsection 152BC(9) provides that access determinations are not legislative instruments. 

 

Proposed section 152BCA    Matters that the Commission must take into account

 

Proposed subsection 152BCA(1) sets out a list of matters that the ACCC must take into account when making an access determination.  The list of matters is based on subsection 152CR(1) of the TPA, which sets out the matters that the ACCC must take into account when making a final determination in an access dispute.  Section 152CR (and the rest of Division 8) is being repealed by this Bill (see item 136).

 

The effect of proposed subsection 152BCA(2) is that, in making an access determination in relation to a particular service that is provided by a carrier or CSP, the ACCC can take into account relevant aspects of other eligible services (as that term is defined in section 152AL) that are supplied by that carrier or CSP.  Proposed subsection 152BCA(2) is intended to ensure that, in making an access determination that applies to carriers or CSPs, the ACCC is not limited to considering the particular declared service that the access determination relates to in isolation, but is able to consider it in the context of the other relevant services which the carrier or CSP provides.  For instance, when specifying the access price for a declared service which is supplied by an access provider over a particular network or facility, the ACCC can take into account not only the access provider’s costs and revenues associated with the declared service, but also the costs and revenues associated with other services supplied over that network or facility.

 

Proposed subsection 152BCA(3) clarifies that, in making an access determination, the ACCC may take into account other matters that it thinks are relevant.

 

The requirements in proposed section 152BCA do not apply to the making by the ACCC of interim determinations (see proposed subsection 152BCA(4)), which are dealt with by proposed section 152BCG.

 

Proposed section 152BCB    Restrictions on access determinations

 

Proposed section 152BCB provides certain restrictions on the ACCC’s ability to make access determinations.  The ACCC must not make an access determination that would have any of the effects listed at proposed subsection 152BCB(1).  The list of effects is based on section 152CQ which sets out a comparable limitation on the ACCC’s ability to make arbitration determinations.  Proposed subsection 152BCB(3) provides that the ACCC must not make an access determination that is inconsistent with the standard access obligations applicable to a carrier or CSP.

 

If an access determination has any of the effects in proposed subsection 152BCB(1) or (3), then the access determination does not operate to the extent that it would have those effects (proposed subsection 152BCB(5)).

 

Among the prohibited effects in proposed subsection 152BCB(1), the ACCC must not make an access determination that would have the effect of requiring a carrier or CSP to provide an access seeker with access to a declared service if there are reasonable grounds to believe that the access seeker would fail to comply with the terms of access (proposed subparagraph 152BCB(1)(g)(i)).  Proposed subsection 152BCB(2) sets out examples of grounds for holding that belief, and is based on the comparable provision that currently applies to the making of arbitration determinations (subsection 152CQ(3)).

 

Proposed subsection 152BCB(4) (modelled on current subsection 152CQ(8)) deals with the effect of an ACCC determination which deprives a person of a pre-determination right (which is not a protected contractual right) which does not infringe paragraph 152BCB(1)(b) or (d) in so far as the person will not actually need to exercise the right to meet his or her actual requirements.  Where an access determination has the effect of depriving a person of a pre-determination right in force at the time the determination came into force, the determination must also require the access seeker to:

-           pay to the person such compensation (if any) that the ACCC considers fair compensation for the loss of the contractual right; and

-           reimburse the carrier or provider and the Commonwealth for any compensation that the carrier or provider or the Commonwealth agrees or is required under court order to pay to the person as compensation for the loss of the contractual right.

 

As noted above, proposed subsection 152BCB(3) provides that the ACCC must not make an access determination that is inconsistent with the standard access obligations applicable to a carrier or CSP.  Proposed paragraphs 152BC(3)(h) and (i) enable the ACCC to limit the standard access obligations that are applicable to a carrier/CSP.

 

A ‘pre-determination right’ is defined in subsection 152BCB(6).

 

Proposed section 152BCC    Access determinations that are inconsistent with access agreements

 

Carriers/CSPs and access seekers are free to negotiate on, and agree to, terms of access to declared services.  If carriers/CSPs and access seekers settle on an agreed arrangement for access to declared services, that arrangement is called an access agreement.  Access agreements are dealt with in proposed Division 4B of Part XIC of the TPA. 

 

Proposed section 152BCC deals with the situation where an access determination is inconsistent with an access agreement between a carrier/CSP and an access seeker.  To the extent that an access determination contains terms and conditions that are applicable to a carrier/CSP and an access seeker, and that are inconsistent with terms and conditions agreed by that carrier/CSP and that access seeker in an access agreement, the terms and conditions in the access determination have no effect.  In such a circumstance, the access to declared services is governed by the agreement reached between the two parties.

 

This provision is reflected in proposed subsection 152AY, inserted by item 112, which deals with the terms and conditions on which a carrier/CSP must comply with the standard access obligations in section 152AR. 

 

Proposed section 152BCD    Fixed principles provisions

 

Proposed section 152BCD provides for ‘fixed principles provisions’.  The ACCC can include in an access determination a provision that is specified to be a fixed principles provision.  The effect of specifying that a provision is a fixed principles provision is to “lock in” the matters dealt with in that provision until a particular date (called the ‘nominal termination date’ in proposed subsection 152BCD(2)).  The nominal termination date can occur after the expiry date of the access determination in which the fixed principles provision appears.  The reason that the termination date is a ‘nominal’ termination date is that, although a fixed principles provision ceases to be in force at the same time that the access determination in which it appears (“the original access determination”) ceases to be in force (see proposed subsection 152BCD(4)), the effect of proposed subsection 152BCD(3) is that:

-           any access determination that replaces the original access determination must include a fixed principles provision in the same terms as the fixed principles provision in the original access determination; and

-           the nominal expiry date of the fixed principles provision in the replacement access determination must be the same or later than the nominal expiry date of the fixed principles provision in the original access determination.

 

For example, if a fixed principles provision is included in an access determination (“the first access determination”) that has an expiry date of 15 May 2011, and the nominal expiry date of the fixed principles provision in that access determination is 8 October 2013:

-           if the expiry date of the access determination is extended until 18 April 2012 under proposed subsection 152BCF(10)), then the fixed principles provision continues to operate until that date;

-           if the first access determination is then replaced by a new access determination, then the fixed principles provision ceases to be in force at the same time that the first access determination ceases to be in force, but the replacement access determination must include a fixed principles provision in the same terms, and the nominal expiry date for that fixed principles provision must be 8 October 2013 or later (regardless of the expiry date of the new access determination).

 

The effect of “locking in” or entrenching the fixed principles provision is achieved by proposed subsection 152BCD(5), which provides that an access determination which includes a fixed principles provision must include a provision (an “entrenching provision”) that states the fixed principles provision must not be altered or removed, or sets out the circumstances in which the fixed principles provision can be altered or removed.  Note that the ACCC’s ability to vary an access determination is limited in the sense that it cannot vary an access determination in a manner inconsistent with the entrenching provision, nor can it vary or remove the entrenching provision (see proposed subsection 152BCN(4)).

 

By enabling the ACCC to lock in provisions contained in an access determination for a specified period (which may be longer than the duration of the access determination in which the provisions are contained), proposed section 152BCD will enable the ACCC to provide greater regulatory certainty in certain circumstances.  For example, where the ACCC adopts a utility pricing model for setting the access price for a declared service - with all price determinations during the economic life of the relevant facility based on a regulated asset base - the ACCC will be able to lock in a regulated asset base for the requisite period.

 

Proposed section 152BCE    Access determinations may be set out in the same document

 

Each access determination made by the ACCC relates to a particular declared service (see proposed subsection 152BC(1)).  However, while the ACCC is required to make separate access determinations for each declared service, the ACCC does not have to deal with each and every declared service in a separate document.  Proposed section 152BCE clarifies that two or more access determinations may be set out in the same document.

 

Proposed section 152BCF    Duration of access determination

 

Proposed section 152BCF addresses the duration of access determinations, including:

-           the commencement date of access determinations;

-           the expiry date of access determinations;

-           the automatic revocation of access determinations; and

-           the extension of access determinations.

 

Commencement date - proposed subsections 152BCF(1)-(4)

 

The ACCC must specify in an access determination that the determination comes into force on a particular day, which may be on, after, or before the day on which the determination is made.

 

For access determinations that relate to newly-declared services (i.e. where the service is being declared for the first time, and the declaration is not a fresh declaration that replaces a previous declaration) then the day specified in the access determination must not be earlier than the day on which the declaration was made. (On replacement declarations, see item 85).

 

If the access determination in question replaces a previous access determination relating to the same declared service, then the date that a replacement access determination enters into force will be the day immediately after the expiry of the previous access determination.

 

Expiry date - proposed subsections 152BCF(5) and (6)

 

The ACCC must specify in an access determination the expiry date for the determination.  The general principle (to which the ACCC must have regard in setting the expiry date for the access determination) is that the expiry date for the determination should be the same as the expiry date for the declaration of the service to which the access determination relates, unless there are circumstances that warrant specifying a different expiry date for the access determination.

 

The principle that declarations and access determinations should run in parallel will promote regulatory certainty, as well as procedural efficiency in that it will enable the ACCC to conduct the public inquiry into extending the declaration of a service and the public inquiry into making a replacement access determination for the service at the same time.  It is recognised, however, that there may be circumstances where an access determination that is shorter in duration than the declaration period would be justified.

 

Automatic revocation - proposed subsections 152BCF(7)-(9)

 

If an access determination is in force in relation to a declared service, and the declaration of the service either ceases to be in force or is revoked, then, unless the ACCC makes a fresh declaration that replaces the previous declaration, the access determination will be automatically revoked.  In these circumstances there is nothing for the access determination to do: without a declared service to apply to, the access determination is redundant.  For this reason such access determinations are automatically revoked.

 

Extension - proposed subsections 152BCF(10)-(14)

 

Proposed subsections 152BCF(10) and (12) provide for the extension of access determinations in two circumstances:

-           where the ACCC has commenced a public inquiry about replacing an access determination with a new access determination, but the new access determination will not be made before the expiry of the earlier access determination—in this case, the ACCC may declare that the earlier access determination continues until the new access determination comes into force; and

-           where the ACCC decides, after holding a public inquiry concerning the expiry of a declaration of a service, to extend the declaration by a period of not more than 12 months and then to allow the declaration to expire (see item 87)—in this case, the ACCC may extend the period of the relevant access determination by the same period.

 

In either case, the ACCC is required to publish a notice on its website relating to its decision.  The requirements of procedural fairness do not apply to the ACCC’s decision to extend the access determination in either case.  These extensions are temporary measures and the ACCC will be able to make them quickly without having to undertake consultation.

 

Proposed section 152BCG    Interim access determinations

 

Proposed section 152BCG deals with interim access determinations.  An interim access determination is defined in section 152AC as an access determination that is expressed to be an interim access determination (see item 78). 

 

The circumstances in which the ACCC is required to make an interim access determination are set out in proposed subsection 152BCG(1).  An interim access determination must be made if:

-           the ACCC declares a service after the commencement of section 152BCG;

-           the service is being declared for the first time, i.e. the declaration is not a fresh declaration that replaces a previous declaration (on replacement declarations, see item 85); and

-           the ACCC has commenced a public inquiry into a proposal to make an access determination relating to the service (on public inquiries, see proposed Subdivision B of proposed Division 4); and

-           either:

o    it is unlikely that a final access determination in relation to access to the service will be made within six months after the commencement of the relevant public inquiry; or

o    there is an urgent need to make an access determination before the end of the public inquiry.

 

While the ACCC must make an interim access determination in the circumstances specified in proposed subsection 152BCG(1), under proposed subsection 152BCG(2) the ACCC may make an interim access determination in relation to a declared service if no access determination has previously been made in relation to the service.  (This subsection applies to both newly-declared services and services that were declared before the commencement of section 152BCG.)

 

The ACCC may not make an interim access determination in any other circumstance (proposed subsection 152BCG(5)).

 

The ACCC must specify in an interim access determination the day on which the determination comes into force.  That day may be on, after, or before the day on which the determination is made, but must not be earlier than the day on which the declaration of the service came into force (proposed subsection 152BCG(3)).

 

Because of their urgent and temporary nature, the requirements of procedural fairness do not apply to the making by the ACCC of an interim access determination (proposed subsection 152BCG(4)). 

 

Proposed Subdivision B—Public inquiries about proposals to make access determinations

 

Proposed Subdivision B of proposed Division 4 of Part XIC sets out the requirements for the ACCC to hold a public inquiry before making an access determination, and sets out the procedures applying to those inquiries.

 

Proposed section 152BCH    Access determinations to be made after public inquiry

Proposed section 152BCI    When public inquiry must be held

 

The general requirement, as set out in proposed subsection 152BCH(1), is that before the ACCC makes an access determination, the ACCC must hold a public inquiry under Part 25 of the Tel Act on the proposal to make the determination, and must prepare a report on the inquiry.  The ACCC is required to publish the report during the period of 180 days before the ACCC makes the determination.

 

The ACCC is not required to hold a public inquiry before making an interim access determination (see proposed subsection 152BCH(2) and proposed section 152BCG).

 

The requirement for the ACCC to hold a public inquiry before making an access determination is subject to proposed section 152BCI, which sets out the period during which the public inquiry must be commenced, and provides certain exceptions.

 

Where the ACCC declares a service for the first time, the ACCC must commence a public inquiry about a proposal to make the first access determination applying to that newly-declared service within 30 days after the declaration is made (proposed subsection 152BCI(1)).

 

Where a service was declared before the commencement of proposed section 152BCI, the ACCC must commence a public inquiry about a proposal to make the first access determination applying to that service within 12 months of the commencement of proposed section 152BCI  (proposed subsection 152BCI(2)).  Proposed section 152BCI will commence the day after the Bill receives the Royal Assent: see the table at clause 2 of the Bill.

 

Proposed subsection 152BCI(3) deals with the timing of public inquires where an access determination has previously been made in relation to a declared service.  It provides that, where a service is declared and there is already an access determination applying to the service, the ACCC must commence a public inquiry about a proposal to make a replacement access determination not earlier than 18 months before the expiry of the determination, and no later than six months before the expiry of the determination.

 

The requirements of proposed subsection 152BCI(3) are subject to the exceptions in proposed subsections 152BCI(5)-(7).

 

Where the ACCC decides, after holding a public inquiry concerning the expiry of a declaration of a service, to extend the declaration by a period of not more than 12 months and then to allow the declaration to expire (see item 87), the ACCC does not have to hold a public inquiry into making a replacement access determination (proposed subsection 152BCI(5)).  In this case, the ACCC may extend the period of the relevant access determination to coincide with the extended period of the access declaration (see proposed subsection 152BCF(12)).

 

If the ACCC commences a public inquiry under subsection 152ALA(7) into whether to extend the declaration of a service to which an access determination relates or let it expire, the ACCC does not have to commence a public inquiry into making a replacement access determination until it decides whether to extend the declaration.  If it decides to extend the declaration, it must commence a public inquiry into making a replacement access determination before the expiry of the current access determination.  If it decides to let the declaration expire, it does not have to hold a public inquiry into making a replacement access determination (proposed subsection 152BCI(6)).

 

If the ACCC decides not to extend the declaration of a service to which an access determination relates but to let it expire, then the ACCC does not have to hold a public inquiry into making a replacement access determination (proposed subsection 152BCI(7)).

 

Item 83 inserts proposed section 152AI into Part XIC, which provides that a public inquiry under Part 25 of the Tel Act commences when the ACCC publishes the notice required under section 498 of that Act.

 

Proposed section 152BCJ    Combined inquiries about proposals to make access determinations

 

Proposed subsection 152BCJ provides that the ACCC may decide to combine two or more public inquiries about proposals to make access determinations, and sets out certain procedures applying to the ACCC’s conduct of joint inquiries.

 

This provision is designed to provide the ACCC with flexibility to conduct inquiries into proposals to make access determinations in an efficient manner, by allowing it to combine inquiries and prepare combined discussion papers, hold combined hearings, and prepare combined reports relating to the inquiries.

 

Proposed section 152BCK    Time limit for making an access determination

 

Proposed subsection 152BCK(2) provides that the ACCC must make a final access determination within six months of commencing the public inquiry into the proposal to make the access determination.  A final access determination is an access determination that is not an interim determination (see item 76).

 

In recognition of the fact that an inquiry into a proposal to make an access determination may be a lengthy and complex process, the ACCC is given scope to extend the six-month period within which it is required to make the final access determination (proposed subsection 152BCK(3)).  The ACCC may extend the six-month period more than once, on each occasion by no longer than a further period of six months.  Each time it extends the period, the ACCC must publish a notice on its website setting out the extended period, and explaining why the ACCC has not yet been able to make a final access determination.

 

A note is included to direct the reader to proposed section 152BCG, the effect of which is to require the ACCC to make an interim access determination if the ACCC considers it will not be in a position to make the final access determination within six months of commencing the public inquiry into a proposal to make the access determination.

 

Proposed section 152BCL    Commission may use material presented to a previous public inquiry etc.

 

To ensure the ACCC is able to conduct inquiries in the most efficient manner, without unduly expending time or resources on repetitive processes, proposed section 152BCL provides that, where the ACCC obtains evidence, material, written submissions or other information for the purposes of an inquiry into a proposal to make an access determination  (“the first access determination”), it may also use that evidence, material, those written submissions or that other information for the purposes of an inquiry into a proposal to make another access determination (“the second access determination”).

 

The first and second access determinations may relate to the same declared service, or they may relate to different declared services. 

 

This provision is intended to allow the ACCC to use information, material, evidence or submissions that it obtains in one inquiry for the purposes of another inquiry, which will allow the ACCC to expedite the inquiry process and to consider matters that arose in earlier inquiries and that continue to be relevant to a subsequent inquiry.

 

Proposed subsection 152BCL(3) provides that proposed section 152BCL is not intended to limit, by implication, the information that the ACCC may use for the purposes of a public inquiry into making an access determination.

 

Proposed section 152BCM    Commission may adopt a finding from a previous public inquiry

 

When it holds an inquiry under Part 25 of the Tel Act, the ACCC is required to prepare a report setting out its findings as a result of the inquiry (see section 505 of the Tel Act).  The effect of proposed section 152BCM is that the ACCC can adopt the findings it makes in a report on one inquiry about a proposal to make an access determination for the purposes of another public inquiry into a proposal to make an access determination.

 

The access determinations that are the subject of the first and the subsequent inquiries may relate to the same declared service, or they may relate to different declared services.

 

Proposed Subdivision C—Variation or revocation of access determinations

 

Proposed section 152BCN    Variation or revocation of access determinations

 

Proposed subsection 152BCN(1) provides for the variation and revocation of access determinations, by altering the application of subsection 33(3) of the AIA.  Absent proposed subsection 152BCN(1), the effect of subsection 33(3) of that Act would be that the power given to the ACCC in proposed section 152BC to make access determinations includes a power exercisable in the like manner and subject to the like conditions to repeal, rescind, revoke, amend, or vary an access determination.

 

However, proposed subsection 152BCN(1) provides that the operation of subsection 33(3) of the AIA is changed in the manner specified in proposed subsections 152BCN(2)-(8).

 

The ACCC is not required to hold a public inquiry into a proposal to vary an access determination where it makes a minor variation or where all relevant carriers/CSPs and access seekers have consented in writing to the variation.  Similarly, the ACCC is not required to hold a public inquiry about revoking an access determination if all relevant carriers/CSPs and access seekers have consented in writing to the revocation.

 

Where an access determination includes a fixed principles provision (see proposed section 152BCD), the access determination must include a provision (an “entrenching provision”) stating that either the access determination may not be varied so as to alter or remove the fixed principles provision (proposed paragraph 152BCD(5)(a)) or the access determination may not be varied so as to alter or remove the fixed principles provision except in certain specified circumstances (proposed paragraph 152BCD(5)(b)).  An entrenching provision in an access determination may not be varied, and nor may a fixed principles provision be varied in a manner that is inconsistent with an entrenching provision: proposed subsection 152BCN(4).

 

The ACCC is not under an obligation to consider requests that it may receive to vary or revoke an access determination, nor is it under an obligation to consider varying or revoking an access determination for any other reason: proposed subsection 152BCN(5). 

 

Where the ACCC has commenced a public inquiry into a proposal to vary an access determination, the ACCC can alter the proposed variation that is the subject of the public inquiry (proposed subsection 152BCN(6)).  This is intended to ensure that the ACCC’s conduct of inquiries is efficient and to remove any suggestion that the ACCC must recommence a public inquiry if it makes a change to the variation that it proposes to make to an access determination after it has already commenced the public inquiry.

 

If the ACCC alters the proposed variation during the public inquiry, it must publish a notice of the alteration in accordance with section 498 of the Tel Act, unless the alteration is of a minor nature or each carrier/CSP and access seeker whose interests are likely to be affected by the alteration consent to it (proposed subsections 152BCN(7) and (8)).

 

The public inquiry held by the ACCC is limited to the proposal for variation that the ACCC puts forward.  The ACCC is not obliged to consider as part of its inquiry any other issues, or any alternative or additional proposed variations, that are brought forward by parties making submissions to the inquiry.

 

Proposed Subdivision D—Compliance with access determinations

 

Proposed Subdivision D includes provisions that have the effect of making compliance with an access determination a condition of a carrier licence and a service provider rule under the Tel Act.  As such, a party’s compliance with an access determination may be enforced by the ACCC using the mechanisms available to it under that Act.

 

Proposed section 152BCO    Carrier licence condition

 

Proposed section 152BCO sets out a carrier licence condition requiring a carrier to comply with any access determinations applicable to it. 

 

The effect of proposed section 152BCO of the TPA, together with proposed section 62A of the Tel Act, is that a carrier must comply with an access determination, and that failure to do so would render the carrier subject to the enforcement provisions in the Tel Act relating to breach of carrier licence conditions.

 

Proposed section 152BCP    Service provider rule

 

Proposed section 152BCP of the TPA sets out a service provider rule requiring a service provider to comply with any access determinations applicable to it. 

 

The effect of proposed section 152BCP of the TPA, together with proposed subsection 98(3) of the Tel Act, is that a service provider must comply with an access determination, and that failure to do so would render the service provider subject to the enforcement provisions in the Tel Act relating to breach of service provider rules.

 

Proposed Subdivision E—Private enforcement of access determinations

 

In addition to enforcement of compliance with access determinations by the ACCC or the Minister by means of carrier licence conditions and service provider rules, dealt with under proposed Subdivision D together with the enforcement provisions of the Tel Act, access determinations may also be enforced privately; i.e. one party to an access determination may enforce the access determination against a person who is contravening the access determination.  Proposed Subdivision E is based on Subdivision H of Division 8 of Part XIC (which is repealed by item 136).

 

Proposed section 152BCQ   Private enforcement of access determinations

 

Proposed section 152BCQ allows the parties to an access determination to apply to the Federal Court for an order relating to contravention of the access determination.  If the Court is satisfied that a person has engaged, is engaging, or proposes to engage in contravention of an access determination, the Court may make an order:

-           granting a restraining injunction (preventing a person from engaging in conduct in contravention of an access determination);

-           granting a mandatory injunction (requiring a person to do something to ensure the person does not contravene an access determination);

-           directing the person to compensate the applicant for loss or damage; or

-           as the Court sees fit.

 

It is irrelevant whether an access determination has expired; the remedies listed above are still available with respect to contraventions of the access determination that occurred while it was in force.

 

The Court may also make orders against any other person involved in the contravention.

 

Proposed section 152BCR    Consent injunctions

 

Proposed section 152BCR provides a mechanism for the Federal Court to grant an injunction in a situation where the parties consent.  In such a case, the Court does not need to be satisfied that proposed section 152BCQ applies (i.e. it does not need to be satisfied that a person has engaged, is engaging, or proposes to engage in conduct in contravention of an access determination).

 

Proposed section 152BCS    Interim injunctions

 

Proposed section 152BCS permits the Federal Court to grant an interim injunction while it considers an application for an injunction under proposed section 152BCQ. 

 

Proposed section 152BCT    Factors relevant to granting a restraining injunction

Proposed section 152BCU    Factors relevant to granting a mandatory injunction

 

The effect of proposed sections 152BCT and 152BCU is that the Federal Court can grant a restraining injunction or a mandatory injunction requiring a person to do a thing regardless of whether certain situations specified in proposed paragraphs 152BCT(a)-(c) (for restraining injunctions) or 152BCU(a)-(c) (for mandatory injunctions) exist.  This is intended to give the Federal Court a wide power to grant restraining and mandatory injunctions.

 

Proposed section 152BCV    Discharge or variation of injunction or other order

 

Proposed section 152BCV provides that the Federal Court can discharge or vary an injunction or order under proposed Subdivision E.

 

Proposed Subdivision F—Register of Access Determinations

 

Proposed section 152BCW    Register of Access Determinations

 

Proposed subsection 152BCW requires the ACCC to maintain a register of all in-force access determinations, to be known as the Register of Access Determinations.

 

The Register is required to be maintained by electronic means, and to be made available for inspection on the ACCC’s website.  The Register is not a legislative instrument for the purposes of the LIA.  It is not appropriate for the Register to be a legislative instrument, since it is simply a collection of access determinations, which themselves are not legislative instruments (see proposed subsection 152BC(9)).

 

Some of the material in access determinations may be highly commercially sensitive, and inappropriate for publication.  For this reason, the ACCC is permitted to redact particular provisions from access determinations if the ACCC is satisfied that publication of the provisions could reasonably be expected to prejudice substantially the commercial interests of a person, and the prejudice outweighs the public interest in the publication of the provisions.  If it redacts a provision, the ACCC must annotate the access determination to note that it has made a redaction.

 

Proposed Division 4A—Binding rules of conduct

 

Proposed Division 4A of Part XIC provides for the ACCC to make binding rules of conduct relating to access to a declared service.  The effect of binding rules of conduct is to override any inconsistent provisions in an access determination.  In this way, binding rules of conduct operate, in essence, as a particular type of variation to an access determination.  However, the rules in proposed Division 4 that apply to the making of variations to access determinations do not apply to the making of binding rules of conduct; binding rules of conduct can be made in a streamlined manner.  There are limitations on the duration of binding rules of conduct.

 

It is intended that the ACCC will make binding rules of conduct to deal with urgent matters, where it is not appropriate for the ACCC to go through the processes set out in Division 4 for varying an access determination.  Binding rules of conduct permit the ACCC to move quickly to adjust the terms and conditions that apply to access to a declared service, on a temporary basis, while the ACCC goes about the process of conducting an inquiry with a view to varying or replacing the relevant access determination.

 

Subdivision A—Commission may make binding rules of conduct

 

Proposed section 152BD    Binding rules of conduct

 

Proposed subsections 152BD(1) and (2) provide that the ACCC may make written rules relating to access to a declared service, to be known as binding rules of conduct. 

 

The possible subject matter of binding rules of conduct is set out at proposed subsection 152BD(3), and mirrors the possible subject matter of access determinations at proposed subsection 152BC(3).

 

It is envisaged that the ACCC may need to make urgent binding rules of conduct altering the application of an access determination either to all carriers/CSPs and/or access seekers, or to particular carriers/CSPs and/or access seekers.  For this reason, proposed subsections 152BD(5) and (6) provide that binding rules of conduct may be of general application, or may apply as limited in the rules, and specifically that they may make different provision with respect to different carriers/CSPs, or different access seekers, or different classes of carriers/CSPs or access seekers.  Proposed subsection 152BD(7) clarifies that proposed subsection 152BD(6) does not, by implication, affect the operation of subsection 33(3A) of the AIA, which provides that, where legislation confers a power to make an instrument with respect to particular matters, the power includes a power to make the instrument with respect to only some of those matters or a class or classes of those matters, and to make different provision with respect to different matters or different classes of matters.

 

Binding rules of conduct may provide for the ACCC to perform functions or exercise powers (proposed subsection 152BD(10)).  This ensures that the ACCC has flexibility in how it will deal with technical, complex and changing matters it needs to include in provisions of access determinations.  This subsection corresponds to proposed subsection 152BC(7).

 

Proposed subsection 152BD(11) provides that binding rules of conduct are not legislative instruments. 

 

Proposed section 152BDA    Restrictions on binding rules of conduct

 

Proposed section 152BDA imposes certain restrictions on the ACCC’s ability to make binding rules of conduct, and is modelled on proposed section 152BCB, which relates to limitations on the ACCC’s ability to make access determinations.

 

Proposed section 152BDB    Binding rules of conduct that are inconsistent with access agreements

 

Proposed section 152BDB provides that provisions in binding rules of conduct specifying terms and conditions that would be applicable to a carrier/CSP or an access seeker have no effect to the extent that they are inconsistent with terms and conditions set out in an access agreement between that carrier/CSP and that access seeker.  That is to say, for the carrier/CSP and the access seeker in question, terms and conditions of access to the declared service in question are as set out in their access agreement.  For other parties, who do not have conflicting access agreements in place, the binding rules of conduct continue to apply.

 

Proposed section 152BDC    Duration of binding rules of conduct

 

Binding rules of conduct must specify the date on which they come into force, and an expiry date.  The expiry date must be within 12 months of the date the binding rules of conduct were made.

 

Proposed section 152BDD    Commission must give copy of binding rules of conduct to carrier etc.

 

If binding rules of conduct are limited to a particular carrier/CSP or access seeker, the ACCC must give a copy of them to that carrier/CSP or access seeker.  Otherwise binding rules of conduct will be available on the Register of Binding Rules of Conduct: see proposed Subdivision D of proposed Division 4A.

 

Proposed section 152BDE    Access determinations that are inconsistent with binding rules of conduct

 

Proposed section 152BDE provides for binding rules of conduct to prevail over an access determination, to the extent of any inconsistency (see also proposed section 152AY).

 

Subdivision B—Compliance with binding rules of conduct

 

Proposed section 152BDF    Carrier licence condition

Proposed section 152BDG    Service provider rule

 

Proposed sections 152BDF and 152BDG set out a carrier licence condition and a service provider rule requiring a carrier/CSP to comply with any binding rules of conduct applicable to it. 

 

The effect of proposed sections 152BDF and 152BDG of the TPA, together with proposed section 62B and proposed subsection 98(3) of the Tel Act, is that a carrier/CSP must comply with binding rules of conduct, and that failure to do so would render the carrier/CSP subject to the enforcement provisions in the Tel Act relating to breach of carrier licence conditions or service provider rules.

 

Proposed Subdivision C—Private enforcement of binding rules of conduct

 

Proposed section 152BDH   Private enforcement of binding rules of conduct

Proposed section 152BDI     Consent injunctions

Proposed section 152BDJ    Interim injunctions

Proposed section 152BDK    Factors relevant to granting a restraining injunction

Proposed section 152BDL    Factors relevant to granting a mandatory injunction

Proposed section 152BDM    Discharge or variation of injunction or other order

 

In addition to enforcement of compliance with binding rules of conduct by the ACCC or the Minister by means of carrier licence conditions and service provider rules, dealt with under proposed Subdivision B together with the enforcement provisions of the Tel Act, binding rules of conduct may also be enforced privately; i.e. one party to an access determination may enforce the access determination against a person who is contravening the determination.  Proposed Subdivision C of proposed Division 4A includes proposed sections 152BDH-152BDM, which mirror in operation the provisions in Subdivision E of proposed Division 4 (relating to private enforcement of access determinations).  An explanation of the operation of those provisions is provided at Subdivision E of Division 4 above.

 

Proposed Subdivision D—Register of Binding Rules of Conduct

 

Proposed section 152BDN    Register of Binding Rules of Conduct

 

Proposed section 152BDN requires the ACCC to maintain a register of all in-force binding rules of conduct, to be known as the Register of Binding Rules of Conduct.

 

Proposed section 152BDN operates in the same way as proposed section 152BCW, which provides for the Register of Access Determinations, and is described above.

 

Proposed Division 4B—Access agreements

 

Carriers/CSPs and access seekers are free to negotiate on, and agree to, terms of access to declared services.  If carriers/CSPs and access seekers settle on an agreed arrangement for access to a declared service, that arrangement is called an access agreement.  Access agreements are dealt with in proposed Division 4B of Part XIC of the TPA. 

 

Proposed section 152BE    Access agreements

 

For an agreement to be an access agreement, it must meet the requirements for access agreements set out in proposed subsection 152BE(1).  A carrier/CSP and an access seeker must be the parties to the agreement, and the agreement must:

-           be in writing;

-           be legally enforceable (a non-binding arrangement between parties would not suffice);

-           relate to access to a declared service; and

-           relate to terms and conditions of the access seeker’s access to the declared service (such as, for example, the terms and conditions on which the carrier/CSP will comply with the standard access obligations).

 

Proposed subsection 152BE(2) contains a particular rule that applies to an agreement that is made concerning access to an eligible service (defined in section 152AL) that is not a declared service at the time that the agreement is entered into, but that later becomes a declared service.  In such a case, if the agreement would have been an access agreement if it had been entered into after the service was declared (i.e. if all the other requirements of proposed subsection 152BE(1) are satisfied), then the agreement becomes an access agreement immediately after the eligible service becomes a declared service.

 

To deal with the issue of variations being made to an access agreement, proposed subsection 152BE(3) provides that a reference to an access agreement in Part XIC includes a reference to an access agreement as varied, so long as the variation is in writing and is legally enforceable.

 

Access agreements (and variation agreements) can be entered into either before or after the commencement of proposed section 152BE—the effect of the agreement is not altered (see proposed subsection 152BE(4)).

 

Proposed section 152BEA    Lodgment of access agreements with the Commission

 

Proposed section 152BEA requires access agreements to be lodged with the ACCC.  The obligation is imposed on the carrier/CSP who supplies, or who proposes to supply, the service to which the access agreement relates.  Compliance with this requirement is a licence condition and service provider rule (see proposed sections 152BEC and 152BED).

 

Access agreements will prevail over inconsistent special access undertakings, binding rules of conduct or access determinations to the extent of inconsistency (see proposed section 152AY).  It is therefore important that the ACCC be aware of all access agreements and of the terms and conditions they contain.  This obligation will also be of assistance to the ACCC in carrying out its functions generally under the TPA.

 

It should be noted that the ACCC has no duty to approve any access agreement that is lodged, and the fact that an agreement has been lodged with the ACCC and the ACCC has made no comment about it does not confer any implicit regulatory approval on that agreement.

 

Proposed subsections 152BEA(1)-(5) set out the time within which the carrier/CSP must lodge the access agreement with the ACCC:

-           where the agreement is entered into after the commencement of proposed section 152BEA, it must be lodged with the ACCC within 28 days after it is entered into;

-           where the agreement was entered into before the commencement of proposed section 152BEA and continues to operate after that commencement, it must be lodged with the ACCC within 28 days of that commencement;

-           where there is an agreement that becomes an access agreement after the commencement of proposed section 152BEA (because at the time the agreement is entered into, the service it relates to is not a declared service, but at a later stage (after the commencement of this section) it becomes a declared service), the agreement must be lodged with the ACCC within 28 days after the day it becomes an access agreement (worked out in accordance with proposed subsection 152BE(2));

-           where there is an agreement that becomes an access agreement before the commencement of this section (because at the time the agreement is entered into, the service it relates to is not a declared service, but at a later stage (before the commencement of this section) it became a declared service), the agreement (as varied, if applicable) must be lodged with the ACCC within 28 days after the commencement of proposed section 152BEA);

-           if a variation agreement (see proposed subsection 152BE(3)) is entered into after the commencement of proposed section 152BEA, the variation agreement must be lodged with the ACCC within 28 days after it is entered into.

 

In each case, the carrier/CSP may also be required to give to the ACCC any further information about the access agreement (or variation agreement) that is specified by the ACCC.  Proposed subsections 152BEA(6)-(10) provide that the ACCC may specify information for that purpose.  The ACCC can require that the additional information provided to it be verified by statutory declaration.

 

An instrument made by the ACCC under proposed subsections 152BEA(6)-(10) is not a legislative instrument.  The ACCC is required to publish such an instrument on its website (proposed subsections 152BEA(12) and (14)).

 

There may be occasions when a carrier/CSP needs more than 28 days to provide the access agreement and the other information to the ACCC: it may take the carrier/CSP some time to collect the additional information it is required to provide.  To allow for this, the 28-day period allowed in each case for the carrier/CSP to lodge the access undertaking can be extended by the ACCC, before its expiry (proposed subsection 152BEA(13)).

 

Proposed section 152BEB    Notification of termination of access agreement

 

It is important that the ACCC be made aware when access agreements cease to operate in advance of their anticipated expiry date (for reasons similar to those set out at section 152BEA above).  For this reason, proposed section 152BEB requires that, where an access agreement has been given to the ACCC in accordance with proposed section 152BEA and the access agreement is terminated, rescinded or cancelled, a carrier/CSP who has supplied the declared service under the access agreement, must notify the ACCC within 28 days.  The obligation applies equally to a carrier/CSP that, under an access agreement, had proposed to supply access to a declared service but had not actually supplied the declared service before the agreement was terminated, rescinded or cancelled.

 

Proposed section 152BEC    Carrier licence condition

Proposed section 152BED    Service provider rule

 

Proposed section 152BEC sets out a carrier licence condition requiring a carrier to comply with sections 152BEA and 152BEB, and proposed section 152BED sets out a corresponding service provider rule

 

The effect of proposed section 152BEC and proposed subsection 152BED(2) of the TPA, together with proposed section 62C and proposed subsection 98(5) of the Tel Act, is that a carrier/CSP that supplies a declared service under an access agreement must lodge copies of the agreement and any variation of the agreement with the ACCC, and must notify the ACCC if the agreement is terminated, rescinded or cancelled.  Failure to do so would render the carrier/CSP subject to the enforcement provisions in the Tel Act relating to breach of carrier licence conditions or service provider rules.

 

Proposed sections 152BEC and 152BED ensure that ACCC will be provided with copies of access agreements and of variations to those agreements, to assist the ACCC in carrying out its functions under the TPA.

 

Item 117 - Subdivision A of Division 5 of Part XIC

 

Subdivision A of Division 5 of Part XIC deals with ordinary access undertakings.  Item 117 repeals the Subdivision.  Ordinary access undertakings will no longer be a part of the telecommunications access regime.  Only special access undertakings will be available.

 

Ordinary access undertakings were intended to promote regulatory certainty for access providers, by allowing them to propose terms and conditions of access for a declared service which would be compatible with their own operational and commercial requirements.  If the ACCC accepted an undertaking, it would not be able to make an arbitration determination under Division 8 of Part XIC that was incompatible with the undertaking.

 

In practice, almost all undertakings submitted to the ACCC since 1997 were rejected on the basis that they did not promote the long-term interests of end-users.  Ordinary access undertakings have not only failed to promote regulatory certainty, their use has resulted in significant regulatory uncertainty and the allocation of considerable resources by the ACCC, access providers and access seekers.

 

Under the reforms made to Part XIC by this Bill, access providers will have the opportunity to make submissions to the ACCC during a public inquiry into making an access determination, concerning the terms and conditions of access they would like to be included in the access determination, and the ACCC will consider those submissions.

 

Item 118 - Subsection 152CBA(1)

 

Item 118 makes a change to subsection 152CBA(1) of the TPA.  Section 152CBA deals with special access undertakings, and provides that a person who is, or expects to be, a carrier/CSP supplying either a listed carriage service or a service that facilitates the supply of a listed carriage service may give a written undertaking to the ACCC in relation to access to the service, so long as the service is not an active declared service.

 

‘Active declared service’ is defined in subsection 152CBA(12), and has the same meaning as in section 152AR (disregarding subsection 152AL(7)). 

 

Item 118 amends subsection 152CBA(1) to replace the term ‘active declared service’ with the term ‘declared service’.  The effect of this is that special access undertakings will not be able to be lodged in relation to any declared services.  Special access undertakings will only be able to be lodged concerning services for which a section 152AL declaration is not in force.

 

Where a service is a declared service, the terms and conditions of access for the service (if not agreed between the access provider and access seeker) will be specified in an access determination.  For the reasons set out in item 117 relating to the abolition of ordinary access undertakings, it is not intended that undertakings should be able to deal with the terms of access for declared services.

 

Item 119 - Subsection 152CBA(10)

 

Item 119 repeals and replaces subsection 152CBA(10), to make a change necessary as a result of the repeal of Subdivision A of Division 5 of Part XIC.

 

Item 120 - Before paragraph 152CBC(6)(a)

 

Item 120 inserts new paragraphs (aa)-(ac) into subsection 152CBC(6), to take into account proposed section 152CBDA (see item 124).  Section 152CBC provides for the ACCC to accept or reject a special access undertaking.  In subsection 152CBC(5) the ACCC is given six months to consider a special access undertaking.  If it has not made a decision by the end of that six-month period, it is taken to have accepted the undertaking.  Subsection 152CBC(6) sets out certain days that are to be discounted in calculating the six-month period for the purpose of subsection 152CBC(5); these are days during periods when the ACCC is awaiting further information, or awaiting further submissions, relevant to its consideration of an undertaking.  During such periods the ACCC cannot continue to consider its decision on a special access undertaking, and it is appropriate that the limited time given to the ACCC is suspended for the duration of those periods.  As a result of item 120, three new types of days are included.

 

The first type of day involves the situation where the ACCC gives a notice under proposed section 152CBDA (which provides that the ACCC may give a notice to a person who has submitted an undertaking, inviting the person to vary the undertaking in accordance with the notice, and provide an amended undertaking within a specified period ), but the ACCC was not given a varied undertaking.  In this case, proposed paragraph 152CBC(6)(aa) provides that a day in the period specified in the notice is to be disregarded in calculating the six month period.

 

The second and third type of day involve the situation where the ACCC gives a notice under proposed section 152CBDA and receives a varied undertaking in response. 

 

The second type of day occurs where the ACCC does not publish the varied undertaking under paragraph 152CBD(2)(d) (because the variations in question are of a minor nature, or are unlikely to have a material adverse effect on a person’s legitimate commercial interests: see proposed subsection 152CBD(3), inserted by item 123).  In that case, for the purpose of calculating the six-month period, any day is to be disregarded if it is in the period beginning on the day the ACCC gave the notice and ending on the day the varied undertaking was given to the ACCC in response to the notice.

 

The third type of day occurs where the ACCC publishes the varied undertaking under paragraph 152CBD(2)(d) (because the variations in question are not of a minor nature, or are likely to have a material adverse effect on a person’s legitimate commercial interests: see proposed subsection 152CBD(3), inserted by item 123).  In that case, for the purpose of calculating the six-month period, any day is to be disregarded if it is in the period beginning on the day the ACCC gave the notice and ending on the day specified by the ACCC when it published the varied undertaking.

 

Item 121 - Paragraph 152CBC(6)(a)

 

Item 121 makes a consequential amendment to paragraph 152CBC(6)(a), necessary as a consequence of the inclusion of new paragraph 152CBC(6)(ac) by item 120.

 

Item 122 - After section 152CBC

 

Item 122 inserts proposed section 152CBCA into Part XIC. 

 

Proposed section 152CBCA    Serial undertakings

 

Proposed section 152CBCA provides a mechanism for the ACCC to refuse to consider serial undertakings.  Where the ACCC rejects one special access undertaking given to it by a person, and the person subsequently gives the ACCC another special access undertaking, and any or all of the provisions of the two undertakings are materially similar, the ACCC can refuse to consider the subsequent undertaking.  This provision is intended to ensure that the ACCC does not have to devote time and resources to reconsidering a special access undertaking that is likely to be rejected.

 

Item 123 - At the end of section 152CBD

 

Item 123 inserts proposed subsection 152CBD(3), the effect of which is that the ACCC is not required to publish (in accordance with paragraph 152CBD(2)(d)) a varied undertaking given to the ACCC under proposed section 152CBDA unless the ACCC is satisfied that the variations in question are not of a minor nature, or are likely to have a material adverse effect on a person’s legitimate commercial interests.

 

This is intended to ensure that the ACCC does not have to go through a publication and consultation process on a varied undertaking given to it if the variations are only minor.

 

Item 124 - After section 152CBD

 

Item 124 inserts proposed section 152CBDA, which provides a mechanism for the ACCC to give a notice to a person who has submitted an undertaking, inviting the person to vary the undertaking in accordance with the notice.

 

Proposed section 152CBDA    Variation of special access undertaking

 

Proposed section 152CBDA enables the ACCC to suggest to a person who has given it a special access undertaking that the person make specified variations to the undertaking.  This provision is designed to avoid the situation of the ACCC having to reject an access undertaking that is given to it and reconsider a fresh new access undertaking from the same person, and instead allows the ACCC to propose variations to an access undertaking it is given.  If the ACCC decides to give a notice to a person who has submitted an undertaking, inviting the person to make specified variations to the undertaking, the ACCC must nominate a period for the person to provide a varied undertaking.  If the person provides the varied undertaking to the ACCC in the specified period, the ACCC must then consider the varied undertaking under section 152CBC.

 

The ACCC is not under a duty to consider whether to give a notice to a person who has submitted an undertaking to it.

 

Item 125 - After section 152CBI

 

Item 125 inserts proposed sections 152CBIA, 152CBIB and 152CBIC.

 

Proposed section 152CBIA    Special access undertakings prevail over inconsistent access determinations

Proposed section 152CBIB    Special access undertakings prevail over inconsistent binding rules of conduct

Proposed section 152CBIC    Access agreements prevail over special access undertakings

 

The effect of proposed sections 152CBIA and 152CBIB is that a special access undertaking prevails over an access determination, or over binding rules of conduct, to the extent of any inconsistency (see proposed section 152AY).

 

By contrast, proposed section 152CBIC provides that an access agreement prevails over an inconsistent special access undertaking, to the extent of any inconsistency.  This reflects the intention that parties should be free to agree terms of access.

 

Item 126 - Subsection 152CC(2)

Item 127 - Subsections 152CC(3), (4) and (5)

 

Items 126 and 127 amend section 152CC, which provides that the ACCC must maintain a register of access undertakings that have been accepted by the ACCC (including those that are no longer in force).  The amendments bring section 152CC into line with proposed sections 152BCW (which relates to the Register of Access Determinations) and 152BDN (which relates to the Register of Binding Rules of Conduct), by requiring that the ACCC is to maintain the register of access undertakings by electronic means, and make it available for inspection on the ACCC website, and providing that the Register is not a legislative instrument.  The amendments made to section 152CC also reflect the amendments made to section 152CJ by items 134 and 135.

 

Item 128 - Sections 152CE, 152CF, 152CG and 152CGA

 

Item 128 repeals sections 152CE, 152CF, 152CG and 152CGA, which relate to the review by the Australian Competition Tribunal of a decision of the ACCC to accept or reject an access undertaking or a variation to an access undertaking.  Consistent with other changes made by this Bill to the operation of Part XIC, merits review of decisions of the ACCC relating to access undertakings will no longer be available.

 

Merits review of the ACCC’s decisions to accept or reject an access undertaking is being removed for similar reasons to those set out in the notes on item 108.

 

Item 129 - Section 152CGB

 

Item 129 repeals section 152CGB, as a consequence of the repeal of Division 8 of Part XIC by item 136.

 

Item 130 - Subsection 152CH(1) (notes 1A, 1B, 2 and 3)

Item 131 - Subsection 152CH(1) (note 5)

Item 132 - Subsection 152CH(1) (note 6)

 

Items 130 and 132 repeal notes 1A, 1B, 2, 3 and 6 in subsection 152CH(1), and item 131 repeals and replaces note 5 with notes 5 and 5A in the same subsection, as a result of amendments made elsewhere in this Bill.

 

Item 133 - Subsection 152CI(2)

 

Item 133 repeals current subsection 152CI(2), which deals with the situation where a provision of the telecommunications access code is inconsistent with a Ministerial pricing determination (made under section 152CH).  The telecommunications access code is dealt with in Division 4 of Part XIC, which is being repealed by item 116.

 

Item 133 substitutes new proposed subsections 152CI(2) and (3), which provide that a provision of an access determination or of binding rules of conduct that is inconsistent with a Ministerial pricing determination has no effect to the extent of the inconsistency. 

 

Item 134 - Subsection 152CJ(2)

Item 135 - Subsections 152CJ(3), (4), and (5)

 

Items 134 and 135 amend section 152CJ, which provides that the ACCC must maintain a Register of Ministerial pricing determinations.  The amendments bring section 152CJ into line with proposed sections 152BCW (which relates to the Register of Access Determinations) and 152BDN (which relates to the Register of Binding Rules of Conduct), by requiring that the ACCC is to maintain the Register of Ministerial pricing determinations by electronic means, and make it available for inspection on the ACCC website.

 

Proposed subsection 152CJ(4) provides that the Register is not a legislative instrument.

 

The amendments made to section 152CJ also reflect the amendments made to section 152CC by items 126 and 127.

 

Item 136 - Division 8 of Part XIC

 

Item 136 repeals Division 8 of Part XIC, which provides for the resolution of disputes about access.  Under Division 8, carriers/CSPs and access seekers can notify access disputes to the ACCC.  The ACCC is then required to arbitrate the access dispute, and make an arbitration determination, setting out the terms and conditions of access to the service.

 

In practice, the operation of Division 8 has proven to be complex and prone to excessive delays.  Although Division 8 was intended to encourage negotiation between access providers and access seekers, in general terms it has been a major source of regulatory uncertainty and delay.

 

One of the fundamental reforms to the telecommunications access regime made by this Bill is to replace the power of the ACCC to arbitrate access disputes with a power for the ACCC to set up front terms and conditions of access in an access determination.  On this basis, Division 8 of Part XIC is being repealed.

 

Item 137 - Division 9 of Part XIC

 

Item 137 repeals Division 9 of Part XIC, which provides for the registration of agreements for access to declared services.  Division 9 is superseded by proposed Division 4B, dealing with access agreements.

 

Item 138 - Paragraph 152EF(1)(b)

 

Item 138 makes an amendment to section 152EF, which provides that certain persons must not engage in conduct for the purpose of preventing the fulfilment of a standard access obligation or of an obligation imposed by a Determination made by the ACCC under Division 8 .  As a result of the repeal of Division 8 by item 136, and the introduction of proposed Divisions 4 and 4A, item 138 replaces the reference in section 152EF to ‘an obligation imposed by a Determination made by the ACCC under Division 8’ with references to requirements imposed by an access determination, or by binding rules of conduct.

 

Item 139 - Subparagraph 152ELA(3)(a)(i)

Item 140 - Subparagraph 152ELA(3)(a)(ii)

Item 141 - Subparagraph 152ELA(3)(a)(iii)

Item 142 - Paragraph 152ELA(3)(b)

Item 143 - Paragraph 152ELA(3)(c)

Item 144 - Paragraph 152ELA(3)(d)

 

Items 139-144 make consequential amendments to subsection 152ELA(3), which provides for the matters that may be dealt with by Procedural Rules made by the ACCC under subsection 152ELA(1), that are necessary as a result of the repeal of section 152AT and Division 8 of Part XIC.

 

Item 145 - Subsections 152ELA(6) and (7)

 

Item 145 makes an amendment to section 152ELA, repealing subsections 152ELA(6) and (7), and substituting proposed subsection 152ELA(6).  This amendment is necessary as a result of the repeal of Division 8 of Part XIC.

 

Item 146 - Before section 152EM

 

Item 146 inserts proposed section 152ELD, which deals with compensation for acquisition of property.

 

Proposed section 152ELD    Compensation for acquisition of property

 

Proposed section 152ELD provides that the Commonwealth must pay a reasonable amount of compensation to a person where the operation of Part XIC, or of the transitional provisions in Division 2 of Part 2 of Schedule 1 to this Bill, would result in an acquisition of property within the meaning of paragraph 51(xxxi) of the Constitution and the determination would otherwise be invalid because a particular person has not been sufficiently compensated.  The amount of compensation is that either agreed by the person and the Commonwealth or, failing agreement, that determined by a court of competent jurisdiction.

 

This provision is similar in operation to section 152EB, which falls within Division 8 of Part XIC and as such is being repealed by item 136.

 

Item 147 - Subsection 155AAA(21) (subparagraph (c)(i) of the definition of protected information )

 

Item 147 makes a consequential amendment to the definition of ‘protected information’ in subsection 155AAA(21) of the TPA, to remove two references to provisions of Part XIC that are being repealed by other items in this Bill.

 

Item 148 - Subsection 171B(1)

 

Item 148 makes a consequential amendment to section 171B of the TPA, which provides that Division 3 of Part IIIA and Division 8 of Part XIC have no effect to the extent (if any) to which they purport to confer judicial power on the ACCC.  As a result of the repeal of Division 8 of Part XIC by item 136, section 171B is amended to remove reference to that Division.  The heading to section 171B is also appropriately amended.

 

Division 2—Transitional provisions

 

Division 2 of Part 2 of Schedule 1 to the Bill includes transitional provisions necessary to give effect to the amendments made by Division 1 of Part 2.

 

Item 149 - Definitions

 

Item 149 provides that definitions for certain terms used in Division 2 of Part 2 of Schedule 1 to the Bill have the same meaning as in Part XIC of the TPA, as amended by Division 1.

 

Item 150 - Transitional—ordinary class exemptions from standard access obligations

Item 151 - Transitional—ordinary individual exemptions from standard access obligations

 

Items 150 and 151 provide that, notwithstanding the repeal of sections 152AS and 152AT and other amendments made by Division 1, ordinary class exemptions and ordinary individual exemptions that are in force prior to the commencement of these items of Division 2 will continue to operate until the first access determination concerning the relevant declared service comes into force .

 

Items 150 and 151 achieve this by providing for the continued application of certain provisions in Part XIC that are repealed by Division 1 of Part 2 of the Schedule of the Bill.  In each case, the continued application of those provisions is subject to the operation of the rest of the item.

 

The reference to “the first access determination” means either the first interim access determination or the first final access determination - whichever is made first.

 

At the time when the ACCC is making the first access determination, it will be able to include provisions under proposed paragraphs 152BC(3)(h) or (i) limiting the application of the standard access obligations.  Such provisions may have a similar effect to exemptions.

 

Item 152 - Transitional—ordinary access undertakings given to the Commission before 15 September 2009

 

Item 152 provides for the continued effect of ordinary access undertakings that were given to the ACCC before 15 September 2009 (being the date this Bill was introduced into the Parliament) and that are accepted by the ACCC before the commencement of item 152, in spite of various amendments made by Division 1.  Item 152 will commence on the day after the Bill receives the Royal Assent: see clause 2.

 

Item 152 achieves this by providing for the continued application of certain provisions in Part XIC that are repealed by Division 1 of Part 2 of the Schedule of the Bill.  The continued application of those provisions is subject to the operation of the rest of item 152.

 

Subitem 152(5) mirrors the effect of proposed section 152CBIC of Part XIC (see item 125) by providing that an access agreement (under proposed Division 4B of Part XIC) prevails over an undertaking to the extent of any inconsistency.

 

Item 153 - Transitional—ordinary access undertakings given to the Commission on or after 15 September 2009

 

Item 153 provides for the continued effect of ordinary access undertakings that are given to the ACCC on or after 15 September 2009 (being the date this Bill was introduced into the Parliament) and that are accepted by the ACCC before the commencement of item 153, in spite of various amendments made by Division 1, but only until the first access determination concerning the relevant declared service comes into force.  Item 153 will commence on the day after the Bill receives the Royal Assent: see clause 2.

 

Item 153 achieves this by providing for the continued application of certain provisions in Part XIC that are repealed by Division 1 of Part 2 of the Schedule of the Bill.  The continued application of those provisions is subject to the operation of the rest of item 153.

 

Subitem 153(6) mirrors the effect of proposed section 152CBIC of Part XIC (see item 125) by providing that an access agreement (under proposed Division 4B of Part XIC) prevails over an undertaking to the extent of any inconsistency.

 

Item 154 - Transitional—arbitration of access disputes

 

Item 154 provides for the ACCC to have a continued role in arbitrating access disputes notified to it under Division 8 of Part XIC of the TPA, in certain specified limited circumstances, notwithstanding the repeal of Division 8 by Division 1 of Part 2 of Schedule 1 of this Bill.  This provision is necessary to enable the transition from the current negotiate/arbitrate model in Part XIC to the model of setting up-front terms and conditions that is implemented by the changes made to Part XIC by this Bill.

 

Item 154 provides for the continued role of the ACCC in arbitrating certain access disputes by providing for the continued application of certain provisions in Part XIC that are repealed by Division 1 of Part 2 of the Schedule of the Bill.  The continued application of those provisions is subject to the operation of the rest of item 154.

 

The ACCC will have 12 months from the commencement of Part 2 of Schedule 1 of the Bill to commence the process of making an access determination for any service that is a declared service at the commencement of proposed section 152BCI (see proposed subsection 152BCI(2)).  Until the ACCC makes the first final access determination for an existing declared service, access disputes may still be referred to the ACCC under Division 8 of Part XIC.

 

Item 154 sets out the circumstances in which, and the period for which, access disputes will still be able to be referred to, and arbitrated by, the ACCC under Division 8 after the commencement of item 154, and the order of precedence between arbitration determinations made by the ACCC under that Division vis-à-vis access determinations and binding rules of conduct.  The effect of item 154 is as follows:

­    Access disputes about a service that is declared after the commencement of item 154 cannot be referred to the ACCC for arbitration.

­    Access disputes about a service that was declared before the commencement of item 154 can be referred to the ACCC for arbitration until the first final access determination is made in relation to the declared service.

­    The ACCC may terminate an arbitration proceeding at any time (without making an arbitration determination) after the ACCC commences a public inquiry about making an access determination in relation to the declared service that is the subject of the arbitration proceeding.

­    A final arbitration determination made by the ACCC after the commencement of item 154 must specify an expiry date.

­    The ACCC cannot make an arbitration determination that is inconsistent with a final access determination that is already in force.

­    An arbitration determination that has an expiry date prevails over a final access determination that is made after the arbitration determination, to the extent of any inconsistency.

­    An access determination prevails over an arbitration determination that does not have an expiry date, to the extent of any inconsistency.

­    An arbitration determination, whether or not it has an expiry date, prevails over an interim access determination, to the extent of any inconsistency.

­    Binding rules of conduct, whenever made, prevail over an arbitration determination that does not have an expiry date, to the extent of any inconsistency.

­    An arbitration determination that has an expiry date prevails over binding rules of conduct, to the extent of any inconsistency.

­    An access agreement under proposed Division 4B of Part XIC prevails over an arbitration determination, to the extent of any inconsistency.

 

Item 155 - Transitional—compliance with standard access obligations

 

The ACCC will have 12 months from the commencement of Part 2 of Schedule 1 of the Bill to commence the process of making an access determination for any service that is currently declared.  Until the ACCC makes an access determination for an existing declared service, the terms of access for the service will continue to be regulated under the current negotiate/arbitrate model.

 

Item 155 establishes a hierarchy, similar to current section 152AY and proposed section 152AY, for identifying the terms and conditions on which a carrier/CSP must comply with the standard access obligations.

 

The reference to ‘access undertaking’ in paragraph 155(2)(b) refers to the ordinary access undertaking mentioned in subparagraph 155(1)(b)(ii) (that is, an ordinary access undertaking which has continued effect by virtue of item 152 or 153).

 

Two notes are included at the end of item 155 to assist the reader.

 

The first note alerts the reader that, before considering the hierarchy that is set out at item 155, it is necessary to consider certain listed provisions of Part XIC that are inserted by this Bill, and other items in Division 2 of Part 2 of Schedule 1 of the Bill, that specify how inconsistency is to be addressed.  For example, subitem 154(10) provides that binding rules of conduct that are inconsistent with an arbitration determination under Division 8 that has an expiry date have no effect, to the extent of the inconsistency.  So if binding rules of conduct and a determination under Division 8 that has an expiry date both provide terms and conditions dealing with a particular matter, in considering the application of the hierarchy at item 155 in such a circumstance, in effect the binding rules of conduct are taken not to address the matter: they have no effect to the extent of the inconsistency.

 

The second note highlights that although, under the hierarchy described above, binding rules of conduct take precedence over an access determination, it is expected that the ACCC will only make binding rules of conduct on an occasional basis.  As noted above, binding rules of conduct are intended to deal with urgent matters.  They have a maximum duration of 12 months.  It is expected that access determinations will be the usual way that the ACCC specifies up-front terms and conditions of access, including terms and conditions for complying with the standard access obligations.

 

Item 156 - Transitional—hindering the fulfilment of an obligation imposed by an arbitration determination

 

Item 156 provides a transitional mechanism permitting section 152EF of the TPA to continue to apply to any obligations imposed by Determinations made by the ACCC under Division 8 of Part XIC that continue to operate as a result of these transitional provisions, in spite of the repeal of that Division by this Bill.

 

Item 157 - Transitional—regulations

 

Item 157 provides that the Governor-General may make regulations in relation to transitional matters arising out of amendments made by Part 2 of Schedule 1 of the Bill.

 



Part 3—Anti-competitive conduct

 

Part 3 of Schedule 1 of the Bill amends the anti-competitive conduct provisions in Part XIB. Part 3 streamlines the enforcement process that the ACCC is required to follow, and clarifies that the competition notice regime applies to content services delivered by carriers and CSPs.

 

Division 1 - Amendments

 

Trade Practices Act 1974



Item 158 - At the end of section 151AF (before the note)

 

Item 158 would amend section 151AF of the TPA to include ‘content services’ in the list of goods and services that are a part of a telecommunications market.  This term is defined in section 151AB as having the same meaning as in the Tel Act.  Section 15 of the Tel Act provides that a content service includes a broadcasting service, an on-line information service, an on-line entertainment service, any other on-line service, or any other service specified by the Minister in a determination.

 

The term ‘content services’ is used in Parts XIB and XIC of the TPA, including section 151BUAAA (this section is being repealed by Part 1 of Schedule 1 of the Bill), subsection 152AF(1) (access by a service provider to a declared service), and section 152AR (supply of an active declared service, permitted interconnection and conditional-access customer equipment).



Part XIB of the TPA sets out a telecommunications specific anti-competitive conduct regime.  Telecommunications carriers and CSPs are prohibited from engaging in anti-competitive conduct.  The circumstances in which a carrier or a CSP engages in anti-competitive conduct relate to conduct in a ‘telecommunications market’.  If the ACCC believes that a carrier or CSP is engaging in anti-competitive conduct in a telecommunications market, it may issue a competition notice under Part XIB.



This provision provides clarity that the anti-competitive conduct provisions within Part XIB apply to content services supplied by carriers and CSPs in telecommunication markets.  This will ensure that the ACCC is able to take enforcement action without doubts over the application of Part XIB to content services. 

 

Item 159 - Subsections 151AKA (9) and (10)

 

Item 159 repeals current subsections 151AKA(9) and (10), which provide for specific consultation to take place before issuing a Part A competition notice, and inserts proposed subsection 151AKA(9) in their place.

 

Current subsections 151AKA(9) and (10) require the ACCC, before it issues a Part A competition notice, to give the carrier/CSP concerned a consultation notice which describes the alleged anti-competitive conduct in summary form, and gives the carrier/CSP an opportunity to make submissions.  Repealing these subsections provides for a more streamlined process for issuing competition notices, to enable the ACCC to move quickly to issue a competition notice as soon as it has reason to believe anti-competitive conduct is occurring in the telecommunications market.

 

Proposed subsection 151AKA(9) expressly removes any common law procedural fairness requirements that may apply to the ACCC when issuing a Part A competition notice.  This provision is intended to eliminate the opportunity of a recipient of a notice from appealing the issuing of the notice on procedural fairness grounds.

 

It should be noted that as a competition notice does not of itself direct a party to take action, there are no penalties for failing to comply with a competition notice.  Before penalties are applied for engaging in anti-competitive conduct, the ACCC has to prove to the Federal Court that the anti-competitive conduct has occurred.

 

Division 2 - Application

 

Item 160 - Application - competition notices

 

Item 160 clarifies that the proposed amendments to section 151AKA made by the Bill will only apply to Part A competition notices issued after the commencement of the item.

 

 



Part 4—Universal service regime

 

Part 4 of Schedule 1 of the Bill amends the Consumer Protection Act to include new requirements for a primary universal service provider to supply, on request, standard telephone services with characteristics and to performance standards determined by the Minister. There are also new provisions providing minimum performance benchmarks that a primary universal service provider must meet in fulfilling its responsibilities.

 

Part 4 also provides the Minister with the power to specify, by written determination, rules and performance standards to which a primary universal service provider must adhere in relation to the supply, installation, maintenance and location of payphones, new rules in relation to public consultation and notification of proposals to remove payphones, and provides for the ACMA to have new powers to direct the universal service provider not to remove payphones.

 

Telecommunications (Consumer Protection and Service Standards) Act 1999

 

Item 161 - Subsection 5(2)

Item 162 - Subsection 5(2)

Item 163 - Subsection 5(2)

 

Item 161 inserts a definition of a ‘payphone carriage service’ into subsection 5(2) of the Consumer Protection Act. This term is proposed to be used in item 175 which inserts revised obligations on primary universal service providers in regard to payphones. 



Item 162 inserts a definition of ‘price-related terms and conditions’ into subsection 5(2) of the Consumer Protection Act. This definition has been relocated from subsection 150(3) (see item 176). The term is now used more widely in Part 2 of the Consumer Protection Act as a result of the amendments proposed under item 175 which enable non-price-related obligations to be placed on primary universal service providers in regard to standard telephone services provided in fulfilment of the universal service obligation. The Minister’s powers to determine price-related terms and conditions, under Division 11 in relation to USO services, and under Part 9 in relation to price control arrangements for carriage services, content services and facilities supplied by Telstra, remain unchanged.

 

Item 163 inserts a definition of ‘VOIP service’ into subsection 5(2) of the Consumer Protection Act to mean a carriage service that enables a voice call to originate on customer equipment by means of the internet protocol.  The term ‘internet protocol’ refers to the method by which data is sent from one computer to another on the internet.  A definition for ‘VOIP service’ is required as a result of the amendments proposed under item 164 below.

 



Item 164 - After section 6

 

Item 164 inserts proposed section 6A, to make it clearer when standard telephone services are taken to be supplied in fulfilment of the universal service obligation and when those services are taken not to have been provided in fulfilment of the universal service obligation. This clarity is required to assist consumers become more aware of the status of the service they are purchasing and their right to a service supplied in fulfilment of the universal service obligation.

 

Proposed section 6A is intended to enable a primary universal service provider to clearly delineate between those services it provides in fulfilment of the universal service obligation and its other standard telephone service offerings. The amendments clarify that standard telephone services supplied in fulfilment of the universal service obligation are not restricted to particular technologies.  The provisions are intended to establish a presumption that standard telephone services supplied by a primary universal service provider which are not mobile or VOIP technologies are subject to the universal service requirements unless the customer agrees otherwise.

 

Proposed subsection 6A(1) clarifies that in order for a standard telephone service that is a public mobile telecommunications service or a VOIP service, to be taken to be supplied in fulfilment of the universal service obligation, the primary universal service provider must, before the customer enters into an agreement with it for the supply of the service:

-           provide the customer with a written notice that the service is supplied in fulfilment of the universal service obligation; and

-           the written notice complies with the requirements (if any) specified in a determination under proposed subsection 6A(2).

 

Proposed subsection 6A(2) provides that the ACMA may, by legislative instrument, determine requirements for the purposes of proposed paragraph 6A(1)(d).

 

Proposed subsection 6A(3) clarifies that a standard telephone service, that is not a public telecommunications service nor a VOIP service, is taken not to be supplied in fulfilment of the universal service obligation in circumstances where, before the customer enters into an agreement with it for the supply of the service:

-           the primary universal service provider in question gives the customer the option of being supplied with another standard telephone service on the basis that the other service would be supplied in fulfilment of the universal service obligation; and

-           the customer has given the provider a written notice acknowledging that the relevant service is not supplied in fulfilment of the universal service obligation; and

-           the written notice complies with the requirements (if any) specified in a determination under proposed subsection 6A(4).

 

Proposed subsection 6A(4) provides that the ACMA may, by legislative instrument, determine requirements for the purposes of proposed paragraph 6A(3)(e).

 

Item 165 - After section 8B

 

Item 165 inserts proposed section 8BA, which provides a special meaning of ‘standard telephone service’ for the purposes of Part 1 of the Consumer Protection Act.

 

Proposed section 8BA    Special meaning of standard telephone service

 

Pursuant to proposed subsection 8BA(1), ‘standard telephone service’ would include the meaning that is provided for under section 6 of the Consumer Protection Act plus any additional characteristics that have been specified by the Minister under a subsection 8BA(2) instrument.

 

Proposed subsection 8BA(2) allows the Minister, by legislative instrument, to determine specified characteristics for the purposes of proposed subsection 8BA(1).

 

The ability of the Minister to prescribe additional characteristics for the standard telephone service under proposed subsection 8BA(2) enables the standard telephone service, which must be supplied on request for the purposes of the universal service obligation, to be more precisely specified. This mechanism could be used, for example, to set specific voice quality requirements.

 

Item 166 - Subsections 9(2) and (3)

 

Item 166 repeals subsections 9(2) and (3) and substitutes a number of subsections which clarify the matters that are included in the universal service obligation.

 

Proposed subsection 9(2) provides that the obligation under paragraph 9(1)(a) includes the obligation to supply standard telephone services ‘on request’, that is, on the request of the person seeking supply of the relevant service.

 

Proposed subsection 9(2A) provides that the obligation under paragraph 9(1)(b) includes the obligation to supply, install and maintain payphones in Australia.

 

Proposed subsection 9(2B) provides that the obligation under paragraph 9(1)(c) includes the obligation to supply prescribed carriage services ‘on request’, that is, on the request of the person seeking supply of the relevant service.

 

Proposed subsection 9(2C) provides that an obligation under paragraph 9(1)(a) or proposed subsection 9(2) does not arise unless the request complies with the requirements (if any) set out in a determination under proposed subsection 9(2D).

 

Proposed subsection 9(2D) allows the Minister, by legislative instrument, to determine requirements for requests, such as the form of the request or information to be provided in a request. 

 

Proposed subsection 9(2E) confirms that the obligation under subsection 9(2) or paragraph 9(1)(a) will not arise under circumstances specified in a determination under proposed subsection 9(3). Proposed subsection 9(3) enables the Minister to determine these circumstances, such as where a request has been already received for the same standard telephone service. It is expected the Minister would also exempt a primary universal service provider from having to supply a service in response to a request where doing so would expose workers to unreasonable dangers, where the customer fails to identify the premises where the service is to be supplied, or where there are demonstrated customer creditworthiness grounds. This determination will be a legislative instrument.

 

Item 167 - Subsection 9(4)

Item 168 - Subsection 9(5)

Item 169 - Subsection 9(6)

 

Items 167, 168 and 169 provide for consequential amendments to be made to the noted subsections as a result of the amendments to section 9 made by item 166.

 

Item 170 - Section 9A

 

Item 170 repeals section 9A and substitutes a proposed section 9A.

 

Proposed section 9A    Reasonable accessibility of prescribed carriage services

 

Proposed section 9A, in effect, re-enacts current subsection 9A(3) and 9A(5) as proposed subsections 9A(1) and 9A(2).  The remaining subsections in current section 9A are no longer required as a result of other amendments made by item 175 of this Bill.

 

Proposed subsection 9A(1) enables the Minister to make a determination regarding what is or is not necessary to determine when prescribed carriage services are reasonably accessible under paragraph 9(1)(c). 

 

Proposed subsection 9A(2) provides that the determination will be a legislative instrument.

 

Item 171 - Subsection 9B(1)

Item 172 - Subsection 9B(1)

Item 173 - Subsections 9B(2), (3), and (4)

 

Items 171, 172 and 173 provide for consequential amendments to be made to the noted subsections as a result of the proposed amendments to section 9 under item 166.

 

Item 174 - Subsection 12C(1)

 

Item 174 would omit the phrase ‘take all reasonable steps to’ from subsection 12C(1). This proposed amendment would clarify the obligations of a primary universal service provider to strictly comply with its service obligations as described under section 12C. This would also make it easier for the ACMA to determine when it could initiate action for breach of an obligation under the universal service regime.  

 

Item 175 - After Subdivision B of Division 5 of Part 2

 

Item 175 inserts proposed Subdivisions BA and BB into Division 5 of Part 2 of the Consumer Protection Act.  Proposed Subdivisions BA and BB include a number of provisions dealing with performance standards and performance benchmarks for standard telephone services and payphones for primary universal service providers to be made by the Minister through legislative instruments.

 

Proposed Subdivision BA—Standard telephone service requirements

 

Proposed section 12EB    Performance standards

 

Proposed subsection 12EB(1) enables the Minister to make a determination setting out standards (performance standards) to be complied with in respect of standard telephone services supplied by a primary universal service provider in fulfilment of the universal service obligation, regarding the following:

-        terms and conditions of the supply of a service to a customer;

-        the reliability of the service;

-        the supply of a temporary service;

-        the maximum period within which the primary universal service provider must supply the service to the prospective customer following a request;

-        the maximum period within which the primary universal service provider must rectify a fault or service difficulty following report by a customer; and

-        any other matter concerning the supply, or proposed supply.

 

Proposed subsection 12EB(2) provides that a determination made under proposed subsection 12EB(1) can be of general or limited application.  This provision does not limit the application of subsection 33(3A) of the AIA.

 

Proposed subsection 12EB(4) imposes a positive obligation on a primary universal service provider to comply with a standard in force under subsection 12EB(1). Any breach of a standard would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 of the Tel Act and section 68 of the Tel Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12EB(5) provides that a determination made under proposed subsection 12EB(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency. 

 

Section 12H requires a universal service provider to submit a draft policy statement and a draft marketing plan to the ACMA for approval. Standard marketing plans set out the provider’s arrangements for supplying and marketing equipment, goods or services in fulfilment of the USO. Policy statements are general statements of the policy the provider will apply in supplying the equipment, goods or services.  It is intended that these documents will continue in force following a Ministerial determination to the extent they are not inconsistent with the determination.

 

Proposed subsection 12EB(6) makes it clear that this section will only apply to a standard telephone service supplied, or proposed to be supplied, in fulfilment of the universal service obligation.

 

A determination under proposed subsection 12EB(1) would be a legislative instrument for the purposes of the LIA (proposed subsection 12EB(7)).  This would mean that the determination would be registered on the Federal Register of Legislative Instruments and would be subject to Parliamentary disallowance.  The Minister could vary the requirements specified in a determination by legislative instrument, or revoke a determination by legislative instrument, relying on subsection 33(3) of the AIA

 

Proposed section 12EC    Performance benchmarks

 

Proposed subsection 12EC(1) enables the Minister to make a determination setting out standards (performance benchmarks) to be complied with by a primary universal service provider in respect of standard telephone services supplied in fulfilment of the universal service obligation in relation to:

-        terms and conditions of the supply to a customer;

-        the reliability of the service;

-        the supply of a temporary service;

-        the maximum period within which the primary universal service provider must supply the service to a prospective customer following a request;

-        the maximum period within which the primary universal service provider must rectify a fault or service difficulty following report by a customer; and

-        any other matter concerning the supply, or proposed supply.

 

This determination would be a legislative instrument (subsection 12EC(5)).  This means that the determination would be registered on the Federal Register of Legislative Instruments and would be subject to Parliamentary disallowance.  The Minister could vary the requirements specified in a determination by legislative instrument, or revoke a determination by legislative instrument, relying on subsection 33(3) of the AIA.

 

Proposed subsection 12EC(1) replicates proposed subsection 12EB(1).  However, it is anticipated that different standards (relating to performance benchmarks) may be set in a determination under proposed subsection 12EC(1) when compared with a determination under proposed subsection 12EB(1), as explained below.

 

Unlike the provisions in section 12EB relating to performance standards, there is no positive obligation on a primary universal service provider to comply with a standard in force under proposed subsection 12EC(1).  Proposed subsections 12EC(10) and (11) also confirm that clause 1 of Schedules 1 and 2 to the Tel Act do not apply to contravention of a standard in force under proposed subsection 12EC(1).  This means that failure by a primary universal service provider to meet a standard under proposed subsection 12EC(1) would not be a breach of a carrier licence condition or a service provider rule.

 

The standards to be specified under proposed subsection 12EC(1) relate to performance benchmarks which a primary universal service provider should aim to achieve and by which minimum benchmarks can be set. There will be an obligation to meet or exceed a minimum benchmark under proposed subsection 12EC(9).  An example of how this would work is given below, where proposed subsection 12EC(6) is discussed.

 

Proposed subsection 12EC(2) provides that a determination made under proposed subsection 12EC(1) can be of general application or limited application. This provision does not limit the application of subsection 33(3A) of the AIA.

 

Proposed subsection 12EC(4) provides that a determination made under proposed subsection 12EC(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency.  As noted above, section 12H provides for the universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Standard marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will fulfil the obligation.

 

Proposed subsection 12EC(6) enables the Minister, by legislative instrument, to set minimum benchmarks in relation to a standard in force under subsection 12EC(1). An example of a minimum benchmark that could be made would be to specify the percentage of occurrences in which a primary universal service provider is expected to meet a performance standard made under proposed section 12EC(1).  For instance, a primary universal service provider could be expected to supply a standard telephone service to a customer within four days of the request as a standard under proposed subsection 12EC(1).  A minimum benchmark in regard to that particular standard could be that the provider must meet the four-day supply period for at least 90 per cent of all requests in any calendar year. 

 

A performance standard made under proposed section 12EC, which is enforced by means of a minimum benchmark (a “benchmark standard”), should be contrasted with a performance standard that could be made under proposed section 12EB, for which compliance with the standard in each occurrence is made a service provider rule and a carrier licence condition (a “direct standard”).  The two types of performance standard can co-exist, and can address the same subject matter: it would be expected that a primary universal service provider would be expected to meet stricter requirements in a benchmark standard than in a direct standard.  So, the benchmark standard might provide that a service must be supplied within four days of request.  A primary universal service provider must meet this requirement in the percentage of occurrences specified in the benchmark made by the Minister (90 per cent of requests, in the above example).  However, a direct standard could operate at the same time, providing that for each and every request the primary universal service provider must supply the service in a different period, which would be longer: for instance, 15 days.  In that case, if the provider takes 16 days to supply a service, it is in breach of the direct standard.  It may also be in breach of the benchmark, or it may not: that would depend on its overall performance in supplying services in response to requests over the course of a year.

 

Proposed subsection 12EC(7) confirms an instrument under proposed subsection 12EC(6) may be of general or limited application.  This provision does not limit subsection 33(3A) of the AIA.

 

Proposed subsection 12EC(9) places an obligation on a primary universal service provider to meet or exceed any minimum benchmarks that are set out in an instrument under subsection 12EC(6).   Failure to meet or exceed a minimum benchmark under proposed subsection 12EC(6) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 of the Tel Act and section 68 of the Tel Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Subdivision BB - Payphone requirements

 

Proposed subsection 12ED    Performance standards

 

Proposed subsection 12ED(1) enables the Minister to make a determination setting out standards (performance standards) to be complied with in respect of the following matters regarding payphone carriage services:

-        the characteristics (such as provision of a dial tone);

-        the supply, installation or maintenance of a payphone;

-        the supply of a payphone carriage service;

-        the reliability of a payphone;

-        the reliability of a payphone carriage service;

-        the maximum period within which a primary universal service provider must rectify a fault or service difficulty to a payphone following a report;

-        the maximum period within which a primary universal service provider must rectify a fault or service difficulty to a payphone carriage service following a report;

-        the handling of requests for the removal of a payphone; and

-        any other matter concerning the supply, installation or maintenance of a payphone or the supply of a payphone carriage service.



A determination made under subsection 12ED(1) would be a legislative instrument (subsection 12ED(6)).

 

Proposed subsection 12ED(2) provides that the determination made under this section can be of general or limited application.  It may be necessary, for example, to limit a standard setting out periods for rectification of faults to deal with circumstances that are beyond the payphone carriage service provider’s fault, for example due to vandalism.  Proposed subsection 12ED(3) notes that proposed subsection 12ED(2) does not limit the application of subsection 33(3A) of the AIA.

 

Proposed subsection 12ED(4) places an obligation on a primary universal service provider to comply with a determination made under proposed subsection 12ED(1).  Any breach of a determination under proposed subsection 12ED(1) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 of the Tel Act and section 68 of the Tel Act) for which standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12ED(5) provides that a determination made under proposed subsection 12ED(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency. 

 

Section 12H provides for universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Universal marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will fulfil the obligation.

 

Proposed section 12EE    Performance benchmarks

 

Proposed subsection 12EE(1) enables the Minister to make a determination setting out standards (performance benchmarks) to be complied with in respect of the following payphone carriage services:

-        the characteristics (such as provision of a dial tone);

-        the supply, installation or maintenance of a payphone;

-        the supply of a payphone carriage service;

-        the reliability of a payphone;

-        the reliability of a payphone carriage service;

-        the maximum period within which a primary universal service provider must rectify a fault or service difficulty to a payphone following a report;

-        the maximum period within which a primary universal service provider must rectify a fault or service difficulty to a payphone carriage service following a report;

-        the handling of requests for the removal of a payphone; and           

-        any other matter concerning the supply, installation or maintenance of a payphone or the supply of a payphone carriage service.

 

A determination made under subsection 12EE(1) would be a legislative instrument (subsection 12EE(5)).

 

Proposed subsection 12EE(1) replicates proposed subsection 12ED(1).  However, it is anticipated that different standards (relating to performance benchmarks) would be set in a determination under proposed subsection 12EE(1) when compared with a determination under proposed subsection 12ED(1), as explained below.

 

Unlike the provisions in section 12ED relating to performance standards, there is no obligation on a primary universal service provider to comply with a standard in force under proposed subsection 12EE(1).  Proposed subsections 12EE(10) and (11) also confirm that clause 1 of Schedules 1 and 2 to the Tel Act do not apply to contravention of a standard in force under proposed subsection 12EE(1).  This means failure to meet a standard under proposed subsection 12EE(1) would not be a breach of a carrier licence condition or a service provider rule.

 

The standards to be specified under proposed subsection 12EE(1) are performance benchmarks which a universal service provider should aim to achieve and by which minimum benchmarks can be set. There will be an obligation to meet or exceed a minimum benchmark under proposed subsection 12EE(9).   An example of how this would work is given below, where proposed subsection 12EE(6) is discussed.

 

Proposed subsection 12EE(2) provides that a determination made under proposed subsection 12EE(1) can be of general application or limited application.

 

Proposed subsection 12EE(3) notes that subsection 12EE(2) does not limit the application of subsection 33(3A) of the AIA.

 

Proposed subsection 12EE(4) provides that a determination made under proposed subsection 12EE(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency. 

 

Section 12H provides for universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Standard marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will fulfill the obligation.

 

Proposed subsection 12EE(6) enables the Minister, by legislative instrument, to set minimum benchmarks in relation to a standard in force under subsection 12EE(1).  An example of a minimum benchmark that could be made would be to specify the percentage of occurrences in which a primary universal service provider is expected to meet a performance standard made under proposed section 12EE(1).  For instance, a primary universal service provider could be expected to rectify a payphone fault within three days of that fault being reported as a standard under proposed subsection   12EE(1).  A minimum benchmark in regard to that particular standard could be that the provider must meet the three-day fault rectification period for at least 90 per cent of all requests in a calendar year.

 

A performance standard made under proposed section 12EE, which is enforced by means of a minimum benchmark (a “benchmark standard”), should be contrasted with a performance standard that could be made under proposed section 12ED, for which compliance with the standard in each occurrence is made a service provider rule and a carrier licence condition (a “direct standard”).  The two types of performance standard can co-exist, and can address the same subject matter: it would be expected that a primary universal service provider would be expected to meet stricter requirements in a benchmark standard than in a direct standard.  So, the benchmark standard might provide that a payphone fault must be repaired within three days of being reported.  A primary universal service provider must meet this requirement in the percentage of occurrences specified in the benchmark made by the Minister (90 per cent of requests, in the above example).  However, a direct standard could operate at the same time, providing that for each and every payphone fault that is reported, the primary universal service provider must rectify the payphone fault in a different period, which would be longer: for instance, 10 days.  In that case, if the provider takes 11 days to supply a service, it is in breach of the direct standard.  It may also be in breach of the benchmark, or it may not: that would depend on its overall performance in rectifying payphone faults in response to reports over the course of a year.

 

Proposed subsection 12EE(7) confirms an instrument under proposed subsection 12EE(6) may be of general or limited application.  This provision does not limit subsection 33(3A) of the AIA.

 

Proposed subsection 12EE(9) places an obligation on a primary universal service provider to meet or exceed any minimum benchmarks that are set out in an instrument under proposed subsection 12EEA(6).  Failure to meet or exceed a minimum benchmark under proposed subsection 12EEA(6) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 of the Tel Act and section 68 of the Tel Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12EF    Rules about the location of payphones

 

Proposed subsection 12EF(1) enables the Minister to make a determination setting out rules to be complied with in relation to the places or areas in which payphones are to be located.  A determination made under subsection 12EF(1) will be a legislative instrument (proposed subsection 12EF(5)).

 

Proposed subsection 12EF(2) places a positive obligation on a primary universal service provider to comply with a determination made under proposed subsection 12EF(1). Any breach of a determination under proposed subsection 12EF(1) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 of the Tel Act and section 68 of the Tel Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12EF(3) provides that if a primary universal service provider  complies with a determination made under proposed subsection 12EF(1), the provider is taken to have complied with its obligations under paragraph 9(1)(b) and proposed subsection 9(2A), which relate to the location of payphones. This subsection clarifies the primary universal service provider’s obligations in regard to the location of payphones.

 

Proposed subsection 12EF(4) provides that a determination made under proposed subsection 12EF(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency.  Section 12H provides for universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Standard marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will fulfil the obligation. This amendment makes it clear that the intended purpose of these documents is to inform rather than enforce obligations.

 

Proposed subsection 12EG    Rules about the process for public consultation on the location or removal of payphones

 

Proposed subsection 12EG(1) allows the Minister to make a determination setting out rules to be complied with by a primary universal service provider in relation to the public consultation on the location or removal of payphones.  The determination may provide for different consultation and notification processes for different classes of payphones (see subsection 33(3) of the AIA), for example the process may be very simple for a payphone located on privately owned land, such as a shopping mall in a major city, while the process may be complex for a payphone located on public land in a remote area.

 

Proposed subsection 12EG(2) sets out public consultation and notification requirements that must be stipulated in a determination under proposed subsection 12EG(1) in the event:

-        a primary universal service provider makes a decision to remove a payphone from a particular location; and

-        that payphone is the only payphone at that location.

 

Proposed subsection 12EG(3) places an obligation on a primary universal service provider to comply with a determination made under proposed subsection 12EG(1). Any breach of a determination under proposed subsection 12EG(1) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition (see clause 1 of Schedule 1 to the Tel Act and section 68 of that Act) and a service provider rule (see clause 1 of Schedule 2 to the Tel Act, and section 101 of that Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12EG(4) provides that a determination made under proposed subsection 12EG(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency. 

 

Section 12H provides for universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Standard marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will progressively fulfil the obligation.

 

Proposed subsection 12EG(5) confirms that a determination under proposed subsection 12EG(1) is a legislative instrument.

 

Proposed subsection 12EH    Rules about the process for resolution of complaints about the location or removal of payphones

 

Proposed subsection 12EH(1) allows the Minister to make a determination setting out rules to be complied with by a primary universal service provider in relation to resolving complaints about the location or removal of payphones.

 

Proposed subsection 12EH(2) places an obligation on a primary universal service provider to comply with a determination made under proposed subsection 12EH(1). Any breach of a determination under proposed subsection 12EH(1) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition and a service provider rule (see clause 1 of Schedule 1, clause 1 of Schedule 2 to the Tel Act and sections 68 and 101 of that Act) for which the standard enforcement provisions under the Tel Act apply.   

 

Proposed subsection 12EH(3) provides that a determination made under proposed subsection 12EH(1) will prevail over an approved policy statement or an approved standard marketing plan, if there is any inconsistency.  Section 12H provides for universal service providers to submit draft policy statements and draft marketing plans to the ACMA for approval. Standard marketing plans and policy statements are intended to support and supplement the universal service obligation by setting out how the provider will progressively fulfill the obligation.

 

Proposed subsection 12EH(4) confirms that a determination under proposed subsection 12EH(1) is a legislative instrument.

 

Proposed subsection 12EI    Directions by the ACMA about the removal of payphones

 

Proposed section 12EI contains provisions giving the ACMA the power to issue written directions to a primary universal service provider regarding a decision to remove a payphone from a particular location.

 

Proposed subsection 12EI(1) outlines the scope of proposed section 12EI, providing that the section applies if:

-        a primary universal service provider has made a decision to remove a payphone from a particular location; and

-        a person notifies the ACMA, in writing, that the person objects to the removal; and

-        the ACMA is satisfied that the removal would breach, or has breached, a determination under proposed subsection 12EF(1) or the ACMA is satisfied that the provider has breached a determination under proposed subsection 12EG(1) in relation to the removal.

 

Proposed subsection 12EI(2) gives the ACMA the power to issue a written direction to a provider directing the provider not to remove the payphone notified under proposed subsection 12EI(1), in circumstances where the payphone in question has not yet been removed.

 

Proposed subsection 12EI(3) gives the ACMA the power to issue a written direction to a provider directing that the provider supply and install a payphone at the location from which it has been removed and to do so within a specified period.

 

Proposed subsection 12EI(4) provides that the period in which a payphone must be supplied and installed as specified in a direction under proposed subsection 12EI(3) must not be shorter than 30 days.

 

Proposed subsection 12EI(5) confirms that a direction under proposed subsection 12EI(2) or (3) must not be inconsistent with a determination under proposed subsection 12EF(1) (being a determination about the places or areas where payphones must be located).

 

Proposed subsection 12EI(6) places an obligation on a primary universal service provider to comply with a direction under proposed subsection 12EI(2) or (3).  This means a failure to comply with a direction under proposed subsection 12EI(2) or (3) would be a breach of the Consumer Protection Act, and consequently a breach of a carrier licence condition and a service provider rule (see clause 1 of Schedule 1, clause 1 of Schedule 2 to the Tel Act and sections 68 and 101 of that Act) for which the standard enforcement provisions under the Tel Act apply.  

 

Proposed subsection 12EI(7) confirms, for the avoidance of doubt, that a direction by the ACMA under proposed subsection 12(2) or (3) is not a legislative instrument.

 



Item 176 - Subsection 150(3)

 

Item 176 repeals subsection 150(3). That subsection, which provided a definition for ‘price-related terms and conditions’, is no longer required as a result of the proposed insertion of a definition for ‘price-related terms and conditions’ into section 5 under item 162 of this Bill.



Part 5—Customer Service Guarantee

 

Part 5 of Schedule 1 to the Bill amends the Consumer Protection Act relating to the CSG.  Amendments made by Part 5 provide for:

-        the Minister to establish minimum CSG performance benchmarks to arrest the decline in telecommunications service quality standards;

-        the Minister to establish new CSG timeframes for connections and repair that will apply to wholesale providers to assist retail providers of CSG services meet CSG service quality standards;

-        clarification of CSG waiver provisions provided for under section 122 of the Consumer Protection Act. A customer’s express agreement for a waiver will be required;

-        certainty that the CSG cannot be waived for a telephone service that is supplied in fulfilment of the Universal Service Obligation.

 

Telecommunications (Consumer Protection and Service Standards) Act 1999

 

Part 5 of the Act establishes the customer service guarantee. Under section 115, the ACMA makes performance standards to be complied with by carriage service providers relating to customer service. If a service provider contravenes a standard, it is liable to pay damages to the customer.

 

Item 177 - Before section 113

 

As part of the amendments made by Part 5 of Schedule 1 of the Bill, Part 5 of the Consumer Protection Act is restructured by creating four Divisions within Part 5.  Item 177 inserts the heading for Division 1 (Introduction) at the start of Part 5.

 

Item 178 - Section 113

 

Item 178 inserts additional points into the simplified outline of Part 5, which summarise the amendments to be made by this Bill. These include enabling the Minister to make performance standards in relation to wholesale carriage services and to set minimum benchmarks in relation to compliance with performance standards by carriage service providers.

 

Item 178 - After section 114

 

Proposed section 114A    Wholesale carriage service and wholesale customer

 

Item 178 inserts proposed section 114A into the Act, which defines the terms ‘wholesale carriage service’ and ‘wholesale customer’ for the purposes of proposed Division 3, which will enable wholesale performance standards and benchmarks to be set.  An example of a ‘wholesale carriage service’ is where a carrier service provider purchases a carriage service, such as a wholesale line rental product, from another provider, such as Telstra, and then on-sells a standard telephone service to a residential or business customer.  The carriage service supplied to the second provider to resell is a wholesale carriage service and the carriage service provider reselling the service is the wholesale customer.

 

Item 178 also includes a heading for Division 2 (Retail performance standards and benchmarks) after proposed section 114A.

 

Item 180 - After subsection 115(2)

 

Section 115 enables the ACMA to make performance standards relating to customer service.

 

The provisions to be included in proposed Division 3, inserted by item 182, enable the Minister to make legislative instruments regarding wholesale carriage services and wholesale customers and performance standards and benchmarks.

 

As a consequence, item 180 inserts proposed subsection 115(2A) to make it clear that a standard made by the ACMA under subsection 115(1) does not apply in relation to the supply, or proposed supply, of a wholesale carriage service.

 

Item 181 - Subsections 115(5) and (6)

 

Item 181 repeals subsections 115(5) and 115(6) of the Consumer Protection Act and replaces them with proposed subsection 115(5), which provides that an instrument made by the ACMA regarding performance standards under subsection 115(1) is a legislative instrument.  Current subsection 115(5) specifies the manner in which the date of commencement of an instrument under subsection 115(1) is determined and current subsection 115(6) confirms that such an instrument is a disallowable instrument.  Current subsection 115(5) is no longer required as the commencement date of a legislative instrument can be determined in accordance with section 12 of the LIA.  Current subsection 115(6) is no longer required as new proposed subsection 115(5) confirms that an instrument under subsection 115(1) is a legislative instrument.

 

Item 182 - After section 117A

 

Item 182 would insert a number of proposed sections into the Consumer Protection Act dealing with performance standards made by the Minister through a legislative instrument.

 

Proposed section 117B    Performance benchmarks

 

Proposed section 117B would enable the Minister to set minimum benchmarks concerning compliance with a standard in force under section 115. Section 115 provides for the making of performance standards. Subsection 115(1) gives the ACMA the power to make standards to be complied with by carriage service providers in relation to:

·       the making of arrangements with customers about the period taken to comply with requests to connect customers to specified kinds of carriage services;

·       the periods that carriage service providers may offer to customers when making the above arrangements;

·       compliance by carriage service providers with the terms of those arrangements;

·       the period taken to comply with requests to rectify faults or service difficulties relating to specified kinds of carriage services;

·       the keeping of appointments to meet customers (or their representatives, eg. family members) about such connections and rectifications; and

·       any other matter concerning the supply, or proposed supply, of a carriage service to a customer.

 

Restricting minimum benchmarks under proposed section 117B to those standards under section 115 ensures that the performance standards will relate to matters that could reasonably affect the carriage service provider’s ability to provide carrier services to a customer that meet the performance standards.

 

Proposed subsection 117B(2) provides that an instrument made under this section can be of general application or may be limited. This provision is included because an instrument may need to recognise circumstances where only certain standards should not apply, for example in circumstances beyond the carriage service provider’s control, or where an instrument should be limited to a specific group of carriage service providers.

 

Proposed subsection 117B(3) notes that proposed subsection 117B(2) does not limit the application of subsection 33(3A) of the AIA.

 

Proposed section 117C    Compliance with performance benchmarks

 

Proposed section 117C applies where an instrument under proposed section 117B setting performance benchmarks applies to the provider. Proposed subsection 117C(2) creates an obligation on the carriage service provider to meet or exceed the minimum benchmark that is set by the Minister in the proposed section 117B instrument. This obligation is a service provider rule (see clause 1 of Schedule 2 to the Tel Act) and is subject to the standard enforcement mechanisms in that Act applying to service provider rules.

 

Proposed Division 3—Wholesale performance standards and benchmarks

 

Proposed section 117D    Performance standards

 

Proposed section 117D would enable the Minister to set performance standards to be complied with by carriage service providers in relation to a matter that:

·       concerns the supply, or proposed supply, of wholesale carriage services to a wholesale customer;  and

·       is capable of affecting the capacity or ability of a wholesale customer to comply with a standard in force under section 115 in relation to a matter concerning the supply, or proposed supply, of a carriage service by the wholesale customer.

 

‘Wholesale carriage service’ and ‘wholesale customer’ are defined in proposed section 114A (see item 179).

 

It is intended that performance standards in relation to wholesale carriage services  will relate to matters that could reasonably affect the ability of wholesale customers to supply carriage services to their end-users.

 

Proposed subsection 117D(2) provides that the instrument made under this section can be of general application or may be limited. This provision is included because an instrument may need to recognise circumstances where certain standards should not apply, for example in circumstances beyond the wholesale carriage service provider’s control, or where an instrument should be limited to a specific group of wholesale carrier service providers. Proposed subsection 117D(3) notes that proposed subsection 117D(2) does not limit the application of subsection 33(3A) of the AIA.

 

Proposed section 117E    Performance benchmarks

 

Proposed section 117E would enable the Minister to set minimum benchmarks in relation to compliance by wholesale carriage service providers in relation to a standard set out in an instrument made under proposed section 11