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Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019



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ISSN 1328-8091

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BILLS DIGEST NO. 97, 2019-20 12 MAY 2020

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 Howard Maclean and Juli Tomaras Law and Bills Digest Section

Contents

Glossary .......................................................................... 6

The Bills Digest at a glance ............................................ 13

History of the Bills ......................................................... 17

Purpose of the Bills ....................................................... 17

Structure of the Bills...................................................... 18

Commencement ........................................................... 18

Background ................................................................... 19

Policy Background to the RBS & SIP .......................... 19

History of providing services to regional and rural Australia—post and telephone service obligations ............................................................... 19

Broadband internet policy in Australia ................... 20 Evolution of the Legislation ....................................... 22

Origins—the Vertigan Panel .................................... 22

Government Response to the Vertigan Panel ........ 23 Bureau of Communications Research report .......... 23 Telecommunication Reform Package Exposure Drafts ....................................................................... 23

Productivity Commission inquiry ............................ 24

Differences between the 2018 and 2019 Bills .......... 24 Committee consideration .............................................. 25

Senate Environment and Communications Legislation Committee .............................................. 25

2017 Committee Inquiry ......................................... 25

Date introduced: 28 November 2019

House: House of Representatives

Portfolio: Communications, Cyber Safety and the Arts

Commencement: Various dates as set out in the body of this Bills Digest. Links: The links to the Bills, their Explanatory Memoranda and second reading speeches can be found on the Bill home pages for Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at May 2020.

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Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 2

2019 Committee Inquiry ......................................... 25

Labor Senators’ additional comments .................. 26 Australian Greens’ dissenting report .................... 27 Senate Standing Committee for the Scrutiny of Bills ............................................................................ 27

Joint Standing Committee on the National Broadband Network .................................................. 27

Policy position of non-government parties/independents.................................................... 28

Labor .......................................................................... 28

The Greens ................................................................ 28

Dr Helen Haines ......................................................... 28

Centre Alliance .......................................................... 28

Other parties and Independents ............................... 28

Position of major interest groups................................... 28

Position of the telecommunications industry ........... 31 Regional Broadband Scheme .................................. 31

Statutory Infrastructure Provider regime ............... 32 Position of the ACCC and PC ..................................... 32

Position of other groups ........................................... 33

Financial implications .................................................... 34

Special appropriation ................................................ 35

Statement of Compatibility with Human Rights.............. 35

Parliamentary Joint Committee on Human Rights ........................................................................ 35

The Regional Broadband Scheme ................................... 36

Purpose of the RBS .................................................... 36

Key issue: is this the best funding model? .............. 37 Direct budget finding ............................................. 37

Broad based tax ..................................................... 37

Effect on low-income households ......................... 38

Key issue: reliance on outdated information .......... 39 Key Issue: Emergence of Low Earth Orbit Satellite Broadband (LEOSB) ................................... 40

What this means for the NBN ............................... 41

Government Response .......................................... 42

Who is liable to pay the charge? ............................... 43

What are chargeable premises associated with a local access line? ..................................................... 43

Potentially chargeable premise ............................. 44

Types of premises exempt from the charge ......... 44 Five year concession period .................................. 44

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Key issue: non-greenfield concession limited by greenfield concession .............................................. 45

Key issue: difficulty identifying the basis of the charge ...................................................................... 45

Key issue: exclusion of non-fixed connections from the charge ....................................................... 47

Is wireless substitutable for fixed-line broadband? ........................................................... 47

The view that NBN Co should bear most costs of the levy itself ..................................................... 48

Industry position ................................................... 49

The challenge of 5G mobile to NBN’s FTTN business model ...................................................... 50

How much is the charge? .......................................... 52

How are the annual base amounts calculated? ...... 52 Base component .................................................... 52

Administrative cost component ............................ 53

Parliamentary disallowance of Minister’s determination ........................................................ 54

Key issue: charge cap insufficient to fund RBS........ 54 How is the charge assessed and collected? .............. 55 Carrier reporting obligations ................................... 56

Assessment .............................................................. 56

Collection and recovery of charge .......................... 56

Publishing the charge collected .............................. 57

Penalties and anti-avoidance .................................. 57

Penalties ................................................................ 57

Anti-avoidance measures ...................................... 57

How are eligible funding recipients funded? ............ 58 Terms and conditions of grants............................... 58

Performance monitoring ......................................... 58

Contracts and grants register .................................. 59

Charge offset mechanism ....................................... 59

Key issue: funding transparency concerns .............. 60 Key issue: funding can only be applied to fixed-wireless & satellite connections .............................. 61

The RBS Special Account ........................................... 62

Reimbursement of ACCC & ACMA expenses .......... 62 Information gathering & legislative review .............. 63 ACMA and ACCC powers ......................................... 63

One-off carrier reporting obligation ....................... 63

Legislative Review of the RBS .................................. 63

Key Issue: ‘set and forget concerns’........................ 63

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Charge and policy reviews not synchronised ........ 64 Consequential changes ............................................. 65

Amendments to the CCA ......................................... 65

Amendments to the Telecommunications Act ........ 65 Statutory Infrastructure Provider scheme ...................... 65

What is the SIP scheme? ........................................... 66

What are the service areas and who is the SIP? ....... 66 Interim service areas ............................................... 66

Key issue: Telstra’s obligations prior to the completion of the NBN ............................................ 67

The general service area ......................................... 67

Nominated service areas ......................................... 68

Real estate development project .......................... 68

Building redevelopment project ........................... 69

Key Issue: nominated service area requirements unclear ..................................................................... 70

Designated service areas ......................................... 71

Key issue: power is extremely broad ...................... 71

What are the obligations of a SIP? ............................ 72

Obligation to connect premises .............................. 72

Obligation to supply eligible services ...................... 73

Key issue: peak bandwidth SIP obligations may be inadequate ......................................................... 75

Key issue: limitations of fixed-wireless definition ... 76 Key issue: SIP Issues with Low Earth Orbit Satellite Broadband. ................................................ 77

What if a SIP can’t meet its obligations? .................. 78 Standards, benchmarks and rules ........................... 78

NBN Co targets .......................................................... 78

Speed target of fixed-line connections ................... 79 Fixed-line connections coverage target .................. 79 NBN Co service maps..................................................... 79

Amendments to the ‘superfast network rules’ ............... 79

Background ............................................................... 80

Part 7: supply of layer 2 bitstream services to access seekers ......................................................... 80

Exemptions from standard access obligations ...... 81 Part 8: structural separation of retail and wholesale networks ............................................... 81

Repeal of Part 7 ........................................................ 81

Transitional provisions ........................................... 82

Amended definition of layer 2 bitstream services .................................................................... 83

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Amendments to Part 8 ............................................. 83

Removal of regulation for networks servicing small business customers ....................................... 83

Key issue: removal of the 1km exemption ............ 84 Key issue: removal of networks servicing small businesses ............................................................... 85

Functional separation undertaking provisions ...... 86 Division 2B: standard functional separation undertakings .......................................................... 86

Division 2C: non-discrimination rules .................... 87 Concluding comments ................................................... 88

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Glossary 2018 Bills Telecommunications Legislation Amendment

(Competition and Consumer) Bill 2018 and the Telecommunications (Regional Broadband Scheme) Charge Bill 2018.

2018 Charge Bill Telecommunications (Regional Broadband

Scheme) Charge Bill 2018.

2018 TLACC Bill Telecommunications Legislation Amendment

(Competition and Consumer) Bill 2018.

5G mobile networks 5G is the fifth generation wireless technology

for digital cellular networks that began wide deployment in 2019.1 In addition to delivering faster connections and greater capacity, a very important advantage of 5G is the fast response time referred to as ‘latency’.2

Access agreement An agreement between a carrier (access

provider) and an access seeker for the supply of declared services.3 The requirements for a legally valid Access Agreement are set out in section 152BE of the Competition and Consumer Act 2010 (CCA). An access seeker is a content service provider or carriage service provider that makes, or proposes to make, a request to NBN Co for access to its services, as defined in section 152AG of the CCA.

Bandwidth The maximum rate of data transfer across a

given path in a fixed amount of time. For digital devices, the bandwidth is usually expressed in bits per second (bps) or bytes per second.

Carriage service provider (CSP)4 A CSP uses carriers’ facilities to supply telecommunications services such as phone or internet to the public over network units

1. The NBN, on the other hand, is primarily a fixed line connection that relies on extensive fibre and copper lines to connect a home or business to the internet. 2. 3G networks had a typical response time of 100 milliseconds, 4G is around 30 milliseconds and 5G will be as low as 1 millisecond. This is virtually instantaneous. The NBN offers top speeds of up to 100Mbps. However, currently 5G coverage is

extremely limited in comparison to the NBN. Source: EMF Explained 2.0, ‘5G explained - how 5G works’, EMF Explained 2.0 website. 3. A declared service is one declared under Part XIC of the Competition and Consumer Act 2010, which establishes an access regime under which service providers can access declared telecommunications services in order to supply end-users. The right

to access follows declaration of a service. The declaration of a service fundamentally involves consideration about the long term impact on end-users of that declaration, whether those interests will be promoted and specifically whether declaration will promote competition, achieve any-to-any connectivity (that is, any network, any speed, any interface) and encourage economically efficient use of, and investment in, infrastructure. Source: Australian Competition and Consumer Commission (ACCC), A guideline to the declaration provisions for telecommunications services under Part XIC of the Competition and Consumer Act 2010, August 2016. When a service is declared the network owner, for example Telstra, must provide access to the service upon request, and if a commercial agreement can't be reached the ACCC is in charge of determining regulated price and non-price terms. 4. Under the Telecommunications Act 1997, two main types of organisations are involved in the provision of services to the

public: carriers and carriage service providers.

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that a licensed carrier owns, or network units covered by a nominated carrier declaration. Internet service providers (ISPs) are carriage service providers.

Carrier (access provider)5 Carriers operate telecommunications

‘network units’6 and infrastructure. Their facilities may include: transmission infrastructure, cabling, wireless networks and satellite facilities.

CCA Competition and Consumer Act 2010.

Charge Bill Telecommunications (Regional Broadband

Scheme) Charge Bill 2019.

FTTC, FTTN/FTTB, FTTP, Hybrid Fibre Coaxial, Sky Muster Satellite, Sky Muster Satellite Plus.

These are all types of NBN connections, which aim to provide access to faster speeds. They differ in regards to the installation process, rollout costs and expected timeframes.7

Fibre to the Node (FTTN) If a premises is connected to the NBN via

FTTN, this involves running an NBN fibre optic line to a mini network/exchange (node) located at the end of that street or between a few streets. From that point, it is connected to a household through copper or coaxial lines.

Fibre to the Basement or Building (FTTB) A fibre optic line is run to the fibre node in the building’s communications room, then the existing technology (copper) in the building is used to connect each apartment. A FTTB connection is generally used when connecting an apartment block or similar building to the NBN access network.8 According to the latest NBN corporate plan, about 40 per cent of all NBN connections will be facilitated via FTTN or FTTB connection types (NBN Co doesn't breakout individual numbers for these two). Only 40 per cent of premises will be connected via FTTP and HFC technologies, and about 10 per cent via FTTC.9

5. The owner(s) of a network unit(s) must not allow use of their network units to provide services to the public unless they hold a carrier licence, or a nominated carrier declaration is in force over the network units or an exemption applies. Source: Australian Communications Media Authority (ACMA), ‘Apply for a nominated carrier declaration’, ACMA website.

6. A ‘network unit’ is defined in the Telecommunications Act 1997, Part 2, Division 2. 7. Aussie Broadband, ‘FTTP vs FTTN vs FTTC: connections to the National Broadband Network explained’, Aussie Broadband blog, 6 September 2018. 8. NBN Co Limited (NBN Co), ‘nbn™ FTTB made easy’, NBN Co website. 9. NBN Co Limited, Corporate Plan 2020-23, 2019, p. 49, Table 4 Activation Profiles. Note the figures in this table differ from the

ready to connect (RTC) profiles figures (Table 3), which are higher.

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Fibre to the Curb (FTTC) A fibre optic line is run to the curb of a

property, where it then makes use of a premises’ existing copper technology to go the rest of the distance. FTTC was introduced in June 2018, and has a shorter copper loop than FTTN. Around 3.5 per cent of NBN customers have FTTC connections.10

Fibre to the Premises network (FTTP) The NBN fibre is connected all the way to premises, reaching home or business premises via fibre-optic cable laid either in the ground or coming to premises via overhead lines. This is known as Fibre to the Premise (FTTP) or ‘fibre to the home’ connection. Around 23 per cent of NBN customers have NBN FTTP connections.11

NBN Fixed Wireless NBN broadband access to homes and

business in regional and remote Australia delivered by a dedicated 4G mobile network. NBN Fixed Wireless connection transmits data using radio signals (wirelessly) instead of cables. Fixed transmission towers communicate ‘over the air’ with specific NBN equipment that is inside and outside a home. Thus broadband internet is delivered wirelessly directly to a home modem from a transmission tower. Around five per cent of NBN customers have NBN Fixed Wireless connections.12

G.fast G.fast technology enables access to ultra-fast

speeds on FTTC or FTTB networks. It is designed to enable NBN to cost-effectively deliver ultra-fast broadband services across its FTTC and FTTB network.13

Hybrid Fibre Coaxial (HFC) A combination of fibre optic and copper

coaxial cables able to deliver large amounts of data. Typically used to deliver internet services and pay television services. Around 16.5 per cent of NBN customers have NBN HFC connections.14

10. Ibid. 11. Ibid. 12. NBN Co Limited, Corporate Plan 2020-23, op cit. p. 49. 13. G.fast is able to deliver speeds all the way up to 1Gbps and beyond, albeit over short distances of less than 100 metres.

Source: JB Rousselot, ‘nbn set for G.fast launch in 2018’, nbnco blog, 25 October 2017. 14. NBN Co Limited, Corporate Plan 2020-23, op. cit., p. 49.

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Layer 2 bitstream services15 Access to an Ethernet cable network which is

supplied by the owner of that infrastructure (the cable) for transporting data from one point to another. This enables retail service providers to supply broadband services to end-users without needing to build a direct physical connection (a cable) to them.16 In short, a layer 2 bitstream service is the wholesale internet service that a wholesaler (such as OptiComm) provides to a retailer (such as Aussie Broadband) so that they can provide an internet connection to a consumer.

Low earth orbit satellite broadband (LEOSB) LEO satellites for broadband internet access orbit closer to Earth (160-19,300km) compared with traditional GEO satellites which orbit at 35,400km. This means they offer substantially lower latency than conventional satellite internet services.

Multi Technology Mix (MTM) model17 NBN comes in different forms depending on the location of a home or business. The multi-technology mix includes FTTP, FTTN, FTTB, FTTC, G.fast, HFC, Sky Muster satellite, Sky Muster Plus satellite. For example, some homes and businesses are already connected to the NBN using FTTP technology that reaches them via fibre-optic cable laid either in the ground or coming to their home or business premises via overhead lines. Other people will be connected to the NBN using FTTN technology. Thus, the main network will be composed of new fibre optic cables which connect to a premises' existing copper wiring from a node. A node is a box that usually sits at the end of the street and contains network equipment.

National Broadband Network (NBN) An Australian national wholesale-only, open-

15. The OSI (Open Systems Interconnection) model divides telecommunications into seven layers. Layer 1: The physical layer— This layer conveys the bit stream through the network at the electrical and mechanical level. It provides the hardware means of sending and receiving data on a carrier. Layer 2: The data-link layer—This layer provides synchronization for the physical level and does bit-stuffing for strings of 1's in excess of 5. It furnishes transmission protocol knowledge and management. Layer 3: The network layer—This layer handles the routing of the data (sending it in the right direction to the right destination on outgoing transmissions and receiving incoming transmissions at the packet level). The network layer does routing and forwarding. Source: A Kucharik, ‘Network layers explained’, Tech Target Search Networking, September 2002.

16. Department of Infrastructure, Transport, Regional Development and Communications (DITRDC), ‘Telecommunications Act Parts 7 and 8 requirements and exemptions’, DITRDC website. 17. In 2009, the then Labor Government undertook to provide a fast NBN with optical fibre cables direct (FTTP) to most homes and businesses. See K Rudd (Prime Minister), W Swan (Treasurer), L Tanner (Minister for Finance) and S Conroy (Minister for

Broadband, Communications and the Digital Economy), New National Broadband Network, joint media release, 7 April 2009. With the change to an Abbott Coalition Government, this was changed to a multi technology mix model including optical fibre, copper wires, Hybrid Fibre Coaxial (HFC), fixed wireless and satellite. See C Irigoyen, ‘The National Broadband Network in Australia’, Centre for Public Impact: A BCG Foundation, 5 September 2017; G Philipson, ‘No NBN upgrades planned for FttN’, itwire, 31 August, 2019.

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access data network project. It includes wired and radio communication components rolled out and operated by NBN Co Limited. Internet service providers, known as retail service providers (RSPs), contract with NBN to access the network and sell fixed Internet access to customers (households and businesses).18

NBN Co Limited (NBN Co) NBN Co-operates the NBN—it is wholly

owned by the Commonwealth of Australia as a Government Business Enterprise, incorporated under the Corporations Act 2001 and operated in accordance with the Public Governance, Performance and Accountability Act 2013 and the National Broadband Network Companies Act 2011.19

NBN fibre NBN fibre is also known as a Fixed-Line

internet that is capable of supporting high bandwidth for multiple users. NBN fibre reaches a home via fibre-optic cable. Fibre-optic cable is used because it allows fast uploads and downloads.

Non-commercial services Fixed wireless and satellite services used to

deliver broadband services outside the NBN’s fixed-line footprint. These are ‘non-commercial’ in that these services are far more expensive to operate than customers would be willing to pay for, so they are cross-subsidised by NBN’s profitable services.20

Regional Broadband Scheme (RBS) A tax proposed under the Charge Bill and TLACC Bill of $7.10 a month on all active fixed-line broadband customers to subsidise those connecting to NBN’s loss-making fixed wireless and satellite technologies which provide essential broadband services to regional, rural and remote Australians.

Retail Service Provider (RSP) An RSP is an internet service provider which contracts with the NBN to access the broadband network in order to sell internet access to customers (households and businesses).

Sky Muster Satellite NBN broadband access network to homes

and businesses in regional and remote Australia, via two geostationary satellites. These require a roof satellite dish to be

18. NBN Co ‘Our purpose’. 19. NBN Co Limited, ‘About NBN Co’, NBN Co Limited website. 20. Bureau of Communications Research, NBN non-commercial services funding options: Final Consultation Paper, Department of Communications and the Arts, Canberra, 2015, p. 7.

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installed on the home or business and an NBN supplied modem to be installed at the point where the cable from the satellite dish enters the premises.21

Special access undertakings (SAU) Voluntary undertakings given to the Australian Competition and Consumer Commission (ACCC) by a carrier or carriage service provider under section 152BEBE of the CCA about differences between an access agreement and those undertakings.22 Thus the SAU specifies the terms and conditions upon which the carrier or carriage service provider agrees to supply products and services to its customers.

Statutory Infrastructure Provider (SIP) A wholesale broadband provider proposed under the TLACC Bill. NBN Co will be the default SIP for all of Australia. Other network providers will also be SIPs where they own infrastructure. For example, where they have contracts to service premises in a new real estate development.23

SIP (statutory infrastructure provider) obligations Obligations proposed to be imposed on SIPs (under the TLACC Bill) to connect and supply

wholesale broadband services to premises. These are designed to ensure that all Australian premises are able to access superfast broadband services (25 Megabits per second (Mbps) or better), even those within the wireless as well as satellite footprint.24

Superfast (or ‘NBN-comparable’) carriage services. A superfast carriage service is one capable of normally delivering a download speed of

25Mbps or greater to end-users, and the carriage service is supplied using a line to a premises occupied or used by an end-user.25

TCPSS Act Telecommunications (Consumer Protection

and Service Standards Act) 1999

21. NBN Co Ltd, ‘Sky Muster™ satellite service’, NBN Co website. 22. Section 152BE of the CCA deals with access agreements between a carrier (access provider) and an access seeker in relation to access to a ‘declared service’. 23. DITRDC, ‘Telecommunications reform package’, DITRDC website. 24. Ibid. 25. Telecommunications Act 1997, section 142A, definition ‘superfast carriage service’. Importantly, the performance standard of

a superfast carriage service is different from a ‘qualifying carriage service’ that a SIP is required to provide (defined at proposed section 360A of the Telecommunications Act, at item 7 of Schedule 3 to the TLACC Bill). A qualifying carriage service requires a ‘peak download transmission speed’ of at least 25 megabits per second’ rather than a ‘download transmission speed [that] is normally more than 25 megabits per second’. ‘Peak’ refers to the evening peak loads, when speeds are slowest, implying that a qualifying service must always be faster than 25mbps, while a superfast service only needs to ‘normally’ be faster than 25mbps, producing different standards.

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Telstra Universal Service Obligation Performance Agreement (TUSOPA)26 TUSOPA was signed in June 2011 and came into force on 1 July 2012. From July 2012 to

July 2015, TUSOPA was administered by the Telecommunications Universal Services Management Agency (TUSMA). TUSMA was abolished in 2015, and management of TUSOPA reverted to the Department of Communications and the Arts. TUSOPA supports the achievement of the universal service obligation (USO) policy objective of providing ‘reasonable access’ to standard telephone services and payphones on an ‘equitable basis’ to all Australians, through a 20-year contract with Telstra. Under TUSOPA, Telstra receives a fixed and unindexed annual GST inclusive payment of $253 million to deliver standard telephone services and $44 million to deliver payphones.27

TLACC Bill Telecommunications Legislation Amendment

(Competition and Consumer) Bill 2019

Universal Service Obligation (USO) The policy objective of providing ‘reasonable access’ to standard telephone services and payphones on an ‘equitable basis’ to all Australians. Currently legislated as Part 2 of the Telecommunications (Consumer Protection and Service Standards Act) 1999.

Wholesale Broadband Agreement Sets out the contractual terms (including service levels and performance objectives) on which NBN Co supplies products and services to its wholesale customers.28

26. Australian Communications and Media Authority, ‘Universal Service Obligation’, ACMA website. 27. The information in this cell has been taken directly from Australian National Audit Office (ANAO), ‘Summary and Recommendations’ in Management of the Contract for Telephone Universal Service Obligations, Auditor-General Report No. 12 OF 2017-2018-18, 29 September 2017, p. 7.

28. NBN Co, ‘Wholesale Broadband Agreement (WBA)’, NBN Co website.

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The Bills Digest at a glance

Purpose of the Bills

The purpose of the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 (TLACC Bill) and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 (Charge Bill) is to create a:

• statutory guarantee of internet services to every Australian premise (the Statutory Infrastructure Provider (SIP) regime) and

• funding vehicle to subsidise meeting that guarantee in non-commercial areas (the Regional Broadband Scheme (RBS)).

The RBS is an industry levy paid into a special account which in turn provides subsidies via grants or contracts to NBN Co.

The TLACC Bill also makes amendments to the superfast network obligation rules in the Telecommunication Act, and requires the NBN to provide mapping data.

Evolution of the Legislation

The Bills are a response to the 2014 Vertigan Panel review into the NBN. Since then, the RBS was the subject of consultation and report by the Bureau of Communications Research (BCR) in 2015-2016, an exposure draft consultation in 2016-2017, was introduced to the 45th Parliament in 2017, before lapsing at the dissolution of the 45th Parliament and being reintroduced with minor changes in November 2019.

Senate Economics Legislation Committee inquires

The Bills have been the subject of inquiries by the Senate Environment and Communications Legislation Committee—both in 2017 and 2019.

Both Committees recommended the Bills be passed after the adoption of certain amendments (disallowance provision amendments for the 2017 Inquiry and transparency measures for the 2019 Inquiry).

Labor Senators issued additional comments, and the Australian Greens issued dissenting reports to both inquiries.

Position of major interest groups

There is in-principle support for the SIP scheme across major interest groups, although there are some technical concerns with the operation of the scheme.

The RBS is more divisive, with the telecommunications industry split:

- Telstra and Optus, as operators of the two currently operational 5G mobile networks, support the proposed RBS broadly, and oppose any reform of the RBS to include mobile services

- much of the rest of the industry, particularly NBN-comparable networks such as TPG and OptiComm (that will be subject to the RBS) oppose the RBS either largely or entirely. In the absence of direct budget funding, some support a broad-based tax which would likely see the RBS extended to mobile services

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• community stakeholders largely avoided a technical discussion of the operation of the Bills, but expressed in-principle support for the policy objectives of the SIP regime and the creation of a long term funding vehicle to provide for it and

• the Productivity Commission and the ACCC expressed a view that general budget funding would be a more efficient, flexible and less distortionary method of funding the SIP regime than the RBS.

Financial Implications

The RBS is intended to be revenue neutral to the overall budget as a self-funding scheme that raises and spends money internal to it. Administrative costs are intended to be reimbursed to the Budget by way of funds raised through the RBS charge.

Regional Broadband Scheme

The Regional Broadband Scheme is a monthly industry charge paid by owners of fixed-line broadband internet networks on every premise they serve with an internet service that month. On commencement, the charge will be $7.10 per month.

The charge is calculated monthly but collected annually, paid into an RBS Special Account. The Secretary may then issue grants and enter into contracts in relation to funding fixed wireless and satellite services with eligible funding entities (currently only NBN Co), and debit amounts from the special account to fund such contracts and grants.

There following key issues have been identified:

1. direct budget funding is preferred to the RBS by the Vertigan Review, the Productivity Commission, the ACCC, and some stakeholders

2. the RBS cost modelling dates from 2015, and is based on a different charge base (services-in-operation) than the current proposed RBS, leading to stakeholder concerns that the modelling is no longer current

3. the arrival of low earth orbit satellite broadband (LEOSB) may render the assumptions underpinning the RBS and SIP scheme outdated—namely, it may make service to regional and remote areas commercial, and threaten NBN’s Skymuster satellite and fixed wireless services

4. the RBS excludes mobile network connections from the charge, giving a competitive advantage to mobile providers over fixed-line providers. Given the increasing roll-out of 5G, various stakeholders are concerned that this will both heavily distort the market and lead to a reduced charge base as consumers substitute fixed-line for mobile connections (and avoid paying into the RBS)

5. the RBS charge and RBS charge cap has not been adjusted for inflation with the reintroduction of the Bills and

6. various stakeholders and the Senate Inquiry raised concerns about the transparency of funding provided under the scheme.

Statutory Infrastructure Provider regime

The SIP Scheme is designed to guarantee that every premise in Australia has access to an internet connection of at least 25 megabits per second. A SIP is obligated to provide a fixed-line connection, or if that is not reasonable, a fixed wireless or satellite connection.

NBN Co is intended to be the default SIP for Australia. However, under certain circumstances other carriers must nominate as a SIP for an area, for example if a carrier is contracted to provide

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connections to a real estate or building development. The Minister may also designate carriers as a SIP by legislative instrument.

The following key issues have been identified with the SIP Regime:

1. Telstra has expressed concern with potential gaps in the SIP scheme prior to the completion of the NBN

2. the power of the Minister to designate carriers as SIPs is very broad

3. SIP bandwidth guarantees may be insufficient to future needs

4. the definition of ‘fixed wireless’ under the SIP Scheme may impede technological advances

5. Telstra has expressed concern that a carrier who installs mobile infrastructure in a new real estate development may become legally obligated to provide fixed-line internet network under the current legislation, outside the policy intent of the proposal and

6. future LEOSB may be excluded from the definition of ‘qualifying satellite carriage service’, potentially preventing such services from being offered to meet SIP obligations.

Amendments to the Superfast Network Rules

The TLACC Bill also repeals Part 7 and makes substantial amendments to Part 8 of the Telecommunications Act. These parts concern regulation of non-NBN fixed-line internet networks in Australia that service residential and small business customers, generally requiring them to be wholesale only (that is, structurally separated). Broadly, these amendments:

• remove small business services from the ambit of regulation

• allow carriers other than NBN or Telstra to functionally separate their retail internet and wholesale internet services subject to approval from the ACCC

• allow the ACCC to exempt small providers from obligations

• impose new non-discrimination requirements and

• replace an exemption which allows existing networks to extend by up to 1km from their pre-NBN boundaries without engaging regulation under these sections.

There are two key issues identified with the amendment to the Superfast Network Rules:

1. current legacy network (pre-NBN) carriers oppose the removal of the exemption that allows them to extend their legacy networks up to 1km from their pre-NBN bounds. Other stakeholders support the removal as a way to prevent such networks from ‘cherrypicking’ highly profitable areas in inner metro areas and

2. the removal of small business networks from superfast network obligations elicited mixed reactions from stakeholders.

NBN Co mapping data

The TLACC Bill will also require NBN to provide mapping data to be published on the National Map website. The mapping data to be provided is about premises connected, or due to be connected, to the NBN based on geographic location and technology type.

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Concluding comments

The policy objectives of the Bills have near universal support among stakeholders and other commentators. The methods through which the Bill seeks to achieve those objectives, particularly the RBS, has attracted substantial and varied criticism across stakeholder groups.

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History of the Bills The Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018 (2018 TLACC Bill) and the Telecommunications (Regional Broadband Scheme) Charge Bill 2018 (2018 Charge Bill) were introduced into the House of Representatives on 22 June 2017 and passed the House on 10 May 2018. Government amendments to both Bills were made in the House.29 Both Bills were introduced into the Senate on 18 June 2018. Further Government amendments, and amendments by the Australian Greens and the Australian Labor Party (Labor), were proposed in the Senate, but the Bills lapsed at the dissolution of the 45th Parliament on 1 July 2019.30

The Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 (TLACC Bill) and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 (Charge Bill) were introduced into the House of Representatives on 28 November 2019 and passed the House on 13 February 2020.

While the 2019 Bills are mainly the same as the 2018 Bills that passed the House of Representatives (that is, with the Government amendments made in the House), there have been a number of changes to the drafting of both Bills, in particular:

• the TLACC Bill incorporates the Government amendments to the 2018 Bill moved in the Senate31 and

• the Charge Bill reflects amendments suggested by the Government and Opposition to the 2018 Charge Bill in the Senate.32

Purpose of the Bills The Bills have three inter-related purposes:

• to establish the Rural Broadband Scheme (RBS), imposing an industry levy on all fixed-line internet connections to fund subsidises for satellite and fixed wireless connections in rural and regional Australia. The Charge Bill is a taxation Bill that establishes the RBS charge. Schedule 4 of the TLACC Bill amends the Telecommunications (Consumer Protection and Service Standards Act) 1999 (TCPSS Act) to establish the administration of the scheme and govern the payment of subsidies

• to establish the Statutory Infrastructure Provider (SIP) regime. Statutory Infrastructure Providers would be required to provide a fixed-line service to any premise in the area in which they are the SIP, or if a fixed-line service is not reasonable, fixed wireless or satellite services. NBN Co is envisaged to be the default SIP nationally, but the regime sets out ways in which other carriers must become SIPs and

• to reform regulation of Non-NBN Carrier Networks in Parts 7 and 8 of the Telecommunications Act 1997. This includes amendments to the exceptions to further network expansion, and

29. Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018 (2018 TLACC Bill), amendment, sheet LC109, House of Representatives, 12 February 2018; Telecommunications (Regional Broadband Scheme) Charge Bill 2018 (2018 Charge Bill), amendment, sheet HV220, House of Representatives, 12 February 2018; Australia, House of Representatives, ‘Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018’, Votes and proceedings, 109, 10 May 2018, p. 1512; Australia, House of Representatives, ‘Telecommunications (Regional Broadband Scheme) Charge Bill 2018’, Votes and proceedings, 109, 10 May 2018, p. 1522.

30. 2018 TLACC Bill, amendment, sheet LC 176 [Government]; sheet 8420 [Australian Greens]; sheet 8471 and sheet 8423 [ALP]; 2018 Charge Bill, amendment, sheet LC188 [Government] and sheet 8474 revised [ALP]. 31. 2018 TLACC Bill, sheet LC 176, op. cit. 32. 2018 Charge Bill, amendment, sheet LC188 [Government] and sheet 8474 revised [ALP], op. cit.; P Fletcher, ‘Second reading

speech: Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019’, House of Representatives, Debates, 28 November 2019, p. 6350.

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provisions for structural separation undertakings by non-NBN carrier networks into wholesaling and retail business units.

Structure of the Bills The TLACC Bill is divided into five schedules:

• Schedule 1 repeals Part 7 of the Telecommunications Act (which deals with the regulation of non-NBN carriers offering Layer 2 bitstream services) and makes consequential amendments to the Competition and Consumer Act 2010 (CCA)

• Schedule 2 amends Part 8 of the Telecommunications Act (which deals with the regulation of non-NBN carriers offering superfast fixed-line networks) and makes consequential amendments to related legislation

• Schedule 3 creates the SIP regime

• Schedule 4 sets out the operational arrangements of the RBS and

• Schedule 5 requires NBN Co. to provide data on premises connected to the NBN for publication on the National Map website.

The Charge Bill is not subdivided into parts or divisions—it establishes the amount of and imposes liability for the charge.

Commencement The Charge Bill commences as follows:

• sections 1 and 2 on Royal Assent

• sections 3 to 20—at the same time as Schedule 4 of the Telecommunications Legislation Amendment (Competition and Consumer) Act 2019 (that is, Schedule 4 of the TLACC Bill)

The TLACC Bill commences as follows:

• sections 1 to 4—on Royal Assent

• Schedule 1—the day after Royal Assent

• Schedule 2—three months after Royal Assent

• Schedule 3—Division 1 in Part 1 the day after Royal Assent; Division 2 in Part 1 the earlier of a day fixed by proclamation and 1 July 2020; Part 2, immediately after Division 2 of Part 1 of Schedule 3 commences

• Schedule 4—the day after Royal Assent and

• Schedule 5—the day after Royal Assent.

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Background

Policy Background to the RBS & SIP

History of providing services to regional and rural Australia—post and telephone service obligations Providing broadband services to rural and regional Australia is currently very expensive;33 more expensive than what most customers in this area would be willing to pay if such services were charged at the cost of providing them.34

Ensuring equal access to communication services between all Australians regardless of address has been an uncontroversial core policy and expectation of the Commonwealth since Federation. Australia Post’s obligation to deliver services throughout Australia at a single uniform rate of postage is a core social promise and a statutory requirement under section 27 of the Australian Postal Corporation Act 1989.

As technology has evolved, this commitment has varied in its strength and response. The first iteration of the Telecommunications Universal Service Obligation (TUSO) under the Telecommunications Act 1975, obligated Telecom Australia to provide telecommunication services ‘available throughout Australia for all people who reasonably require those services’.35

With the deregulation of the telecommunication sector in the 1990s and the privatisation of Telstra between 1996-2007, this original statutory responsibility of Telecom gradually evolved into the current Universal Service Obligation/Telecommunications Industry Levy Scheme (USO/TIL) legislated in 2011-2012.36 The USO/TIL Scheme is focussed on provision of telephone line infrastructure and standard telephone services. Telstra continues to be the sole universal service provider under this scheme, obligated to provide voice telephony services that are ‘reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business’.37

33. Bureau of Communications Research, NBN non-commercial services funding options: final report, Department of Communications and the Arts, Canberra, March 2016, p. 7.: estimated that the ‘the net present value (NPV) loss for fixed wireless and satellite services to FY2040 is approximately $9.8 billion’. It is on this estimate the Government relies in introducing the Bills. In 2018, NBN fixed wireless and satellite services were losing $105-$110 per connection per month, see J Gothe-Snape ‘NBN fixed wireless blowing out bush broadband bill as Government pins hopes on fixed-line levy’, ABC News, 1 June 2018.

34. M Vertigan (Chair), Cost‐Benefit Analysis and Review of Regulation Panel, Independent cost‐benefit analysis of broadband and review of regulation, volume 1: National Broadband Network market and regulatory report, The Panel, [Canberra], August 2014, pp. 58-59.

35. Telecommunications Act 1975, section 6(1). 36. As the Telecommunications (Consumer Protections and Service Standards) Act 1999 (Cth) and the Telecommunications (Industry Levy) Act 2012 (Cth). See M Coombs, Telecommunications (Industry Levy) Bill 2011, Bills digest, 112, 2011-12, Parliamentary Library, Canberra, 2011.

37. Section 9 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (TCPSSA Act) provides that for the purposes of that Act, the universal service obligation is the obligation: (a) to ensure that standard telephone services are reasonably accessible to all people in Australia on an equitable basis wherever they reside or carry on business; and

(b) to ensure that payphones are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business. The obligation mentioned in (a) includes the obligation to supply standard telephone services to people in Australia on request. The obligation mentioned in (b) includes the obligation to supply, install and maintain payphones in Australia and is

subject to any declaration made by the Minister in relation to standard telephone services.

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Broadband internet policy in Australia The Regional Broadband Scheme and Statutory Infrastructure Provider Regime represent the latest development in a long history of government regulation, intervention and subsidisation of broadband internet—together, the regime proposes to extend the obligation of universal and equitable access to communication services to broadband internet.

The SIP Regime obligates the National Broadband Network Company (NBN Co) and other SIPs (as nominated or designated over time) to provide broadband internet services to every premise in Australia.38 The RBS is a funding mechanism that collects money via an industry charge on every fixed-line broadband connection and then makes payments to eligible funding entities (by default, NBN Co) via grants or contracts, intended to cover losses incurred in meeting their SIP obligations.39

The Keating Government first addressed the policy issue of the nascent Internet with the Networking Australia’s Future Report in 1994. From the onset, the challenge of ensuring the accessibility of broadband in regional and rural Australia, as well as the possibility of including broadband internet within a universal service obligation were recognised.40 The Report noted:

If Broadband services become a basic communications requirement, consideration will need to be given to how to fund the roll-out of these services to areas of low population density. Essentially, the options involve either some form of cross subsidy or direct government funding. 41

[emphasis added]

Government policy since has followed a mix of these two options. From 1997 through to 2007, the Howard Government pursued a series of direct government funding programs, beginning with the Networking the Nation Fund (1997-2004), which distributed $351.13 million directly on a project by project basis across regional Australia.42

This was followed by the High Bandwidth Incentive Scheme (HiBIS) in 2003, a subsidy scheme which provided registered internet service providers with incentive payments to supply higher bandwidth services in regional and rural Australia at prices comparable to those available in metropolitan areas.43 HiBIS was followed by the Broadband Connect package in 2005, and then the Australian Broadband Guarantee (ABG) in 2007.44 In 2006, the Howard Government announced $958 million in funding for the OPEL Network, an industry proposal to deliver wholesale broadband internet in regional rural Australia (cancelled in 2008).45

These packages all focused on providing direct government subsidies to the industry or community organisations to subsidise the cost of providing services in regional and rural Australia.

38. Proposed subsection 360P(1) of the Telecommunications Act, at item 7 of Schedule 3 to the TLACC Bill. 39. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 (TLACC Bill), pp., 12, 24 and 174. 40. Networking Australia's future: the final report of the Broadband Services Expert Group, The Group, Canberra, 1994, pp. 51-53. 41. Ibid., p. 53. 42. As of 30 June 2003, Australian National Audit Office (ANAO), The Administration of Telecommunication Grants, Audit Report,

12, 2003-04, ANAO, Canberra November 2003, p. 11. For more details on its operation see the ANAO Performance Audit on the NTNF and the report: Australian National Audit Office (ANAO), Networking the nation: the Regional Telecommunications Infrastructure Fund, Audit report, 43, 1998-99, ANAO, Canberra, 1999. 43. ANAO, Management of the Higher Bandwidth Incentive Scheme and Broadband Connect Stage 1, Audit Report, 36, 2006-2007, ANAO, Canberra, May 2008, p. 13. 44. ANAO, Management of the Australian Broadband Guarantee Program, Audit Report 28, 2010-11, ANAO, Canberra, February 2011, p. 13-14. 45. Optus, Elders and Optus to build rural and regional broadband network media release, 18 June 2007; ‘Australia announces vast national broadband plan’, Sydney Morning Herald, 19 June 2007; S Conroy (Minister for Broadband, Communications and the Digital Economy), Opel Networks Funding Agreement not to proceed, media release, 2 April 2008.

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It is significant that by 2005, there was a discernible and fundamental change in the way in which people were using the internet. The arrival of YouTube was a marker of that change; the video sharing service posted its first video on 23 April 2005.46 People started to use it as a means for uploading and sharing content they had developed themselves. This expanded into far greater and regular social, commercial and political use with people increasingly posting their own videos on YouTube and digital photos, and then sharing their opinions and stories on blogs and social networking sites like Facebook, Twitter and so forth.

The increased use of the internet has resulted in an increased demand for greater bandwidth. This has generated arguments for timely investment in a sophisticated telecommunications network that is future-proofed, ensuring that people from now until many years into the future can use the internet in the ways we are using it now, and ways not yet contemplated.

The strategy used by the Howard Government shifted with the election of the Rudd Government in November 2007 and the announcement in December 2007 by Senator Stephen Conroy of the newly elected Government's commitment to building a national high-speed broadband Fibre to the Node (FTTN) network.47

On 7 April 2009, the Rudd Government announced a large-scale national telecommunications infrastructure project, with concomitant plans to establish a company (NBN Co) to build and operate a National Broadband Network which would deliver superfast broadband services to homes and businesses across Australia. The government would be the majority shareholder of NBN Co, joining with private investors though eventually selling its interest five years after the NBN is operational, ‘consistent with market conditions, and national and identity security considerations’.48 The aims of this infrastructure project included improving competition in the telecommunications sector, stimulating investment, increasing speed and improving quality in communications technology for businesses and rural Australians in particular. There was also the important goal of elevating Australia’s international standing as measured by telecommunications indicators such as broadband take‐up, accessibility of digital content, and competition in the Internet Service Provider (ISP) sector.49

Under the subsequent Gillard Labor Government, it was decided that the NBN proposal would be expanded in its reach, with the goal of providing access to NBN Co’s fibre network (specifically, the FTTP network) to 93 per cent of Australian premises, providing them with accessing speeds of up to 100 Megabits per second (‘Mbps’) (later increased to 1000 Mbit/s), with the remaining seven per cent of premises having accessing speeds of up to 12 Mbps through next generation satellite and wireless technology.50

46. B Moylan, ‘A Decade of YouTube Has Changed the Future of Television’, TIME, (online edition), 23 April 2015. 47. This plan had been foreshadowed in 2006 when the Federal Labor Opposition led by Kim Beazley committed the Australian Labor Party, if elected to government, to a 'super-fast' national broadband network. See L Green and A Bruns ‘.au Australia’ Digital Review of the Asia-Pacific, 2007-2008, p. 92, citing Beazley, K. (2006). Real family values. Speech to the Tasmanian ALP

State Conference; G Bradford, Beazley makes broadband promise, The World Today, transcript, 12 May 2006; S Conroy (Minister for Broadband, Communications and the Digital Economy), Government committed to FTTN national network, media release, 7 December 2007. 48. K Rudd (Prime Minister), W Swan (Treasurer), L Tanner (Minister for Finance) and S Conroy (Minister for Broadband, Communications and the Digital Economy), New National Broadband Network, joint media release, 7 April 2009. 49. Department of Broadband, Communications and the Digital Economy, National Broadband Network: regulatory reform for 21st century broadband: discussion paper, Canberra, 2009, pp. 3-5. 50. J Gillard (Prime Minister) and S Conroy (Minister for Broadband, Communications and the Digital Economy), NBN: Fibre for over 1,000 Australian cities and towns, joint media release, 30 July 2010. The initial proposal was for 90 per cent rather than 93 per cent fibre access: Rudd, Swan, Tanner and Conroy, New National Broadband Network, op. cit., 7 April 2009. The then

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The Abbott Government re-visited some of the decisions made under the Labor Government in relation to the network strategy and its architecture as Labor's NBN was behind schedule and over budget when the government lost office in 2013.51 The Abbott Government replaced the largely fibre-to-the-premises (FTTP) model initiated by the Labor Government with a Multi Technology Mix (MTM) model. The MTM uses a range of fixed-line architectures and other technologies including copper wires, fibre-to-the-node (FTTN), fibre-to-the-curb (FTTC) and Hybrid Fibre Coaxial (HFC), and satellite. This approach has raised debate about cost-effectiveness and efficacy of the network.52 Nonetheless, adopting the MTM had the virtue of being cheaper to build, and quicker to roll out. There was also an argument that NBN could be delivered cheaper and sooner, with the earlier arrival of revenue from business and residential customers able to fund subsequent upgrades to the network. There is debate about whether this has been achieved.53

With NBN Co being created as a virtual public monopoly over broadband internet connections, protected from competition by legislation,54 the method used to fund it shifted towards a cross subsidy. The costs of NBN providing services to regional areas by satellite and fixed wireless networks would be covered by higher prices on customers in urban areas.55

This cross subsidy arrangement has held throughout the rollout of the NBN, supplemented by direct government programs such as the Mobile Blackspot Program, and the 2019 Stronger Regional Digital Connectivity Package.56

Evolution of the Legislation

Origins—the Vertigan Panel On 12 December 2013, the newly elected Abbott Government issued terms of reference for the Independent Cost-Benefit Analysis of Broadband and Review of Regulation by a NBN Panel of experts chaired by Dr Michael Vertigan AC (the Vertigan Panel).57The Vertigan Panel delivered three reports:

• the Statutory Review Under Section 152EOA of the Competition and Consumer Act 2010 in June 2014, and

• the two volume report: National Broadband Network Market and Regulatory Report (v. 1) and the Costs and Benefits of High-speed Broadband (v. 2) in August 2014 (collectively referred to as the ‘Vertigan Review’ in this Digest).

Labor Government confirmed the wireless technology would be ‘next‐generation fixed wireless’; ‘National Broadband Network to be 10 times faster says Stephen Conroy’, news.com.au, 12 August 2010. 51. M Turnbull, 'NBN rebooted': address to CommsDay Conference, Sydney, 18 November 2013; P Manning, ‘What has gone wrong with the NBN?’, ABC: The Drum, 2 March 2016; G Philipson, ‘No NBN upgrades planned for FttN’, itwire, 31 August, 2019; L Van

Onselen, ‘Labor’s NBN gold-plated’, originally published in Australian Economy, 27 August 2014. Reproduced in macrobusiness.com.au.

52. G Thompson, ‘Australia was promised superfast broadband with the NBN. This is what we got’, ABC News, 24 April 2019. 53. D Braue, ‘NBN fibre rollout was going to be cheaper, sooner, pilot results show’, Sydney Morning Herald, 6 September 2014. 54. Including by the Superfast Network obligations in Parts 7 and 8 of the Telecommunications Act, which Schedules 1 and 2 of the TLACC Bill amend.

55. NBN Co, Supporting submission NBN Co Special Access Undertaking, 28 September 2012, pp. 8, 10, 113-114. 56. DITRDC, ‘Mobile Blackspot Program’, DITRDC website; DITRDC, ‘Regional Connectivity Program’, DITRDC website. 57. Department of Communications, ‘Independent cost-benefit analysis and review of regulation terms of reference’, 11 December 2013.

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Government Response to the Vertigan Panel The Government released its response to the recommendations of the Vertigan Panel on 11 December 2014 in the Telecommunications Regulatory and Structural Reform government policy paper. In it, the Government, amongst other things:

• accepted recommendation 3, to repeal Part 7 of the Telecommunications Act

• accepted recommendation 4, to amend various aspects of Part 8 of the Telecommunications Act

• accepted recommendation 5, to legislate Infrastructure Provider of Last Resort obligations on NBN Co

• rejected elements of recommendation 11 (funding of non-commercial services). While the Vertigan Panel at several points had indicated a preference for subsidies to be directly budget funded, they recommended that a single annual broad-based levy similar to the current USO/TIL scheme be adopted that would fund both broadband and voice services.58 The Government rejected this recommendation, instead proposing an alternative narrow based industry levy (the RBS)). The response also announced that the Government would ask the Bureau of Communications Research (BCR) to inquire into and report on the amount of non-commercial funding required.59

The Government’s response to these four recommendations forms the core of the current Bills before Parliament:

• recommendation 3 (repeals Part 7 of the Telecommunications Act) is set out in Schedule 1 of the TLACC Bill

• recommendation 4 (amends Part 8 of the Telecommunications Act) is set out as Schedule 2 of TLACC Bill, although it has evolved from its original scope

• recommendation 5 has evolved into the proposed SIP scheme in Schedule 3 of the TLACC Bill and

• the Government’s position on recommendation 11 has evolved into the proposed RBS in the Charge Bill and Schedule 4 of the TLACC Bill.

Bureau of Communications Research report The BCR published the consultation paper NBN non-commercial Services Funding Options on 1 April 2015 and conducted a second consultation, NBN non-commercial services funding options: final consultation paper between 13 October 2015 and 3 November 2015. The BCR published NBN non-commercial services funding options: final report in March 2016—it became the basis of the RBS.

Telecommunication Reform Package Exposure Drafts In December 2016, the Department of Communication and the Arts (DOCA) released the Telecommunication Legislation Amendment (Competition and Consumer) Bill and the Telecommunications (Regional Broadband Scheme) Bill as exposure drafts.60 Consultation ran from 12 December 2016 to 3 February 2017, and the Department received 29 submissions.

58. M Vertigan, Independent Cost‐benefit Analysis of Broadband and Review of Regulation: volume 1: National Broadband Network market and regulatory report, op. cit., p. 21. 59. Australian Government, Telecommunications Regulatory and Structural Reform, Policy paper, December 2014, pp. 9-12. 60. DITRDC, ‘Consultation on the Telecommunications Reform Package’, DITRDC website.

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Productivity Commission inquiry Simultaneous to the BCR inquiry and the DOCA Exposure Draft consultation process was the Productivity Commission inquiry into the Telecommunications Universal Service Obligation.

The Productivity Commission received Terms of Reference for the inquiry on 28 April 2016, and published an Issues Paper on 7 June 2016. The Final Report was provided to the Government on 28 April 2017 and publicly released on 19 June 2017.61

As discussed at numerous points in this Digest, the Productivity Commission inquiry report was broadly critical of the approach that the Government had adopted in designing the RBS and echoed the original Vertigan Panel opinion that the USO and RBS should not be considered independently of each other.

Differences between the 2018 and 2019 Bills Government amendments to the 2018 Bills were made in the House during the consideration in detail stage and have been incorporated into the Bills.62 These amendments contained strengthened disallowance procedures in response to recommendations by the Senate Standing Committee for the Scrutiny of Bills (Scrutiny of Bills Committee) and the Environment and Communications Legislation Committee (discussed under Committee consideration below).

While the 2019 Bills are mainly the same as the versions of the 2018 Bills that passed the House of Representatives, there have been a number of changes to the drafting in both of the Bills.

The TLACC Bill incorporates Government and Labor amendments to the 2018 Bill moved in the Senate, including the insertion of Schedule 5 of the TLACC Bill that requires NBN Co to provide mapping data on the rollout for publication on the National Map website.63

The Charge Bill reflects amendments suggested by the Opposition to the 2018 Charge Bill in the Senate, including:

• a reduction in the RBS charge cap from $10.00 to $7.10 (clause 17A of the Charge Bill)

• the addition of a concession that exempts carriers for the first 55,000 ‘recently connected greenfield premises’ on their networks for the first five years of operation of the RBS (clause 20 of the Charge Bill).64

Other changes include a new power for the Minister, by legislative instrument, to exempt carriers in nominated areas from the SIP regime.65

61. Productivity Commission, Telecommunications Universal Service Obligation: Issues Paper, June 2016; Productivity Commission, Telecommunications Universal Service Obligation: Final Report, April 2017. 62. 2018 TLACC Bill, sheet LC109, op. cit.; 2018 Charge Bill, amendment, sheet HV220, op. cit. 63. 2018 TLACC Bill, sheet LC 176 [Government] and sheet 8423 [ALP] op. cit.; 2018 Charge Bill, amendment, sheet LC188

[Government] and sheet 8474 revised [ALP]. There had previously been ‘Broadband Map’ data contained within the National Map website (nationalmap.gov.au) which had some information relating to the NBN rollout. However, it had not been updated for a few years and was withdrawn from the site. 64. 2018 Charge Bill, sheet LC188 [Government] and sheet 8474 revised [ALP] op. cit.; P Fletcher, ‘‘Second reading speech: Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019’, op. cit., p. 6350. 65. Telecommunications Act, proposed subsections 360H(3A) and 360H(5A) (inserted by item 7 of Schedule 3 to the TLACC Bill).

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Committee consideration

Senate Environment and Communications Legislation Committee Both the 2018 and current Bills were referred to the Senate Environment and Communications Legislation Committee.

2017 Committee Inquiry The 2018 Bills were referred to the Senate Environment and Communications Legislation Committee on 22 June 2017 for inquiry and report. Details of that inquiry are available at the inquiry homepage. The Committee reported on 6 September 2017.66

The Committee recommended that the Bills be passed contingent on an amendment to the disallowance procedure for determinations by the Minister varying the scope of the RBS charge.67 This recommendation was accepted and forms part of the Bills before Parliament.68

Labor Senators issued additional comments and Greens Senators issued a dissenting report—their concerns were primarily regarding the operation of the RBS and the associated charge. Labor Senators noted: ‘the Senate Inquiry process has by no means established that the RBS proposed in the Bill is the most effective and efficient method of achieving the stated policy objectives.’69

The Greens Senators expanded on these concerns in their dissenting report; they expressed concern that the RBS was an overly narrow and distortionary tax which did not account for changes in technology and argued: ‘[a] preferable option would be for the non-commercial services to be funded from the general budget.’ The Greens recommended:

Revising the Regional Broadband Scheme, taking into consideration updated costings, the current and emerging state of telecommunications technology and markets, and recommendations from the Productivity Commission regarding the Telecommunications Universal Service Obligation. 70

2019 Committee Inquiry The Bills were referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 21 February 2020, with a hearing on 30 January 2020. Details of the inquiry are available at the inquiry homepage. The Committee reported on 14 February 2020.71

66. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions]: Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, Canberra, September 2017.

67. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions]: Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, Canberra, September 2017, p. ix. Under item 13 of Schedule 4 of the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018 and clause 19 of the Telecommunications (Regional Broadband Scheme) Charge Bill 2018, disallowance of determinations would have only been effective if either House successfully passed a disallowance motion within the disallowance period—this varied from the usual disallowance procedures established in subsection 42(2) of the Legislation Act 2003, which provides that, where a motion to disallow an instrument is not resolved by the end of the disallowance period, the instrument is taken to have been disallowed.

68. Australian Government, Australian Government response to the Senate Environment and Communications Legislation Committee report: Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions]; Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], Canberra, January 2018, p. 5.

69. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], Additional Comments from Labor Senators, The Senate, Canberra, September 2017, p. 45.

70. Australian Greens, Dissenting report, Senate Environment and Communications Legislation Committee, Inquiry into Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, Canberra, September 2017, pp. 49-50 and 53.

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The Committee recommended that the Bills be passed after consideration by the Government of the ‘implementation of additional transparency measures to provide details of NBN Co’s off-set arrangements and the effective management of these arrangements’.72 The Committee agreed ‘with the department's conclusion, that the bills represent an appropriate policy response in the long term’.73

On the potential for 5G mobile coverage to bypass the NBN (discussed below), the Committee noted:

The department advised that it does not consider fixed line services to be directly substitutable for mobile services. However, in the event of a material change to the NBN uptake rates, the committee agrees that the statutory review could consider expanding the levy base to include mobile services. 74

The Committee additionally noted support for inclusion of enterprise networks in the RBS charge base, and the use of premise rather than services-in-operation as the charge base definition.

Labor Senators’ additional comments Labor Senators in their additional comments went further than the Committee view in several respects. Labor Senators noted the submissions of various telecommunications industry members that the RBS charge ‘reduces incentives for the private sector to invest and has an anti-competitive intent’.75 Labor Senators noted particular concern over RBS funding transparency, stating that contrary to the claims in the Explanatory Memorandum to the TLACC Bill:

… there is seemingly no mechanism that requires the surplus revenue from the Government's $800 million annual broadband tax to be spent on regional networks. In practice, there remain legitimate concerns that once the tax revenues flow into NBN Co the company management can effectively direct surplus tax revenue towards anything they wish once it is washed through an offset account, regardless of whether the expenditure relates to a regional outcome or not.

76

Labor Senators did however indicate support for the TLACC Bill more broadly and the Statutory Infrastructure Provider regime. While raising concerns with the structure of the RBS, they noted ‘their support for a price signal to deter opportunistic cherry picking of the residential NBN fixed-line network’.77 Labor Senators made three additional recommendations in relation to the Bills:

• that the Bill be amended to require the Australian Competition and Consumer Commission (ACCC) to redo modelling of RBS costings within 60 days of the Bill receiving assent

• that the Australian Communications and Media Authority (ACMA) exercise forbearance towards carriers who are unable to implement the broadband tax in their systems by the required date, and if necessary, the Government consider delaying the commencement date of the levy and

71. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 [Provisions] and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 [Provisions], The Senate, Canberra, 14 February 2020.

72. Ibid., p. 29. 73. Ibid., p. 28. 74. Ibid. 75. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition

and Consumer) Bill 2019 and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019, Additional Comments from Labor Senators, The Senate, Canberra, 14 February 2020, p. 31. 76. Ibid., p. 32. 77. Ibid.

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• the Government begin work on developing a roadmap for how the USO and RBS can be consolidated and harmonised over time.78

Australian Greens’ dissenting report The Australian Greens issued a dissenting report as they did to the inquiry into the 2018 Bills—this dissenting report was extremely brief. The Greens’ Senators noted in-principle support for the intent of the Bills, supporting ‘technological equity’ and considered ‘the most equitable and sustainable funding model for the RBS is direct Budget funding’.79

Senate Standing Committee for the Scrutiny of Bills Both the current and 2018 Bills have been considered by the Senate Standing Committee for the Scrutiny of Bills.80

In 2017, the Scrutiny of Bills Committee highlighted concerns with the non-standard disallowance procedures included in the 2018 Bills; amendments were made to the 2018 Bills as recommended by the Senate Environment and Communications Legislation Committee’s 2017 inquiry into the Bills.81 Those amendments are also incorporated into the current Bills.82

While the Scrutiny of Bills Committee’s comments on the current Bills welcomed the modifications to the disallowance procedures, it has noted concern with the extent to which delegated legislation could be used to:

• alter the tax base—by excluding certain carriage services from the definition of ‘designated broadband service’ and

• vary the rate of taxation—by changing the size of the charge under subclauses 12(4) and 16(8) of the Charge Bill.

In this respect, the Committee states:

One of the most fundamental functions of the Parliament is to levy taxation. The committee's consistent scrutiny view is that it is for the Parliament, rather than makers of delegated legislation, to set a rate of tax. 83

The Committee draws its scrutiny concerns to the attention of Senators and leaves to the Senate as a whole to determine the appropriateness of allowing the Minister to alter the rate of a tax via delegated legislation.84

Joint Standing Committee on the National Broadband Network While not considering the Bills directly, the Joint Standing Committee on the National Broadband Network has a current ongoing Inquiry into the Business Case for the NBN and the Experiences of Small Business, which necessarily considers matters related to the Bills.85

78. Ibid., pp. 33-34. 79. Australian Greens, Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019, The Senate, Canberra, 14 February 2020, p. 35.

80. Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 10, 2017, The Senate, 6 September 2017, pp. 103-121; Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 10, 2019, The Senate, 5 December 2019, p. 22. 81. Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest, 10, 2017, The Senate, 6 September 2017, pp. 103-121. 82. Charge Bill, clause 19; Telecommunications Act, proposed section 102ZFB. 83. Scrutiny of Bills Committee, Scrutiny Digest, 10, 2019, op. cit., pp. 103-121, p. 24. 84. Ibid.

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Policy position of non-government parties/independents

Labor Labor has indicated support for the TLACC Bill and the Statutory Infrastructure Provider regime; however, in their additional comments to the 2019 Committee Report, Labor Senators expressed concern with aspects of the Bill and have suggested amendments—this is discussed above under the heading ‘Labor Senators’ additional comments’.

The Greens The Greens do not support the Bills in their current form; their reasons are outlined above under the heading ‘Senate Environment and Communications Legislation Committee’.

Dr Helen Haines Dr Helen Haines, independent Member for Indi, spoke to the current Bills in the second reading debate. While describing the RBS scheme as an ‘improvement on the current system’, Dr Haines noted concern the charge may result in increased prices for consumers as it is at the discretion of the service providers to decide whether to pass the cost on. Dr Haines clarified her support for the SIP obligations.86

Centre Alliance Centre Alliance does not appear to have made any public statements on the Bills. Some indication of Centre Alliance’s concerns with the Bills is provided by Ms Sharkie's Question in Writing to the Minister on 19 September 2019.87The question included queries about the potential for a funding shortfall in ensuring that SIP obligations are met.

Other parties and Independents At the time of writing, Bob Katter, Andrew Wilkie, Pauline Hanson’s One Nation, and the Jacqui Lambie Network do not appear to have expressed a public view on these Bills in either their current or previous form.

Position of major interest groups Table 1 summarises the position of interest and industry groups that made submissions to either the 2017 or the 2019 Committee Inquiries on the Bills.

85. Parliament of Australia, ‘Inquiry into the business case for the NBN and the experiences of small businesses’, Parliament of Australia website. 86. Dr H Haines, ‘Second reading speech: Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, Telecommunications (Regional Broadband Scheme) Charge Bill 2019’, House of Representatives, Debates, 13 February 2020,

p. 32.

87. House of Representatives, Notice paper, 18, 19 September 2020, p. 37; P Fletcher, ‘Answer to Question in writing: broadband’, [Questioner: R Sharkie], Question 197, House of Representatives, Debates, 25 November 2019, p. 5821.

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Table 1: the position of interest and industry groups that made submissions

Interest Group RBS (Schedule 4) SIP (Schedule 3) Network Rules

(Schedules 1 and 2)

Telecommunications Industry

Optus (2017 & 2019) Partially supports (extension to enterprise and government networks undesirable)

Supports Partially Supports

(opposes removal of small business networks from Part 8)

Telstra (2017 & 2019) Partially supports (does not support the extension to enterprise networks)88

Partially Supports (technicalities surrounding NBN Co’s interim SIP obligations)

Opposes (unnecessary, elimination of the 1km rule, regards the removal of small businesses from Part 8 as ‘unworkable’)

TPG Telecom Limited (2017 & 2019) Opposes (entirely—

considers NBN Co’s shortfall should be funded out of consolidated revenue)

No comment Partially Supports (opposes elimination of 1km rule)

Vocus Group Limited (2017 & 2019) Opposes (entirely)

Supports Supports

Superloop Limited (2017)

Opposes (entirely)

No comment Supports (concerns regarding residential definitions)

OptiComm Co Pty Ltd (2017 & 2019) Opposes (entirely)

No comment No comment

NBN Co (2017 & 2019) Supports Supports Supports

Vodafone Hutchison Australia (2017 & 2019) Opposes (entirely)

Supports Supports

Commpete (2019) Partially

supports (too narrow tax base, exclusion of mobile

Supports Supports

88. If the charge cannot be limited to residential markets, Telstra recommends that it should be based on services rather than premises.

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Interest Group RBS (Schedule 4) SIP (Schedule 3) Network Rules

(Schedules 1 and 2)

broadband suboptimal)

Other Industry

Cotton Australia (2017) Supports Supports No comment

National Farmers Federation (2017)

Supports Supports No comment

NSW Farmers (2019) Supports Supports No comment

Government

Telecommunications Industry Ombudsman (2017 & 2019)

No comment Supports No comment

Community

Regional, Rural and Remote Communications Coalition (2017 & 2019)

Supports Supports No comment

Australian Communication Consumer Action Network (2017 & 2019)

Supports Supports No comment

Australian Isolated Children’s Parents Association (2019)

Supports Supports No comment

Internet Australia (2019)

Opposes Partially opposes

(Merge with USO/PUSP, rigidity of technology options)

No comment

Country Women’s Association of Australia (2019)

Supports Supports No comment

Individual

Professor Mark Gregory (2017) Opposes (entirely)

Opposes (unsatisfactory speeds)

Opposes (business/small Business/ residential distinctions impractical, definitional issues)

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Position of the telecommunications industry

Regional Broadband Scheme The telecommunication industry split substantially in its support of the RBS, largely between the current operators of 5G mobile networks (Telstra and Optus) and the rest of the industry, particularly fixed-line NBN competitors (TPG, OptiComm and others).

While no industry member outside NBN Co unequivocally supports the current particulars of the proposed RBS, Optus and Telstra largely limited their concerns to the potential extension of RBS charges to enterprise networks.89

Both Telstra and Optus (the two operators of Australia’s existing 5G networks) have stated that they view 5G as a complementary rather than substitutable service to the NBN, and oppose inclusion of non-fixed services in the levy base.90 However, as discussed below under the heading ‘Key issue: exclusion of non-fixed connections from the charge’, the rollout of 5G technology has reignited the substitutability debate.

Telstra also included substantial concerns with the definition of ‘local access line’ and ‘premise’ in both its 2017 and 2019 submissions for the purposes of the RBS,91 which the Committee inquiries considered in detail.92

Vocus, OptiComm, TPG Telecom, Vodafone Hutchinson Australia conversely all oppose the RBS entirely.93 Opposition to the RBS is twofold:

• arguments that the RBS as a ‘narrow-based tax’ is poor policy and that it would be better funded from the budget or consolidated with the USO/TIL scheme and

• the exclusion of 5G mobile networks and other technologies from the charge will give certain industry players (namely Optus and Telstra) a substantial competitive advantage over NBN Co and other fixed-line network operators. This in turn would lead to falling revenues as consumers shifted away from fixed line connections.

Submissions to the 2019 Committee Inquiry additionally focused on the dated information on which the Bills rely, including the accuracy of the 2015 BCR calculations of RBS costings in the

89. See Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 [Provisions], [Submission no. 16], 17 January 2019, pp. 3 and 5-8; See Optus, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 [Provisions], [Submission no. 2], December 2019, pp. 2 and 4-8.

90. Most recently reiterated in the 30 January hearings to the 2019 Senate Inquiry. See C Burgman (Head of Government Relations, Telstra) & L Van Hooft (Director, Economic Regulation, Optus), Evidence to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, 30 January 2020, p. 10.

91. Telstra, Submission, op. cit., pp. 6-7; Telstra, 2017 Submission, op. cit., pp. 9-16. 92. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], op. cit., pp. 29-30; Senate Environment and Communications Legislation Committee, Telecommunications Legislation

Amendment (Competition and Consumer) Bill 2019 [Provisions] and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 [Provisions], op. cit., pp. 22-24. 93. These stakeholders’ positions are summarised in Labor Senators Additional Comments: Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 &

Telecommunications (Regional Broadband Scheme) Charge Bill 2019, op. cit., pp. 31-32.

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current market,94 concerns which were a common theme of the Committee’s 30 January 2020 hearing, and raised by Labor Senators in their additional comments.95

The above concerns are discussed throughout the digest under the heading are ‘The Regional Broadband Scheme’.

Statutory Infrastructure Provider regime The telecommunications industry was generally supportive of the principle of the SIP regime, with only Telstra raising any concerns with the scheme in its 2017 and 2019 submissions.

In 2017, Telstra expressed concern that potential gaps in the SIP framework prior to the designated day could lead to Telstra being obligated to service some premises under the USO until that time.96 Telstra additionally expressed concerns that the Minister’s ability to designate carriers other than the NBN as SIPs was too broad, and that all SIPs should be required to operate through a single wholesale interface.97

In 2019, Telstra extended its concerns to include the potential that mobile network infrastructure installation could give rise to nominated SIP requirements, discussed in more detail in ‘Key Issue: nominated service area requirements unclear’.98

Network Rules amendments

Industry support for the repeal of Part 7 and amendments to Part 8 of the Telecommunications Act were mixed, with key concerns in the 2017 inquiry process including:

• the removal of the ‘1km exception’ under subsection 156(4) of the Telecommunications Act (Telstra and TPG) and

• the removal of small business networks from regulation under Part 8, and potential distortionary or definitional issues that may arise (Optus, Vocus, Superloop).99

These issues are discussed in further detail under the headings ‘Key issue: removal of the 1km exemption’ and ‘Key issue: removal of networks servicing small businesses’.

Industry stakeholders tended to focus less on these issues in their 2019 submissions.

Position of the ACCC and PC The ACCC in the Communications Sector Market Study (2018) took the view that ‘that direct budget funding of regional and remote communications services is preferable’.100

94. Vocus, 2019 Submission, op. cit., pp. 2-3; OptiComm, 2019 Submission, op. cit., p. 1; Vodafone Hutchison Australia, 2019 Submission, op. cit., p. 1. 95. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, Additional Comments from

Labor Senators, op. cit., p. 33, paragraph 1.9. 96. Telstra, 2017 Submission, op. cit., pp. 5-6. 97. Ibid., p. 7. 98. Telstra, 2019 Submission, op. cit., pp. 9-10. 99. Optus, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, July 2017, {Submission no. 13], p. 6; Vocus Group, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 11], January 2020, pp. 6 and 9. 100. ACCC, Communications sector market study: final report, ACCC, [Canberra], 5 April 2018, p. 164.

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The Productivity Commission in the Telecommunications Universal Service Obligation report (2017) also raised concerns with the RBS:

… alternative funding arrangements — such as through general government revenue and/or a broad-based industry levy — should be looked at more closely before implementing a long-term narrow-based funding model in a dynamic industry. 101

On the RBS the Productivity Commission additionally noted that ‘industry would derive greater certainty if the levy design issues are resolved before implementing the proposed Regional Broadband Scheme’ and that ‘the risk of policy inertia is high once a policy is implemented.’102

The Productivity Commission also noted that although the proposed SIP regime ‘would assist in providing greater confidence to the community about nbn’s role’, there was ‘uncertainty and contention’ concerning the role of SIPs in providing voice services. The Productivity Commission recommended that legislation be amended to require SIPs to provide both broadband and voice services.103

Position of other groups The vast majority of other groups were wholly supportive of both the RBS and the SIP scheme. ACCAN argued that ‘the reform package should be passed with the utmost priority’.104 The National Farmer’s Federation in 2017 highlighted the ‘long term economic benefit to the country - even from agricultural productivity alone’ from investment in otherwise uncommercial telecommunications infrastructure—for example, through the RBS.105

Many of these submissions are extremely brief and express more in-principle support for the policy objectives of the SIP scheme in particular, and the RBS as a source of funding in order to sustain it. Unlike industry submissions or the Productivity Commission or ACCC, they do not generally consider the technical aspects of the Bills.

The exception to this include Internet Australia, which seconded telecommunications industry concerns with the administration of the RBS, and recommended that the RBS and SIP schemes should be merged with the existing USO/TIL scheme.106 Internet Australia also expressed concerns that the restriction of RBS payments to fixed-wireless and satellite connections only could distort the market and protect those technologies from competition with newer connection types.107

101. Productivity Commission (PC), Telecommunications Universal Service Obligation, Inquiry report, 83, PC, Canberra, 28 April 2017, p. 322. 102. Ibid., pp. 325-326. 103. Ibid., pp. 11 and 23 (Recommendation 7.1). 104. ACCAN, Submission to the Senate Environment and Communications Legislation Committee, Inquiry into the

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 5], 20 December 2019, p. 1. 105. National Farmer’s Federation, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional

Broadband Scheme) Charge Bill 2017, [Submission no. 1], 14 July 2017, p. [2]. 106. Internet Australia, Submission to the Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional

Broadband Scheme) Charge Bill 2019, [Submission no. 10], 6 January 2020, p. 4 (recommendation 1). 107. Ibid., p. 10.

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Professor Mark Gregory of RMIT is the only individual or academic to have made a submission to either inquiry, and was critical of the structure of the RBS as ‘anti-competitive’ while describing the SIP as inadequate to modern bandwidth requirements.108

Financial implications The Regional Broadband Scheme is envisioned to be budget neutral, funded out of the regional broadband scheme charge, which includes an administrative cost component (initially one cent for each chargeable premises, per month) to fund the costs of administering the scheme.109

The Charge Bill Financial Impact Statement notes that while there is ‘a small initial impact on the Budget to fund the ACMA and ACCC’s initial set up costs’, this cost will be reimbursed to the Consolidated Revenue Fund and future administrative costs funded out of the scheme.110

The Charge Bill Financial Impact Statement also includes 2019-20 Budget figures estimating the impact on underlying cash over the forward estimates (table 2), however, this is dependent on the scheme commencing on 1 July 2020 with collections and payments occurring in 2020-21:

Table 2: 2019-20 Budget figures estimating the impact on underlying cash over the forward estimates Impact on underlying cash ($ millions)

2019-20 2020-21 2021-22 2022-23 Total

Expenditure 0.0 -28.002 -29.559 -32.540 -90.101

Revenue 0.0 29.218 29.734 32.540 91.492

Total 0.0 1.216 0.175 0.000 1.391

Source: Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 5.

The TLACC Bill financial impact statement provides:

The proposals in the Bills will require a small increase in resourcing for the ACMA and the ACCC. Separation and SIP measures are expected to be funded from within those agencies’ existing budgets. Their activities in relation to the Regional Broadband Scheme are funded through the receipts from the Scheme.

111

More recently some stakeholders have questioned if the RBS will sufficiently cover the costs of the NBN meeting its SIP obligations, such as Rebekha Sharkie in a Question to the Minister of Communications on 19 September 2019.112 In his answer, the Minister reiterated that SIP obligations were effectively funded by the RBS, and appeared to imply that any costs not covered by the RBS would simply become subject to another cross-subsidy.113 As the Bills are currently drafted, there does not appear to be a government guarantee to cover any net losses that NBN Co or other providers may incur in meeting their SIP obligations if RBS payments are insufficient, such losses will need to be funded internal to the SIP.

108. Professor Mark Gregory, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 14], n.d, pp. 2 and 5.

109. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 5. 110. Ibid., p. 5. 111. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 22. 112. House of Representatives, Notice paper, 18, 19 September 2020, p. 37. 113. P Fletcher, ‘Answer to Question in writing: broadband’, op. cit., p. 5821.

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As discussed below under ‘Key issue: exclusion of non-fixed connections from the charge’, there is a possibility that competition from wireless broadband internet connections may reduce the number of chargeable premises, which may in turn, have implications for the tax base of the RBS. Given that the current maximum $7.10 charge is below the amount modelled by the BCR as sufficient to meet the costs of the scheme, there is also the possibility that the RBS scheme will be insufficient even if this does not happen.114

Conversely, technological shifts may reduce the cost of meeting the SIP obligations either through reduction of the cost of providing existing services (such as NBN Co’s fixed wireless service), or new technologies such as LEOSB. In this circumstance, the Minister could lower the rate of the RBS charge or refund excess monies to levy paying carriers.115 However, the ACCC is only currently obligated to review the RBS charge amount every five years.

There is concern about the level of transparency should the RBS result in NBN Co receiving funds surplus to its needs (this is discussed under the heading ‘Key issue: funding transparency concerns’).

Special appropriation Proposed section 89 of the TCPSS Act (at item 13 of Schedule 4 to TLACC Bill) establishes the RBS Special Account for the purposes of section 80 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).116 The special account:

• will receive credits equal to the amount of RBS charge received by the Government and

• may be debited for the purposes of making payments to eligible funding recipients for the provision of fixed wireless or satellite service, and to reimburse ACMA and the ACCC for costs incurred in administering the RBS scheme.117

The Special Account is discussed in greater detail under the heading ‘the RBS Special Account’.

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.118

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights had no comment on the Bills on the basis that the bills do not engage, or only marginally engage, human rights; promote human rights; and/or permissibly limit human rights.119

114. Bureau of Communications Research, NBN Non-commercial Services Funding Options, Final report, March, 2016. 115. Charge Bill, subclause 12(4); TCPSS Act, proposed section 92 (item 13 of Schedule 4 to the TLACC Bill). 116. Section 80 of Public Governance, Performance and Accountability Act 2013 recognises that a special account can be established by another Act of Parliament.

117. TCPSS Act, proposed sections 80, 89, 90 and 92A (item 13 of Schedule 4 to the TLACC Bill). 118. The Statement of Compatibility with Human Rights can be found at pages 23-25 of the Explanatory Memorandum to the TLACC Bill, and on page 63 of the Explanatory Memorandum to the Charge Bill. 119. Parliamentary Joint Committee on Human Rights, Human rights scrutiny report, 1, 2020, Parliament House, Canberra, p. 96.

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The Regional Broadband Scheme Quick guide to the RBS Purpose The purpose of the RBS is raise funds by taxing fixed-line broadband connections so the funds can be used by eligible funding recipients (currently only NBN Co) to subside wireless and satellite broadband. The RBS is intended to replace NBN Co’s current practice of internally cross-subsidising wireless and satellite broadband. The RBS is expected to raise $825 million in 2021-22.120 Who does it apply to? The RBS charge is levied on carriers based on the number of ‘chargeable premises associated with a local access line’ they serve on a monthly basis. The charge is imposed on the carrier, however, the carrier is not prevented from passing this cost onto retail service providers, who are in turn not prevented from passing this cost onto consumers. How much is it? The charge has two components:  base amount ($7.09 per premises per month) and  administrative cost amount ($0.01 per premises per month). The charge is capped at $7.10 (indexed to CPI). The ACCC has an obligation to report to the Minister at least once every five years on the appropriate charge that should be imposed. Who assesses and collects the charge? The charge is assessed and collected on annual basis as follows: 1. a carrier reports its chargeable premises for the previous financial year to ACMA before

31 October 2. ACMA makes a written assessment which includes the amount of charge payable by the carrier by 30 November and 3. the charge is payable by the carrier by 31 December. How is wireless and satellite broadband subsidised? Money raised from the RBS must be credited to the RBS Special Account established by this Bill. The Secretary of the Department is empowered to enter into contracts and provide grants to eligible funding entities (currently only NBN Co) for the purposes of supplying fixed wireless and satellite broadband services; funds for this purpose are paid out of the RBS Special Account. Eligible funding entities (currently only NBN Co) are entitled to apply for a charge offset certificate—this means that their RBS liability is offset against any funding they are entitled to receive.

Purpose of the RBS Together, the Charge Bill and Schedule 4 of the TLACC Bill propose to establish the RBS. The RBS charge is a tax on fixed-line broadband which will be used to fund non-commercial fixed wireless and satellite broadband for regional areas. The cost of providing this service is currently met internally by NBN Co using proceeds from its fixed-line networks. This internal cross-subsidy is regarded as unsustainable, such that ‘ongoing funding for essential regional broadband services is at risk’.121

120. Charge Bill Explanatory Memorandum p. 62. The actual number may be substantially lower, see ‘Key issue: charge cap insufficient to fund the RBS’. 121. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 2.

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Key issue: is this the best funding model?

Direct budget finding The Vertigan Panel, Productivity Commission and the ACCC prefer general budget funding over a narrow industry levy for the RBS. The 2014 Vertigan Review stated:

By far the best option for funding any ongoing subsidy would be through consolidated revenue. Among other advantages, that would allow Parliament and the public to assess in an ongoing way the benefits of using taxpayer funds for this purpose rather than others. 122

In its 2017 Inquiry, the Productivity Commission recommended, as a general principle, that the USO and similar obligations should be funded out of general revenue. In relation to the proposed RBS, it considered:

…that, in line with the principles-based approach to funding outlined in this chapter, the choice of funding model should prioritise minimising distortions in the telecommunications market and be flexible, simple and transparent. In this context, alternative funding arrangements — such as through general government revenue and/or a broad-based industry levy — should be looked at more closely before implementing a long-term narrow-based funding model in a dynamic industry.

123

In the ACCC’s 2018 Communications Sector Market Study it stated its position: ‘[o]ur view is that direct budget funding of regional and remote communications services is preferable.’124 The Greens Senators noted in their dissenting report on the 2018 Bills that ‘[a] preferable option would be for the non-commercial services to be funded from the general budget’.125 The lack of support for the proposed narrowly targeted tax has also been expressed by various industry groups in submissions to both the 2017 and 2019 Committee inquiries into the Bills, including by TPG and Opticomm in the 2017 submissions and Vodafone in its 2019 submissions.126

Broad based tax Failing general budget funding, TPG, OptiComm and other Industry members have recommended a broader, USO/TIL levy over the proposed RBS levy:

TPG submits that, if the objective is to create a “good tax” that effectively funds the non-economic areas of the NBN, this committee needs to find a way to pass a law that more closely aligns with the Vertigan recommendations. A USO type of levy is that way. 127

122. Vertigan Review, NBN market and regulatory report, op. cit., p. 21. 123. PC, Telecommunications universal service obligation, op. cit., pp. 16, 25-26 and 322. 124. ACCC, Communications sector market study: final report, op. cit., p. 164. 125. Australian Greens Dissenting report, Senate Standing Committee on Environment and Communications, Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, 6 September 2017, p. 50. 126. OptiComm Co Pty Ltd, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional

Broadband Scheme) Charge Bill 2017, [Submission no. 11], 14 July 2017, p. 7; TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 2], 14 July 2017, p. 3; Vodafone Hutchinson Australia, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 9], 20 December 2019, p. 2 127. TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 9], 20 December 2019, p. 2.

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TPG additionally noted in its 2017 submission that of the four recent reviews that considered how to fund non-commercial telecommunication services, only the BCR’s 2015 consultation into NBN non-commercial service funding options, recommended a narrowly targeted industry levy—in that case, the terms of reference ‘did not allow it to consider contributions from general tax revenue’.128

The Explanatory Memorandum considered both of these options before noting that ‘the 2014 RIS concluded that direct Budget funding was not feasible because of the large negative impact on the budget’.129 While conceding that the budget option is better able to optimise the use of resources to achieve and properly match consumer demands, it makes arguments that the narrow industry levy is better able to spawn innovation and result in lower production costs.130

These arguments are upheld by assumptions that demand for fixed line services are inelastic131 which is likely to be challenged with increased competition from mobile and fixed wireless services.132 The Explanatory Memorandum to the Charge Bill advanced more novel arguments against direct budget funding, including that retail service providers would not compete against each other and in doing so, would not pass along lower costs to consumers: ‘…consumers might not benefit because retail service providers could take these lower wholesale prices as extra profit margin’.133

Effect on low-income households The 2019 Roy Morgan Australian Digital Inclusion Index Report noted that ‘[a]ffordability remains a key challenge’ to increasing Australia’s digital inclusion.134 In 2017, only 67.4 per cent of Australians in the bottom income quintile had internet access at home, compared to a national average of 86.1 per cent.135

As the RBS charge is applied to all fixed-line broadband internet connections regardless of the data plan, it will represent a larger percentage of the total cost of providing broadband to those on budget plans (smaller, lower income households) than for those on premium plans.

The exact impact the RBS charge will have on the consumer is unclear. OptiComm did note that while they would absorb some of the costs of the charge, they would need to raise their wholesale prices in response to the charge, which would likely lead to higher consumer prices.136 OptiComm also noted that as a service provider for new greenfield developments consisting of predominantly first home buyers, these price hikes would likely impact financially stressed households.137

128. TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 2], 14 July 2017, p. 3.

129. Explanatory Memorandum, Charge Bill, p. 25. 130. Ibid, pp. 14, 22-23, 26. 131. Explanatory Memorandum, Charge Bill, p. 26. 132. Discussed at various points, see ACCC, Communications Market Report 2018-2019, December 2019, p. 11. 133. Explanatory Memorandum, Charge Bill, p. 27. 134. J Thomas, et al., Measuring Australia’s digital divide: the Australian Digital Inclusion Index 2019, RMIT University and

Swinburne University of Technology, Melbourne, for Telstra, 2019, p. 6. 135. J Thomas, CK Wilson, S Park, ‘Australia’s digital divide is not going away’, The Conversation, 29 March 2018, citing Australian Bureau of Statistics, Household Use of Information Technology, Australia, 2016-17, 28 March 2018. 136. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 5. 137. Ibid, p. 6.

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It appears from NBN Co’s submission to the ACCC NBN Access Pricing Inquiry that its current internal cross-subsidy is applied uniformly and directly to each individual connection, consistent with the proposed RBS.138

The impact on the affordability of fixed-line broadband and the potential financial stress low-income earners might face has largely not been considered in existing submissions on the Bill or in reports, but was raised by Senators in the second reading debate of the 2018 Bills and in public hearing during the 2019 Senate inquiry.139

Key issue: reliance on outdated information The policy rationale for the RBS is based on research and reviews conducted between 2013 and 2015, primarily the 2014 Vertigan Panel, the 2015 ACCC Superfast Broadband Access Service Declaration inquiry, and the 2015 BCR consultation. The RIS presented with Charge Bill is almost identical to the one introduced with the 2018 Bill, which itself was extremely similar to the RIS published as an exposure draft in December 2016. The only amendments between the previous and current RIS has been the insertion of paragraphs concerning the incorporation of Opposition amendments. In particular, the comparison of various mobile and fixed line broadband plans and accompanying graphs in the RIS are more than three years old and do not appear to reflect current market reality.140

Various stakeholders raised this as an issue, for example, Opticomm described the Explanatory Memorandum to the Charge Bill as ‘obsolete and incorrect’.141 In particular Opticomm expressed concern that the Explanatory Memorandum still relied on 2017 market data, which does not reflect the market developments in mobile broadband that have occurred since:

Given the obvious relevance of this point to the Government’s basis for a narrowly targeted tax and the distortionary effect the tax will have on competition in telecommunications markets, it is extremely concerning that this data was not updated when drafting the 2019 Bill. 142

Currently technologies and services are emerging which were not contemplated in the 2014 Vertigan Review because they simply did not exist at the time—for example 5G Mobile Networks and Low Earth Orbit Satellite Broadband. Telecommunications is a fast evolving field where advances in technology and changes in consumer behaviour have the potential to rapidly render any prediction of the future state of the industry incorrect.

These limitations of the Vertigan Review and other supporting research that underlines the policy rationale of the Bills will further compound over the projected service life of the RBS.143 This is

138. NBN Co, Submission to the ACCC NBN Access Pricing Inquiry, 6 December 2019, p. 44. 139. See D O’Neil, ‘Second reading speech: Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019’, Senate, Debates, 13 August 2018, p. 4594. Senator A Urquhart, Senate Environment and Communications Legislation Committee, Inquiry into Telecommunications (Regional Broadband Scheme) Charge Bill 2018 and Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2018, Official committee Hansard, 30 January 2020, p. 6, 8. 140. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, pp. 28-29. 141. Opticomm, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 14], January 2020, p. 1. 142. Opticomm, Submission op. cit. pp. 5-6; See also: TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and

Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 9], 20 December 2019, p. 2; Vocus Group, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 11], January 2020, p. 2.

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discussed below under the heading ‘Key issue: exclusion of non-fixed connections from the charge’.

Key Issue: Emergence of Low Earth Orbit Satellite Broadband (LEOSB) The RBS exists to subsidise internet service in rural, regional or remote areas of Australia where internet service would otherwise not be commercially viable or affordable for consumers.

Underlying the rationale for this scheme is the assumption that internet service to these areas will remain non-commercial until at least 2040, and that rural and regional Australians will continue to need subsidies in order to access the internet at affordable prices.

Challenging this assumption is the development of LEOSB networks, particularly SpaceX’s Starlink,144 OneWeb,145 both of which are currently being deployed. Amazon has made substantial investments in developing its own LEOSB network146 and Facebook is also reportedly developing a network.147

What is Low Earth Orbit Satellite Broadband?

LEOSB refers to broadband internet delivered by a large148 ‘constellation’ of satellites in Low Earth Orbit (550km-1,200km). Conventional satellite internet (such as NBN’s Skymuster satellites) are delivered by few,149 large satellites in geostationary orbit (35,786km).

LEOSB networks then offer substantially lower latency,150 far higher bandwidth, far higher speed, and lower launch costs, than conventional systems, due to their lower altitude and larger network density. LEOSB networks are also inherently global networks,151 unlike Geostationary satellites which must be positioned over a single geographic region.152

143. The underestimation of future bandwidth demand in the Communication Chamber Forecast was also recognised early, see R Tucker, ‘Broadband projections fail reality test’, The Conversation, 8 September 2014. 144. See ‘Starlink’ SpaceX, accessed 11 May 2020. 145. OneWeb filed for bankruptcy in March, apparently due to the financial pressure on major investor SoftBank amid the COVID-

19 pandemic. Interested buyers reportedly include Amazon, Cerebus Capital Management, and state-backed parties from China and the EU (A Boyle ‘Amazon reportedly registers interest in bankrupt OneWeb’s broadband satellite constellation assets’ GeekWire 6 May 2020. See also OneWeb Website, accessed 11 May 2020. 146. Dubbed Project Kupier, see Amazon, ‘Amazon building Project Kuiper R&D headquarters in Redmond, WA’, 18 December 2019. 147. L Matsakis, ‘Facebook confirms it’s working on a new internet satellite’, Wired, 20 July 2018. 148. Starlink Phase 1 for instance consists of 1584 satellites at an altitude of 550km, although as of October 2019 SpaceX has United Stated Federal Commission of Communication Approval for 12,000 satellites, and is seeking approval for an additional 30,000, see C Henry, ‘SpaceX submits paperwork for 30,000 more Starlink satellites‘, Spacenews, 22 October 2019. OneWeb was planning to deploy a 650 satellite constellation, (OneWeb, 2020 Launch Program, accessed 11 May 2020) while lobbying for regulatory approval for an additional 1,260 see C Henry, ‘OneWeb, U.S. senator, urge FCC to act on 2018 request for 1,260 more satellites’ Spacenews, 27 January 2020. As of writing, OneWeb’s constellation consists of 74 satellites, see J Amos ‘OneWeb increases mega-constellation to 74 satellites’ BBC News, 21 March 2020. 149. NBN Skymuster service has two satellites for instance. See ‘Facts about NBN Sky Muster II’ NBN Co, 28 September 2016. 150. SpaceX has flagged latencies of as low as 15 milliseconds, see L Grush, ‘FCC approves SpaceX’s plans to fly internet-beaming satellites in a lower orbit’, The Verge, 27 April 2019. By comparison, the 72,000km round trip a signal needs to make between the ground, a geostationary satellite, and the ground again takes ~240 milliseconds in light travel time alone. NBN Skymuster latency appears to currently be around 600 milliseconds, see Skymesh ‘The Definitive Guide to Online Gaming with Sky Muster™’, 1 April 2020. 151. In order to provide continuous, reliable coverage over any point on the Earth, a LEOSB network needs to provide the exact same level of coverage over every other point of the earth’s surface at that same latitude. Preference for a single point is not possible because low earth orbit satellites move. relative to the ground. In order to increase network coverage over Tokyo, the same number of satellites over the same area needs to be put over Gippsland. Professor Mark Handley provides a visualisation of the Starlink constellation, which demonstrates this trait of LEOSB networks at ‘Starlink Revisions, Nov 2018’ Youtube 10 November 2018.

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This large degree of private investment is made on the belief that LEOSB networks will be commercial to offer, competing not just for services to remote communities, but also with fixed-line connections in urban and suburban areas.

SpaceX’s Starlink system is expected to be the first operational, with first consumer offerings in high latitudes,153 expected by August 2020, with global access expected from 2021.154 SpaceX has begun the process of securing regulatory approval to operate in Australia, being included in the Foreign Space Objects Determination on 24 January 2020,155 the first step to securing a space apparatus license and other licenses needed to operate the network in Australia.156

What this means for the NBN NBN Co’s Skymuster I & II Satellites are themselves modern conventional systems, being launched in late 2015-2016 and representing a substantial improvement in speeds over earlier satellite connections available.157 However, Skymuster only has a total bandwidth capacity of 185 gbps158 split over some 443,154 premises ready for service and 95,480 active premises as of June 2019)159, with consumer side speeds of around 25 mbps maximum low data caps.160 It is extremely uncommercial for the NBN to operate the Skymuster satellite service.161

This offering is likely to be virtually obsolete as soon as Starlink or any other competing LEOSB becomes available in Australia. It is possible that a large portion of NBN’s 4G based fixed wireless service will also become obsolete, and potentially there could be a high risk of substitution from FTTN to LEOSB connections.162

SpaceX’s system has already demonstrated transmission speeds of 610mbps in trials.163 The exact bandwidth capacity of the Starlink system remains unpublished, although comments by Elon Musk indicate a per satellite capacity of between 20 to 100 gbps per satellite, giving the system a current global capacity in the tens of terabytes per second.164 Put another way, at the current pace

152. For instance, both Skymuster satellites are positioned above Australia, at 140° & 145° East. They cannot be used to service a customer in Europe. This is because geostationary satellites by definition, do not move relative to the earth. See ‘Geostationary Orbit’ Encyclopaedia Britannica.

153. D Etherington ‘Elon Musk says starlink internet private beta to begin in roughly three months, public beta in six’ Techcrunch, 23 April 2020. This is because the Phase 1 Starlink constellation is inclined at a 53° angle, giving the network its highest satellite density at 53° North & 53° South, decreasing incrementally closer to the equator.

154. Ibid. See also the Starlink Website. 155. Radiocommunications (Foreign Space Objects) Amendment Determination 2020 (No. 1), ACMA, Update to Foreign Space Objects Determination - consultation 34/2019. See also See J Gramenz, ‘Elon Musk’s plan to fix our crap internet’, Whitsunday Times, 5 February 2020. See also M Dunn, ‘Elon Musk’s ambitious $10b plan to fix Australia’s poor internet’,

9news, 5 February 2020. 156. ACMA, Update to Foreign Space Objects Determination - consultation 34/2019. 157. Namely, 3-6mbps, see Joint Standing Committee on the NBN, The rollout of the NBN, op. cit., p. 67. 158. S Adhikari ‘NBN Co switches data tap on Skymuster satellites’ The Australian Business Review, 27 June 2017. 159. NBN Co, ‘NBN co FY19 Full Year Results’, 15 August 2019, pp. 3 and 6. 160. For instance, WhistleOut’s editor pick for best Satellite NBN plan in 2020 had a 65GB on peak and 125GB offpeak data cap for

$54.95 a month, see ‘Editor’s Pick: Best Satellite NBN Plans May 2020’ WhistleOut, 5 May 2020. Average household data consumption nationally in the December quarter of 2019 was 258GB a month, see ‘Australia’s NBN data usage surges by almost 25%’ NBN Co, 2 December 2019. 161. In 2018, the losses involved in offering satellite was around A$110 per month per premises, see: J Gothe-Snape ‘NBN fixed wireless blowing out bush broadband bill as Government pins hopes on fixed-line levy’, ABC News, 1 June 2018. 162. This is largely due to the fact that the NBN has not identified an upgrade path for FTTN connections in the most recent corporate plan. See Key issue: exclusion of non-fixed connections from the charge later in the Digest for more details on the challenges that NBN faces with retaining FTTN connections in particular for more information. 163. S Erwin ‘SpaceX plans to start offering Starlink broadband services in 2020’, Spacenews, 22 October 2019. 164. Elon Musk stated that the first launch of 60 v0.9 Starlink Satellites in November 2019 represented a combined total bandwidth of around 1 terrabyte per second (17 gbps per satellite), but then stated that the v1.0 satellites had four times the

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of launches, SpaceX is adding a Skymuster system equivalent amount of bandwidth capacity at least every five days on average, and has been since January 2020.165

More importantly, as satellites over regional and rural areas are only serving a very low number of customers (as opposed to when those same satellites are on station above urban centres), this may lead to extremely large amounts of bandwidth becoming available split over very few customers, delivered at very high (1gbps+) speeds.166

At what price point these services will be offered remains unclear. However, SpaceX intends to offer at prices comparable to FTTP connections in the United States while offering superior performance, leading some to estimate a $80 USD a month price point in the U.S. market.167 A comparable Australian price point then would see an unsubsidised Starlink connection costing the consumer a similar amount that each satellite or fixed wireless connection costs the NBN in losses ($110 and $105 AUD per month respectively in 2018168).

If this is the case, LEOSB presents obvious problems to the policy rationale of the RBS, as it may allow for commercial services to regional and rural areas, or greatly reduce the necessary subsidy.

Government Response A number of reports have drawn the Government’s attention to the potential risks the LEOSB networks present to the policy rationale of the RSB. The BCAR Final Report in 2016 noted that ‘LEO Systems could emerge as a possible, cheaper alternative for providing satellite service compared to nbn’,169 while the Productivity Commission noted their development in 2017,170 and the 2018 Regional Telecommunications Review Report noted that ‘Low Earth Orbit satellites have the potential to address some of the issues with the current technology’.171

In the 30 January 2020 Senate Inquiry hearing into the Bills, NBN Co confirmed that it was ‘very interested’ in buying capacity on these networks to replace the Skymuster service in around 2025 if they ‘offer better, faster, cheaper service for the bush’.172

bandwidth capability of v0.9 satellites, indicating closer to 70bps70gbps. If the 17 gbps figure is accurate, then total capacity of the current 417 satellites is around ~7 terrabytes per second. If the 70 gbps figure is accurate, it’s closer to ~27 tbps. In its 2016 FCC application for the Starlink constellation development approval, SpaceX identified that each Starlink satellite as having a capacity of between 17 to 23 gbps, but it is possible that technology improvements in the past four years have led to

increased capacity. See E Ralph, ‘SpaceX says upgraded Starlink Satellites have better bandwidth, beams, and more’, Teslarati 12 November 2019. 165. SpaceX has made seven Starlink launches of 60 satellites apiece, with five launches since 7 January 2020, averaging roughly two satellites a day in 2020, or between 34 gbps to 140gbps of additional bandwidth daily. The total bandwidth of the

Skymuster system is 185 gbps. The most recent launch was on 22 April 2020, see A Thompson ‘SpaceX launches 60 Starlink satellites, aces rocket landing in milestone flight’, Space.com 22 April 2020. 166. SpaceX’s application to the United States Federal Communications Bureau for approval to develop Starlink in November 2016, identified possible speeds of ‘up to 1 gbps per user’ (p. 2, 5), indicating that the architecture is capable of these speeds. 167. SpaceX has not been forthcoming on user prices, SpaceX President Gwynne Shotwell in October 2019 noted that ‘millions of

people in the U.S. pay $80 per month to get “crappy service”, which some analysis has taken as a possible price point in that market. See S Erwin ‘SpaceX plans to start offering Starlink broadband services in 2020’, Spacenews, 22 October 2019. 168. J Gothe-Snape, ‘NBN fixed wireless blowing out bush broadband bill as Government pins hopes on fixed-line levy’, ABC News, 1 June 2018. 169. BCAR, NBN non-commercial services funding options: final report, op. cit., p. 25. 170. PC, Telecommunications Universal Service Obligation, op. cit., p. 58. 171. Regional Telecommunications Independent Review Committee, 2018 Regional Telecommunications Review, 4 December

2018, p. 1. 172. Mr Gavin Williams, Chief Development Officer, NBN Co, Evidence to Senate Environment and Communications Legislation Committee, Inquiry into Telecommunications (Regional Broadband Scheme) Charge Bill 2018 and Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2018, Official committee Hansard, 30 January 2020, p. 34.

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There may however still be an overlap of some years (potentially up to 2030, when the Skymuster satellites are expected to reach the end of their service life), when technically inferior, highly subsidised commercial services are directly competing with superior, high speed, commercial LEOSB services.

This may create the perverse scenario where Australian fixed-line internet customers would be paying 800 million dollars annually in RBS charges with the practical effect of slowing the transition from NBN to LEOSB services due to RBS subsidies of NBN services. This may be particularly problematic if NBN’s funding under the RBS is a long term, inflexible contract in a similar manner to the TUSOPA contract with Telstra for the provision of standard telephone services under the universal service obligation.173

There are also potential issues with the SIP scheme arising from LEOSB providers, see Key Issue: SIP LEOSB issues.

Who is liable to pay the charge? Each carrier is liable to pay the RBS charge based on the number of ‘chargeable premises associated with a local access line’ they serve on a monthly basis. This definition is ‘central to establishing the charge base of the new tax’174 as it links the assessment provisions in proposed Division 4 of Part 3 of the TCPSS Act with the relevant charge provisions in the Charge Bill.175

What are chargeable premises associated with a local access line? Premises are chargeable premises associated with a local access line of a person, if, for the month:

• the person is a carrier

• the premises are potentially chargeable premises and

• the premises are not exempt premises.176

What are premises? The Explanatory Memorandum to the TLACC Bill states: ‘[t]he term ‘premises’ is intended to have its ordinary meaning’.’ 177 However, proposed section 79A of the TCPSS Act (at item 13 of Schedule 4 to the TLACC Bill) enables the Minister to determine conditions that if met:  result in a location being a ‘premise’ or  result in a location being excluded from being a ‘premise’. As the definition is a central component of ‘chargeable premises associated with a local access line’ (which is the basis of the RBS charge), the Scrutiny Committee has expressed concern that this wide ministerial discretion to alter the definition of premise effectively allows the Minister to alter the tax-base without Parliamentary input.178 The Scrutiny Committee’s concerns are discussed above under the heading ‘Senate Standing Committee for the Scrutiny of Bills’.

The terms ‘potentially chargeable premises’ and ‘exempt premises’ are defined under proposed sections 94 and 95 of the TCPSS Act ,at item 13 of Schedule 4 to the TLACC Bill.

173. See ANAO, Management of the Contract for Telephone Universal Service Obligations, op. cit., p. 9 and generally for issues surrounding the TUSOPA. 174. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 179. 175. Charge Bill, clause 3, definition of ‘chargeable premises associated with a local access line’ and clauses 6 to 9, 11 and 15. 176. TCPSS Act, proposed section 93, at item 13 of Schedule 4 to the TLACC Bill. 177. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 173. 178. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 10, 2019, The Senate, Canberra, 5 December 2019,

pp. 21-22.

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If a potentially chargeable premise does not fall within a range of exceptions, then the premise is a ‘chargeable premise associated with a local access line’ and the carrier needs to pay the RBS charge on it for that month.

Potentially chargeable premise In summary, a ‘potentially chargeable premise’ is one that is:

• connected by a fixed-line telecommunications network (‘local access line’) that the carrier owns or is the nominated carrier for, which is not an exempt line and

• being supplied with an active connection by a carriage service provider (who may be the person) for the whole or part of that month which is a designated broadband service-broadly, a connection technically capable of speeds that are normally over 25 megabits per second.179

The Minister may, by legislative instrument, exclude classes of carriage services from the definition of ‘designated broadband services’—such premises would not be subject to the charge.180

Types of premises exempt from the charge Small networks: if the carrier operates less than 2,000 premises for whole or part of the month, for example a smaller carrier, then all those premises are exempt premises.181 As soon as a carrier’s network expands to 2,001 potentially chargeable premises, they become liable to pay the charge for all of them—at current levy rates, an annual charge of $170,485. This has an obvious market distortionary effect by providing incentives for such small network carriers to remain below the exemption limit.

Exempt lines: infrastructure purchased by the NBN from Telstra and Optus under their respective Definitive Agreements are exempt lines for the purpose of the charge.182 The Minister has the power to, by legislative instrument:

• specify other agreements the exemption applies to183 and

• remove any exemption that Telstra or Optus may be entitled to under an agreement.184

Telstra has submitted concerns over the differences in the Optus and Telstra subsections of this section.185

Five year concession period Carriers will be entitled to reduce the number of chargeable premises that are subject to the RBS each month for the first five financial years from the commencement of the scheme; there is a concession for existing premises and one for greenfield premises:

• for carriers only serving non-greenfield premises, the first 25,000 residential and small business premises that a carrier supplies are exempt from the RBS and

179. TCPSS Act, proposed sections 76AA and 94 at item 13 of Schedule 4 to the TLACC Bill. 180. TCPSS Act, proposed subsections 76AA(2) at item 13 of Schedule 4 to the TLACC Bill. 181. TCPSS Act, proposed subsections 95(1) at item 13 of Schedule 4 to the TLACC Bill. 182. TCPSS Act, proposed subsections 96(1) and (3) at item 13 of Schedule 4 to the TLACC Bill. 183. TCPSS Act, proposed subsections 96(5) and (6) at item 13 of Schedule 4 to the TLACC Bill. 184. TCPSS Act, proposed subsections 96(2) for Telstra, 96(4) for Optus, at item 13 of Schedule 4 to the TLACC Bill. 185. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], [Submission no. 9], 14 July 2017, p. 16.

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• for carriers serving greenfield premises, the first 55,000 ‘recently connected greenfield premises’ are exempt from the RBS—broadly, these are premises connected by a non-NBN provider between 1 January 2011 and 30 June 2019,186 or premises covered by an adequately served ministerial declaration.187

These apply only to ‘potentially concessional premises’, which are chargeable small business or residential premises.188

Key issue: non-greenfield concession limited by greenfield concession Importantly, the non-greenfield premises exemption provided by proposed subsection 20(1) of the Charge Bill is not accessible by carriers that have any recently connected greenfield premises. This may result in some small carriers that operate both greenfield and non-greenfield potentially concessional premises having a substantially higher total charge amount than comparable carriers that operate solely one or the other.

For example If a carrier serves 15,000 non-greenfield residential and small business premises, and 5,000 recently connected greenfield premises, then it can only access an exemption for its 5,000 recently connected greenfield premises, rather than opting for the non-greenfield exemption for its 15,000 other premises.189

The Explanatory Memorandum to the Charge Bill appears to indicate that this is intentional, although it does not explain why.190

Key issue: difficulty identifying the basis of the charge In 2017, Telstra submitted detailed concerns over the definition of key terms, particularly the use of the ‘chargeable premises associated with a local access line’ as the basis for calculating the tax because of the administrative burden it would impose. Telstra recommended that Services in Operation (SIOs) would be a suitable alternative basis:

An alternative calculation model, which Telstra considers could be implemented with far greater certainty and accuracy, is one which is based on the carrier’s active superfast broadband Services in Operation (SIOs) delivered to end users over an underlying local access line that is owned or controlled by the carrier. Rather than count premises, the carrier would count network services. The key benefit of this SIO model is that a carrier’s existing network record databases are likely to already identify SIOs and the speed of those services (e.g. for billing purposes).

191

186. Namely, any premise covered by the ACCC Local Bitstream Access Service Determination (LBAS), which regulates any non-NBN wholesale network built after 1 January 2011. This Declaration was required by section 152AL(3C) of the Competition and Consumer Act 2010. This is provided by TCPSS Act proposed subsection 96B(2) and (3), at item 13 of Schedule 4 to the TLACC Bill. Further discussion at 189-190 of the TLACC Bill’s Explanatory Memorandum.

187. Charge Bill, clause 20; TCPSS Act, proposed section 96A and 96B.These declarations are made under subsection 63(2) of the Telecommunication Act. These declarations require that the carrier to connect premises within the declared area in a similar manner to the Nominated SIP requirements, and are usually issued over new greenfield estates to avoid NBN overbuild. This is provided by the TCPSS Act proposed section 96B(1). Further discussion on page 189-190 of the TLACC EM.

188. TCPSS Act, proposed section 96A at item 13 of Schedule 4 to the TLACC Bill. 189. This 10,000 premises difference at the current rate of charge this would cost this hypothetical carrier $4,260,000 annually, or $21.3 million over the course of the five year concession period, compared to if they were able to access the non-greenfield concession. In order for the non-greenfield exemption to be financially desirable over the greenfields exemption, a carrier

must have more non-greenfield premises than greenfield premises (provided that there are fewer than 25,000 greenfield premises, at which point the greenfield exemption becomes strictly desirable). It is unclear if any carriers are in this position. 190. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 74-75. 191. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], [Submission no. 9], 14 July 2017, p. 15.

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Telstra’s 2019 Submission echoed the concern over the definition of ‘premise’, although the focus of that submission was instead to remove enterprise premises from the definition, rather than moving to an SIO definition.192 However, Telstra continues to have ongoing concerns with identifying the kind of premises the RBS will apply to.193

Notably, the 2016 BCR report recommended a version of the RBS Levy that used SIOs: ‘[t]he BCR considers an NBN equivalent approach should be calculated according to the number of high-speed fixed-line SIOs.’194 This issue was addressed by the 2017 Committee Inquiry, where Departmental officials considered interpretational issues could also result from the use of SIOs as the basis of the charge:

In the consultation process on the exposure drafts—the bills—carriers that were servicing the business market raised concerns about how certain the use of services in operation would be, and they identified that for large business customers it can be interpreted in a range of different ways. For example, a large corporate such as the Commonwealth Bank might have lines that service a particular branch, it might have lines that service its ATM network and it might have lines that service different components of its communications services. And there'd be uncertainty about whether all of those lines would be calculated or only some of them. In response to that the department developed the proposal around a premises based charge.

195

The Department considered that this approach did not entail any material trade-offs.196 However, as corporate and enterprise entities may exist on a single premise, but have multiple SIOs, but most residential consumers will have a single SIO on a single premise, this change likely did shift a greater portion of the tax burden on residential consumers and networks over enterprise and corporate ones. The Department continues to view the 2016 BCR modelling as appropriate.197

The difficulty associated with the Department’s assertion that the use of premises rather than SIOs responds to industry feedback, is that this feedback does not appear to be publically available. It does not appear industry has made submissions in favour of premises over SIOs during the exposure draft consultation process or the 2017 and 2019 Committee inquiries.198 Industry feedback may have been provided privately to the Department.

The 2017 Inquiry Report concluded that the Committee ‘supports the overall approach taken to drafting the RBS as outlined in the Bills’ and was of the view that ‘the counterpoints made by the department and NBN Co to industry arguments are more compelling’.199 While concerns about the administrative burden of industry tracking the number of premises, particularly in the enterprise

192. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 16], 17 January 2020, p. 3.

193. Ibid., p. 6. 194. The Bureau of Communications Research, NBN non-commercial services funding options: final report, op. cit., p. 8. 195. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 10 August 2017, p. 19. 196. Ibid. 197. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, pp. 18-19,

pp. 23-25.

198. Vocus did submit to the consultation on the exposure draft concerns over the then definition of “chargeable services”, but recommended that the definition be changed to “superfast carriage services” in operation, rather than to premises—Vocus Group, Submission to the Department of Communications and the Arts, Consultation on the Telecommunication Reform Package, 3 February 2017, p. 2.

199. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, Canberra, September 2017, p. 33.

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sector, resurfaced in submissions to the 2019 Committee Inquiry, the Committee considered the ‘current bills, like the 2017 bills, reflect industry feedback’.200

Key issue: exclusion of non-fixed connections from the charge The Bills as currently drafted do not impose the RBS charge on non-fixed connections, such as mobile broadband, fixed wireless or satellite broadband connections. Only fixed line connections technically capable of download speeds above 25 mbps are subject to the charge.201 This appears to be based on a view that:

• non-fixed line services are not and will not in the short to medium term become a substitutable service to fixed-line broadband and

• a narrow charge incentivises NBN to control its wireless and satellite broadband costs because those services would be funded mostly by the RBS applied to NBN Co fixed-lines.202

Key stakeholder concerns include the market distortionary effect which gives a competitive advantage to mobile and fixed wireless networks and the potential for consumers to transition to those technologies in the medium to long term—this would undermine the basis of the RBS.203 In 2017, the Department noted that fixed-wireless NBN competitors had been excluded from the RBS as they make up a small portion of the market—one to two per cent.204

Is wireless substitutable for fixed-line broadband? The Government has consistently stated the view that non-fixed line services are not substitutable for fixed-line services.205 While this may have been the view when consultation on this issue began in 2014, this is not necessarily the view today—in 2018, the ACCC highlighted how this view has evolved:

When we originally commented on this proposal, we accepted the BCR’s view that only imposing the charge on NBN equivalent services (as opposed to introducing a broader industry levy) would better encourage NBN Co to contain costs to efficient levels because it would continue to bear most of the funding responsibility for the non-commercial services in question. Our comments were directed mainly at addressing the merits of the funding principles and proposals put forward as alternatives by the BCR, rather than articulating our own.

200. Senate Environment and Communications Legislation Committee, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 [Provisions] and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 [Provisions], The Senate, Canberra, 14 February 2019, p. 28.

201. See the definition of ‘designated broadband services’ defined by proposed section 76AA of the TCPSS Act, at item 13 of Schedule 4 to the TLACC Bill. 202. See Explanatory Memorandum, Charge Bill 2019, p. 25. 203. See TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, op. cit., pp. 5-6 and TPG, Submission5-6 an d TPG, to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, 20 December 2019, op. cit., pp. 1-2. See also OptiComm’s evidence to the Committee in 2019 that ‘NBN bypass services that are already in existence will increase with the current rollout of 5G mobile networks’, Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 3. 204. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 10 August 2017, p. 19. 205. Reiterated most recently by the Department in hearings to the 2019 Committee Inquiry: ‘our assessment is that fixed line

services are not directly substitutable for 5G services, so it's unlikely that NBN is going to lose significant market share to a 5G service.’ Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 30; R Pearce, ‘NBN tax: Govt says no need to include mobile services in subsidy scheme’, Computerworld, 29 January 2018; Australian Government response to the Senate Environment and Communications Legislation Committee report : Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, Canberra, September 2017, p. 6.

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We accept that increased substitution towards fixed wireless and mobile broadband services raises questions about the funding base of this scheme. Attendees at the market study stakeholder forum in July 2017 also suggested the scheme could distort market outcomes in favour of service providers (such as those using fixed wireless and mobile networks) that the charge did not apply to. NBN Co’s CEO has even suggested that NBN Co may need further protection from wireless competitors to sustain its financial viability.

In its final consultation paper on NBN non-commercial services, the BCR acknowledged that the introduction of 5G technology may see an increase in the level of substitution. It therefore indicated that future consideration will be required on how funding arrangements adjust over time.

As the substitutability of wireless and mobile broadband services increases, the fact that the RBS is not applied to these services may indeed further help to underpin this substitution and distort market outcomes. 206

The ACCC affirmed its view that direct budget funding for wireless and satellite services was the ‘least distortionary alternative’ as it would ‘not serve as a means of protecting the NBN from network competition’.207 It is on this basis that the ACCC recommended that the RBS should not be extended to wireless services—the ACCC was not necessarily considering the merits of the RBS itself.208

Since the Bills were first released as exposure drafts in 2016, the underlying justification for excluding wireless services has remained part of the accompanying explanatory materials.209 Notably, the RIS continues to rely on the view of the ACCC as it was in 2016.210 According to the Explanatory Memorandum to the Charge Bill, the Government considers this issue could be considered under one of the charge review mechanisms: ‘[i]n the event that mobile broadband services become substitutable for fixed-line services, the Government would consider changing the funding base’.211 Subsequent studies and current market conditions do not appear to have been addressed in the rationale for the decision to exclude non-fixed connections from the RBS, including, for example, the 2017 Productivity Commission Report.212

The view that NBN Co should bear most costs of the levy itself The Government considers that a narrow tax will ensure that NBN Co has strong incentives to control costs for the operation of its fixed wireless and satellite services because a high percentage of the RBS would come from NBN Co fixed-lines. The RIS for the Charge Bill states:

While the precise difference in net benefits between [the RBS, a narrow industry levy on fixed line networks] and the others are not able to be measured, both the BCAR and the ACCC noted that NBN Co would face greater incentives for cost efficiency if the costs for providing its fixed wireless and satellite networks were borne mainly by NBN Co itself. The BCAR also recommended a charge on fixed-line broadband providers on the basis that the benefits in productive and dynamic efficiency from

206. ACCC, Communications sector market study: final report, ACCC, [Canberra], 5 April 2018, p. 7, 163-164. 207. Ibid., p. 164. 208. Ibid. 209. Department of Communications and the Arts, Regulation Impact Statement: Establishing an ongoing funding arrangement for

NBN’s fixed wireless and satellite networks, December 2016, p. 26; Explanatory Memorandum, Charge Bill 2019, pp. 28-29. 210. Explanatory Memorandum, Charge Bill 2019, p. 28-29. 211. Ibid., p. 28. 212. Productivity Commission, Telecommunications Universal Service Obligation: Inquiry Report, April 2017.

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ensuring that costs were mainly borne by NBN Co itself outweighed the lower allocative efficiency from a narrower charge. 213 [citations omitted and emphasis added]

This is based on the assumption that wireless is not substitutable for fixed-line broadband, and therefore NBN will retain a significant market share of overall broadband services—this view is contentious, particularly given the fact that the RBS is meant to be in place through to 2040.214 In 2017, the Productivity Commission raised concerns with the distortionary effect of a narrow tax:

The Government has proposed that the Regional Broadband Scheme (at least initially) include only a narrow levy base… Both the BCR and the ACCC have argued for a narrow levy base as they considered that it would maintain incentives for nbn to contain costs and improves productive and dynamic efficiency. However, the Commission considers that, in line with the principles-based approach to funding outlined in this chapter, the choice of funding model should prioritise minimising distortions in the telecommunications market and be flexible, simple and transparent.

215 [citations omitted and

emphasis added]

Industry position The Telecommunication Industry has consistently been divided on the exclusion of non-fixed broadband connections from the RBS, between the operators of mobile phone networks (particularly the two 5G network operators Optus and Telstra) and the rest of the industry.

Both Optus and Telstra have maintained that their 5G offerings are not a threat to the NBN. For example Telstra submitted to the 2019 inquiry that ‘we have always stated that we do not believe that NBN or broadband and 5G substitute but that they naturally complement each other’, with Optus also affirming that ‘we also see the two networks as complementary’.216 However, it was reported in 2019 that Optus CEO Allen Yew had proposed 5G as a ‘viable alternative’ to the NBN, and has reportedly described 5G as a cheaper and faster alternative to fixed-line NBN offerings.217 This could, in part, be explained by the non-disparagement clauses in Optus’ and Telstra’s Definitive Agreements,218 which require, in at least some areas, that they market their 5G services as non-substitutable with the NBN.219

213. Explanatory Memorandum, Charge Bill 2019, p. 25. 214. BCAR cost modelling was projected through to 2040. 2040 being the intended end date of the scheme was raised and confirmed by departmental officials in the 2019 Committee hearing: Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 27.

215. PC, Telecommunications universal service obligation, op. cit., p. 322. 216. See C Burgman (Head of Government Relations, Telstra) and L Van Hooft (Director, Economic Regulation, Optus), Evidence to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019,

30 January 2020, page 12; Optus, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, July 2017, [Submission no. 13], p. 3. 217. J Fernyhough ‘Optus slams NBN quality, calls for 5G replacement’, The Australian Financial Review, 8 April 2019; J Fernyhough ‘Optus’ Allen Yew reveals plans to pick customers off NBN’, The Australian Financial Review, [online edition], 31 January 2019. 218. The ‘Definitive Agreements’ refer to a series of contractual agreements between NBN Co and Telstra, and NBN Co and Optus. These agreements essentially paid Telstra and Optus to progressively transfer or decommission their existing copper (Telstra) and HFC (Telstra and Optus) networks to NBN co over the NBN rollout. The Net Present Value (NPV) of Telstra’s Definitive Agreement was A$11 billion as at 30 June 2010, and A$800 million for Optus. Notably these ‘non-disparagement agreements’ do not appear to be identical, and may impose stronger restrictions on Telstra than they do on Optus. See also J Fernyhough, ‘Looming 5G threat to NBN just got real‘, The Australian Financial Review, (online edition), 8 November 2019 ‘That leaves the mighty Telstra. Telstra is in a unique position. As part of its definitive agreement with the government over its handover of infrastructure to the NBN in return for billions of dollars in compensation, it commits not to compete with the NBN. That means it is forbidden from marketing fixed wireless as an alternative to the NBN.’ 219. The Definitive Agreements are commercial-in-confidence, however excerpts of the Optus Definitive Agreement are available

as they are covered by ACCC Authorisations A91479-A91481. This authorisation was revised in 2015, and the Final

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Operators of NBN-comparable fixed-line networks but not mobile networks, who may be exposed to 5G competition, are generally critical of this position. TPG has consistently taken the opposing view to Telstra and Optus. In its submission to the 2019 Inquiry, TPG stated ‘[i]t is plain that these products compete with the NBN’.220 Commpete, OptiComm Co, and Vocus Group all submitted similar concerns and advocated a technologically neutral tax base—for example, OptiComm stated ‘NBN bypass services that are already in existence will increase with the current rollout of 5G mobile networks’.221

NBN Co’s 2019 submission indicates broad support for the Bills but does not consider this issue.222 However, in NBN Co’s 2016 submission on the exposure draft version of the bills, it expressed strong opposition to the exclusion of fixed wireless networks from the RBS charge base: ‘nbn strongly believes that fixed wireless network operators should be included in the levy. New entrants are building their business models around the assumption that fixed wireless networks do, and will, compete with nbn going forward’.223 NBN Co additionally noted concern over 5G and recommended that legislative review mechanisms be introduced.224

The challenge of 5G mobile to NBN’s FTTN business model There appears to be a substantial risk of substitution from NBN FTTN connections to 5G mobile connections in the medium term, which will in turn have a considerable impact on the funding base of the RBS as such wireless connections are not included in the charge base.

5G networks are a massive improvement on 4G mobile networks in terms of speed, capacity, and cost of data per gb. 5G Networks are technically capable of speeds of up to 20 gbps or 20,000 mbps,225 two hundred times faster than the upper limit of 4G and of the NBN FTTN offering, a factor noted as a cause for likely shift in substitutability by the ACCC in 2018.226 Telstra achieved three gbps in trials in 2018.227

Determination includes a description of clause 5.2(c) of the Agreement, the non-disparagement clause. The Telstra Agreement does not appear to be available in any form, however Telstra published an Explanatory Memorandum which details the non-disparagement clauses (Telstra, Explanatory Memorandum: Telstra’s Participation in the Rollout of the National Broadband Network, 1 September 2011, p. 27.). 220. TPG, Submission, to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, 20 December 2019, op. cit., pp. 1-2. 221. Opticomm, Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 3; Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no.6 ], 20 December 2019 2020, p. 3; Vocus Group, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 11], January 2020, p. 3. 222. NBN Co, Submission Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, December 2019, op. cit. 223. NBN Co, Submission to the Department of Communication and the Arts consultation on the telecommunication reform package, 3 February 2017, Attachment A, p. [10]. 224. Ibid. 225. The International Telecommunication Union (ITU) International Mobile Telecommunications-2020 Standard defines the

parameter of 5G networks which includes downlink and uplink speeds, see ‘Minimum requirements related to technical performance for IMT-2020 radio interface(s)’ International Telecommunication Union Radiocommunication Sector, November 2017. 226. ACCC, Communications Sector Market Study - Final Report, April 2018, pp. 48-49. 227. Telstra, ‘The world’s first 5G Wi-Fi precinct on the Gold Coast’, 28 March 2018. WhistleOut reported that these Wi-Fi hotspots had a real world speed of 2.7gbps.

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Both Optus and Telstra are currently rolling out 5G mobile networks in Australia. Optus is currently offering a 5G home broadband plan for $70 AUD per month, offering unlimited data and a guarantee of 50mbps during evening peak loads, although Optus also claimed in November 2019 that this service was averaging evening peak speeds of 164mbps and top speeds of over 400mbps.228 These speeds may increase further as the network matures towards the protocol’s maximum speed of 10gbps. By comparison, the current median retail price of a NBN 50mbps peak period connection in 2018-2019 was $89 per month.229

Although 5G was available to only around 140,000 residential premises in November 2019,230 this figure is expected to rapidly increase as the network is rolled out. Sky News has described it as an ‘NBN Killer’;231 WhistleOut has noted that the Optus 5G home broadband offering ‘seems directly pitched as an NBN alternative’; 232 and the Australian Financial Review described it as ‘a seriously competitive proposition’.233 Ry Crozier noted in January 2019 that:

The advertised characteristics of the Optus service are likely to be a concern for NBN Co as well as for regulators and the government, who have consistently dismissed mobile broadband as being substitutable for fixed line services. 234

If a consumer has access to a 5G mobile broadband offering comparable to Optus’s, then it is arguable that there are not many clear circumstances in which a NBN fixed-line connection is preferable, other than in the case of FTTP.

NBN has a mixed ability to respond to 5G wireless competition, and crucially may have no options to upgrade FTTN speeds and capacity without an overhaul of the physical infrastructure. FTTP connections are already technically capable of speeds of 10gbps, and gigabit connections have been offered internationally over FTTP connections,235 but FTTP only makes up 21.5% of NBN’s connections.236 While NBN Co has been developing other technology such as ‘g.fast’ to increase speeds over connections, which rely, in part, on copper (FTTC & FTTB), this technology only offers substantial improvement over short copper loops, and the average copper loop length for NBN FTTN connections is 450 metres.237 Around 42.5 of NBN’s services are FTTN connections, or 2.8 million homes.238

On this basis, it would appear that there is a real risk of substitution resulting in NBN FTTN customers switching to 5G connections as those networks roll-out across suburban Australia—the exclusion of such services from the RBS will mean less revenue to subsidise regional broadband. These are the risks which the BCR identified when it recommended future re-examination of the legislation when 5G network services started in Australia.239 The ACCC further explored this risk in

228. Optus, ‘Optus differentiates with 5G delivering both mobile ‘On the Go’ and in the home with new 4K Ultra HD Video Streaming partnerships’, 4 November 2019. 229. ACCC, Communications Market Report 2018-2019, December 2019, p. 29. 230. A Choros, ‘About 140,000 homes can now get Optus 5G home broadband’ whistleOut 4 November 2019. 231. Sky News ‘NBN alternative has ‘worked very well’ for tech expert’ 17 November 2019. 232. whistleOut ‘New Daily ‘Cheaper and faster than the NBN’: Optus rolls out ‘5G Home’ wireless broadband’ 4 November 2019. 233. J Fernyhough, ‘Looming 5G threat to NBN just got real‘, The Australian Financial Review, (online edition), 8 November 2019. 234. Ry Crozier 'Optus unveils an NBN-like 50mbps-plus wireless service’ Itnews, 31 January 2019. 235. See for instance, Google Fiber. 236. ACCC, NBN Wholesale Market Indicators Report: December quarter 2019 Report, 20 February 2020. 237. K Keisler ‘Setting the facts straight on Fibre-to-the-Node’, NBN Co, 8 March 2017. It is possible that the average FTTN distance

may have shifted since 2017. 238. ACCC, NBN Wholesale Market Indicators Report: December quarter 2019 Report, 20 February 2020. 239. BCR, NBN non-commercial services funding options: final report, op. cit., pp. 7, 22-23, 59, 94.

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2017 when it modelled four scenarios of 5G adoption.240 The second, ‘wireless growth’241 identified a risk of ‘significant technological substitution’ as ‘[c]ustomers move from the fixed line NBN networks to private sector wireless networks that are able to offer better value propositions’ and ‘5G fixed wireless slowly becomes the favoured option of broadband retailers to reduce their costs of delivering broadband to the home.’242 Of the four options, this one was modelled as resulting in the lowest customer experience with the NBN.243

The concern of 5G substitutionally reducing the charge base of the RBS was raised in the Committee inquiry into the 2019 Bills. Departmental officials reiterated the position of the Government was that non-fixed line services were not substitutable with fixed line, but if this assumption changes ’it may raise this question about whether the levy base should be expanded to include mobile services’, and that the Department’s preference would be to expand the levy base rather than raise the charge amount.244

How much is the charge? Clause 6 of the Charge Bill imposes the RBS charge on a carrier’s annual chargeable premises amount—this has two components:

• an annual base amount ($7.09 per premises per month) and

• an annual administrative cost amount ($0.01 per premises per month).245

How are the annual base amounts calculated? The annual amounts are simply the sum of the number of chargeable premises associated with a local access line a carrier has, multiplied by the base component of $7.09 per premises and the administrative component of $0.01 per premises per month. These amounts are indexed to CPI and may be varied by the Minister by way of legislative instrument.246

Base component Subclause 12(1) of the Charge Bill establishes the initial base component amount as:

• $7.09 per month or

• an amount determined by the Minister by legislative instrument under subclause 12(4).

The base component amount will be indexed annually to the Consumer Price Index (CPI).247 However, the Minister may determine another amount as the base component from the second financial year onwards.248

The Minister must not make a determination on the base component unless the ACCC has given advice to the Minister under clause 13 of the Bill; in making such a determination the Minister

240. ACCC, Communications Sector Market Study: draft report, ACCC, [Canberra], October 2017, pp. 171-179. 241. The wireless growth scenario was defined by strong private sector investment in 5G development (which has occurred), with limited NBN adaption to growing competition, resulting in an overbuild of the NBN by privately owned 5G networks (which is occurring).

242. ACCC, Communications Sector Market Study: draft report, op. cit., pp. 172-173. 243. Ibid, p. 174. 244. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 30. 245. Charge Bill, clauses 9, 12 and 16. 246. Clauses 10-13 of the Charge Bill cover the base component of the charge. 247. Charge Bill, subclauses 12(2) and (3) and clause 18. 248. Charge Bill, paragraph 12(2)(d).

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must have regard to the most recent ACCC advice, along with any other matters the Minister considers relevant—see ‘Box 1: ACCC advice about the base and administrative cost components’.249

The Minister’s determination must not be ‘inconsistent with’ the combined base and administrative component cap of $7.10 per month—this cap is indexed to CPI.250 The Explanatory Memorandum states the aim of a cap is to support ‘wholesale market competition by providing regulatory certainty for investors that the level of taxation under the new Act cannot exceed the specified amount’.251

Administrative cost component Subclauses 16(1)-(5) of the Charge Bill set out the administrative cost component for each month in the first five financial years of the scheme—the amounts are as follows unless varied by the Minister by way of legislative instrument:

• first financial year: $0.01

• second financial year: $0.00172

• third financial year: $0.00

• fourth financial year: $0.0027 and

• fifth financial year: $0.00.252

For the sixth and subsequent financial year, the administrative cost component for a month is:

• the cost component for a month in the previous financial year indexed to CPI or

• an amount determined by the Minister.253

The following explanation is provided in the Explanatory Memorandum to the Charge Bill as to the varying administrative cost component for each year:

The administrative cost component reflects the amount of funding necessary for the ACCC and ACMA to administer the Scheme. This is why the amount is highest in the first and second years, when the ACCC and ACMA are setting up their systems and operationalising their processes. There is an amount in the fourth year, when the ACCC is expected to review the base and administrative cost components. A nil amount occurs in the third and fifth year because the ACCC and ACMA do not expect to have any new additional direct costs in those years.

254

In varying the administrative cost component the Minister must have regard to the most recent advice provided by the ACCC under clause 17 and any other matters considered relevant by the Minister—see ‘Box 1: ACCC advice about the base and administrative cost components’.255 A determination varying the administrative cost component must not be ‘inconsistent with’ the combined component cap under subclause 17A.256

249. Charge Bill, subclauses 12(5) and (6). 250. Charge Bill, clause 17A. 251. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 72. 252. Charge Bill, subclauses 16(1) to (5) and subclause 16(8). 253. Charge Bill, subclauses 16(6) and (7). 254. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 71. 255. Charge Bill, subclauses 16(9) and (10). 256. Charge Bill subclause 16(11).

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Parliamentary disallowance of Minister’s determination The Minister’s determination of a monthly base component or administrative cost component is subject to Parliamentary disallowance. A copy of the determination must be tabled in each House of Parliament within six sitting days of being registered.261 A notice of motion to disallow may then be brought within 15 sitting days of the date of its tabling. The instrument will then be disallowed if either:

• within 15 sitting days of the notice, either House passes a resolution disallowing the instrument or

• at the end of 15 sitting days after the giving of the notice, the motion has not been withdrawn or otherwise dealt with.262

Key issue: charge cap insufficient to fund RBS The initial charge calculated in 2016 has not been updated for inflation through to 2020, and the adoption of Opposition amendments caps it at $7.10, which will be insufficient to meet BCR projected costs. The 2016 BCR Final Report calculated the amount of charge needed:

257. Charge Bill, subclauses 13(1) and 17(1). 258. Such a determination may be made under proposed subsection 78(2) of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (at item 13 of Schedule 4 to TLACC Bill). 259. Charge Bill, subclause 13(3). 260. Charge Bill, subclause 17(2). 261. Legislation Act 2003, section 38. 262. Charge Bill, subclause 19(2) and (3A).

Box 1: ACCC advice about the base and administrative cost components Clauses 13 and 17 of the Charge Bill both allow and require the ACCC to give advice to the Minister in relation to the Minister’s power to determine a monthly base component and a monthly administrative cost component. The ACCC advice must be given at least once during the five-year period from commencement of the RBS and at least once during each subsequent five-year period.257 Monthly base component In providing advice on the monthly base component, the ACCC may have regard to matters it considers relevant and must have regard to the principle that the base component should be sufficient, over time, to offset the reasonable losses incurred by an eligible funding recipient (which will be NBN Co or a carrier determined by the Minister)258 from:  the connection of premises so that a carriage service provider can provide fixed wireless or

satellite broadband services at the premises  the supply of eligible services so that the carriage service provider can provide fixed wireless or satellite broadband services to at the premises  facilities that are used, or proposed to be used, to supply fixed wireless or satellite broadband

services at the premises and  matters that are incidental or ancillary to those mentioned above.259 Administrative cost component In providing advice on the administrative cost component for the month, the ACCC must have regard to the principle that the annual administrative cost amount should be sufficient, over time, to offset designated administrative costs incurred after the start of the first eligible financial year, and may have regard to any other matter it considers to be relevant.260

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The BCR has calculated that each high-speed fixed-line SIO would contribute around $6.80 per month in FY2015 real terms. This is equivalent to around $7.30 per month in nominal terms in FY2018 (the first full financial year for which new funding arrangements could be calculated), and $8.00 per month nominal by FY2022, when the NBN is expected to be completed and operating in a relatively steady state of operations.

263

The 2018 Bills had a combined component cap of $10 (indexed to CPI).264 Adjusted for inflation, the $7.10 per month component cap is below the $6.80 FY2015 in real terms, that the BCR calculated as necessary to fund the scheme. In 2020 dollars, $6.80 in 2015 would be around $7.27 in 2019.265 The BCAR expected the RBS to raise $825 million in 2021-22,266 although this was on an expected charge of $7.82 monthly in 2021-2022 nominal terms. A charge of $7.82 monthly in 2021-2022 is no longer possible under the current legislative scheme, due to the combined component cap of $7.10 (adjusted for CPI) imposed by clause 17A of the Charge Bill.

The likely cap of the charge in 2021-2022 then is likely to be around $7.25 (assuming a CPI of two per cent). On the same estimate of the charge base (8.791 million SIOs/premises267), this yields an expected annual total amount of approximately $765 million as opposed to $825 million. However, as the BCAR modelling did not include the impact of the transitional concessions contained in clause 20 of the Charge Bill (for greenfield and other premises) or the move to premises rather than SIOs as the charge base, the total collected may be lower still.

When considered with the possible reduction in the size of the tax base due to potential competition from mobile services and/or the development of low earth orbit satellite broadband, this may have impacts on the financial adequacy of the RBS (these issues are discussed above under the heading ‘Key issue: exclusion of non-fixed connections from the charge’.)

How is the charge assessed and collected? Division 7 in proposed Part 3 of the TCPSS Act (at item 13 of Schedule 4 to the TLACC Bill) deals with the assessment, collection and recovery of the charge. This is a complex and technical section—a diagram of the expected administrative timeline of the assessment of the charge is contained in the RIS. In summary, the process is as follows:

1. a carrier reports its chargeable premises for the previous financial year to ACMA before 31 October

2. ACMA makes a written assessment which includes the amount of charge payable by the carrier by 30 November

3. the assessment is provided to the carrier as soon as practicable after it is made and

4. the charge is payable by the carrier by 31 December.268

263. BCR, NBN non-commercial services funding options: final report, op. cit., p. 8. 264. Telecommunications (Regional Broadband Scheme) Charge Bill 2018, clause 17A. 265. $6.80 in the calendar year 2015 dollars would have been worth around $7.27 in calendar year 2019 (not financial year). Reserve Bank of Australia ‘Inflation Calculator’, accessed 7 May 2020.

266. Explanatory Memorandum, Telecommunications (Regional Broadband Scheme) Charge Bill 2019, p. 62. 267. Charge Bill, Explanatory Memorandum p. 62, which anticipated $825 million of revenue from a total monthly charge of $7.82, which provides a projected ~8,791,000 premise base. 268. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 194.

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Carrier reporting obligations Carriers must report, in a form approved by ACMA, on the number of potentially chargeable premises for each month of the financial year to the ACMA annually—reports may be subject to verification by statutory declaration. It is a criminal offence with a maximum penalty of four years imprisonment to intentionally making a false statement in a statutory declaration.269

The report on the previous financial year is due by 31 October.270

It is an offence to omit to do an act which breaches a requirement under proposed subsection 100(1) of TCPSS Act, this would include failing to lodge a report.271 This is a strict liability offence with a maximum penalty of 50 penalty units (currently $10,500).272 A person who contravenes proposed subsection 100(1) commits a separate offence each day that the omission continues.273 That is, a person will commit a separate offence on each day until the required report is lodged with the ACMA.

Assessment Subdivision B of Division 7 of proposed Part 3 of the TCPSS Act concerns the ACMA’s obligations and powers in making assessments of a carrier’s RBS charge liability for the year.

ACMA must make a written assessment, setting out, among other things, the charge payable by the carrier.274 ACMA must make this assessment by 30 November or a later date set by determination and provide the assessment to the carrier and the Secretary as soon as practicable after it is made.275

ACMA may make an assessment notwithstanding that the carrier has failed to lodge a report.276

Collection and recovery of charge Subdivision C of Division 7 of proposed Part 3 of the TCPSS Act concerns the collection of the charge. The charge becomes payable to the ACMA on 31 December following the financial year, or a later day if allowed by ACMA which must be before 28 February.277 The charge is debt due to ACMA on behalf of the Commonwealth.278

Separate collection arrangements apply to eligible funding recipients (currently only NBN Co) in order for the charge offset mechanism to operate effectively (discussed below).279

269. TCPSS Act, proposed subsection 100(1); section 11 of the Statutory Declarations Act 1959. 270. Proposed subsection 100(1) of the TCPSS Act, at item 13 of Schedule 4 to the TLACC Bill. 271. TCPSS Act, proposed section 101, at item 13 of Schedule 4 to the TLACC Bill. 272. Criminal Code Act 1995, subsection 6.1(1)—if a law that creates an offence provides that the offence is an offence of strict

liability there are no fault elements for any of the physical elements of the offence. The defence of mistake of fact is available (section 9.2 of the Criminal Code). 273. TCPSS Act, proposed subsection 100(2). 274. TCPSS Act, proposed subsection 102(1). 275. TCPSS Act, proposed subsections 102(1), 102(4) and proposed section 102A. 276. TCPSS Act, proposed subsection 102(2). 277. TCPSS Act, proposed section 102D. 278. TCPSS Act, proposed section 102E. 279. TCPSS Act, proposed subsections 102D(5) to (13); Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 17.

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Publishing the charge collected ACMA must publish online the total amount of charge paid and offset by carriers each financial year.280 According to the Explanatory Memorandum to the TLACC Bill: ‘[s]ince the ACMA would only publish the aggregate amount of charge paid and offset each year, the information should not reveal carriers’ sensitive commercial information.’281

Penalties and anti-avoidance

Penalties Subdivision D of Division 7 of proposed Part 3 of the TCPSS Act provides for a pecuniary penalty for late payment of the charge. A carrier is liable to pay a penalty on the unpaid amount of the charge each day it remains unpaid.282 The penalty rate is 20 per cent per year or a lower rate as ACMA determines by way of legislative instrument.283 ACMA may remit the whole or part of the penalty.284

The ACMA may cancel carrier licenses for failing to pay the charge.285

Anti-avoidance measures Division 5 of proposed Part 3 of the TCPSS Act prohibits carriers form entering into schemes for the sole or dominant purpose of attempting to avoid the charge or to dishonestly obtain a benefit under the five year concessional arrangements. It is also proposed that a person must not:

• aid, abet, counsel or procure

• induce, whether by threats or promises or otherwise

• be in any way, directly or indirectly, knowingly concerned in, or party to

• conspire with others

to effect a contravention of the above prohibition.286

This division provides both civil penalty and criminal offence versions of the prohibitions on carriers.287 The ancillary contravention is not a criminal offence.

The maximum penalty for contravention of the civil penalty provisions for a body corporate is $10 million for each contravention and 10,000 penalty units ($2.1 million) for a person other than a body corporate.288 The maximum penalty for contravention of the criminal offences is 10,000 penalty units ($2.1 million) for an individual and $10.5 million for a body corporate.289

280. TCPSS Act, proposed 102ZD. 281. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, pp. 203-204. 282. TCPSS Act, proposed subsection 102N(1). 283. TCPSS Act, proposed subsections 102N(2) and (7). 284. TCPSS Act, proposed subsection 102N(3). 285. Telecommunications Act, proposed subsection 72(2B), at item 5 of Schedule 4 to the TLACC Bill. 286. TCPSS Act, proposed subsection 97(2). 287. TCPSS Act, proposed subsections 97(1), (1A), (4) and (4A). 288. Telecommunications Act, paragraph 570(3)(a) and paragraph 570(4)(a) as amended by item 6 of Schedule 4 to the TLACC Bill;

TCPSS Act, proposed subsections 97(3). 289. TCPSS Act, proposed subsections 97(4) and (4A). Subsection 4B(3) of the Crimes Act 1914 allows a court to impose a maximum penalty on a corporation that is up to five times the amount that can be imposed on an individual.

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How are eligible funding recipients funded? Division 2 of proposed Part 3 of the TCPSS Act would enable the Secretary to enter into a contract with, or make a grant to, eligible funding recipients on behalf of the Commonwealth to provide financial assistance for fixed wireless or satellite broadband services. These provisions are extremely similar to the contract and grant provisions used for the Universal Service Obligation in Division 3 of Part 2 of the TCPSS Act.

Proposed subsection 80(1) of the TCPSS Act enables the Secretary to enter into contracts with, or make grants of financial assistance to, eligible funding entities in relation to:

• the connection of premises to fixed wireless or satellite networks

• the supply of fixed wireless or satellite broadband services

• facilities that are, or proposed to be used to supply fixed wireless or satellite broadband services and

• a matter incidental or ancillary to these matters.

The Secretary is to pay any amount payable by the Commonwealth under a section 80 contract or grant.290

Terms and conditions of grants The Secretary’s power to enter into contracts and make grants under section 80 is qualified by a variety of restrictions, namely:

• terms and conditions: terms and conditions of grants must be set out in a written agreement between the Commonwealth and the grant recipient that the Secretary enters into on behalf of the Commonwealth

• Ministerial determinations: the Minister may, by legislative instrument, set standards, rules and minimum benchmarks that contractors or grant recipients must comply with in relation to section 80 grants and contracts. This determination prevails over inconsistent contracts or grant terms and conditions, subject to a limited number of exceptions:

- a determination cannot override a term or condition that gives a contractor or grant recipient a right to adjust payment for a change in services, facilities or customer equipment under a contract or a grant agreement

- a determination cannot change the price, or method of ascertaining the price, for any services, facilities or customer equipment to be supplied by the contractor or grant recipient in accordance with the contract, or grant agreement • rules binding the Secretary: the Minister may, by legislative instrument, make rules that the

Secretary must comply with when exercising any of their functions under Division 2.291

Performance monitoring The Secretary must monitor the performance of contractors and grant recipients, and report to the Minister on the adequacy of their compliance with the terms of the grant or contract, any notice of breaches received, any remedial action taken by the Secretary in response to such a breach, and the outcome of that action.292

290. TCPSS Act, proposed sections 83(2). 291. TCPSS Act, proposed sections 81, 82 and 87. 292. TCPSS Act, proposed section 85.

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Contracts and grants register The Secretary must maintain registers, published on the Department’s website, of contracts and grants issued under section 80. The registers must include certain information, including for example—name, duration, a summary of service and the amount to be paid or payable by the Commonwealth (or in the case of grants, the total amount of the grant).293

Charge offset mechanism Proposed section 86 inserts a ‘nominal funding entitlement’ scheme—it broadly requires the Secretary to issue a certificate (a ‘nominal funding entitlement certificate’) certifying the funding entitlement of each eligible funding entity receiving funds under a contract or grant for that year (currently only NBN Co) and:

• if the carrier holds a charge offset certificate—pay the nominal funding entitlement to the carrier, reduced by the amount specified in the charge offset certificate or

• if the carrier does not hold a charge offset certificate for the previous financial year—pay the nominal funding entitlement to the carrier.294

Division 6 in proposed Part 3 of the TCPSS Act enables eligible funding entities to reduce their charge liability by the amount that they would be entitled to receive under their funding entitlements. This is intended to minimise the burden of administering the scheme for NBN Co, any future eligible funding entities and the Department. Proposed sections 98 and 99 detail how an eligible funding entity obtains a charge offset certificate and when the charge is refunded—this is summarised in ‘Box 2: charge offset certificates’.

Box 2: charge offset certificates Step 1: obtaining a nominal funding certificates The Secretary must issue a ‘nominal funding certificate’ to every eligible funding entity (NBN Co or other entities as added by legislative instrument) specifying an amount as the ‘nominal funding entitlement’.295 The Secretary is required to have regard to the estimated balance of the Regional Broadband Scheme account when determining this number.296 Step 2: obtaining a charge offset certificates An eligible funding recipient may, after the ACMA has made an assessment of their charge liabilities but before the charge due date (31 December), apply for a charge offset certificate for that financial year.297 Provided that rules set by legislative instrument are complied with, the Secretary must then issue them a charge offset certificate for an amount equal to or below both the nominal funding entitlement and that carrier’s annual base component charge amount.298 The Minister may, by legislative instrument, make rules for the purposes of obtaining a certificate.299 Step 3: remission or refund of charge

293. TCPSS Act, proposed sections 102ZB and 102ZC. 294. TCPSS Act, proposed section 85. 295. TCPSS Act, proposed section 86(2). Note that there appears to be a drafting error in proposed subsection 86(3) of the TCPSS Act (at item 13 of Schedule 4 to the TLACC Bill), as it refers to a certificate issued under subsection 86(1), whereas the

certificate is actually issued under subsection 86(2). 296. TCPSS Act, proposed section 86(4)(b). 297. TCPSS Act, proposed section 98(1). 298. TCPSS Act, proposed section 98(3) and (4). 299. TCPSS Act, proposed section 98(9).

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Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 60

The Secretary must then either remit (if the amount is yet to be paid) or refund (if it has) the base component of the charge owed by the eligible funding entity as specified on the offset certificate.300 A charge offset certificate only applies to the base component of the charge; a carrier still needs to pay the administrative component directly.301

Key issue: funding transparency concerns Proposed section 80 of the TCPSS Act reflects to some extent the provisions of the existing section 14 of the TCPSS Act that forms the basis for grants and contracts to carriers under the USO. Section 14 was the provision under which the Department negotiated the TUSOPA with Telstra. The TUSOPA has received broad criticism for being opaque and having minimal methods of ascertaining if payments are being used for the purposes of the contract, for example, by the Productivity Commission and the ANAO, with the later stating:

Neither the Australian Communications and Media Authority (ACMA) nor the Department undertakes processes to verify the accuracy of the underlying performance data provided by Telstra, which is used to determine compliance with the standard telephone customer service guarantee and payphone benchmarks.

302

Under the agreement, Telstra receives $257 million dollars annually through the TUSOPA.303 This funding is nominally provided in order to allow Telstra to meet its universal service obligations as the primary service provider, but Telstra is not required to demonstrate that the funding it receives actually goes towards this purpose, or report on the scale of its non-commercial losses. Instead, the primary indicator of Telstra’s performance under the TUSOPA is simply if Telstra is meeting their USO obligations, which it is.304

Proposed section 80 does not appear to impose safeguards which would prevent the same issues arising as have arisen as a result of the TUSOPA with Telstra. In particular Division 2 of proposed Part 3 of the TCPSS Act does not:

• require eligible funding entities to report exactly what funds are used for

• require accounting separation of non-commercial services or

• place a statutory obligation on a contractor to use RBS funds towards RBS purposes.

Similar to section 14 of the TCCPS Act, proposed section 80 merely obliges the Secretary to enter into contracts or grant agreements with eligible funding entities ‘in relation to’ fixed wireless or satellite broadband covered by proposed subsection 80(1).

300. TCPSS Act, proposed section 99. 301. Namely proposed section 99 only includes ‘base’ rather than ‘combined’ component in what is refunded. 302. PC, Telecommunications Universal Service Obligation Inquiry Report, op. cit., p. 90; ANAO, Management of the Contract for Telephone Universal Service Obligations,, op. cit., pp. 9 and 34.

303. Interestingly, despite being a fixed, unindexed amount, various government sources disagree on how much the annual payment to Telstra for STS under TUSOPA is. The ANAO cites A$253 million in its Report (Australian National Audit Office, Management of the Contract for Telephone Universal Service Obligations, , ANAO Report No 12 2017-2018, 29 September 2017, p. 7), a number also cited in a report of the Joint Committee of Public Accounts and Audit. DOCA claimed A$230 million in the USG RIS (Department of Communications and the Arts, Regulation Impact Statement - Establishing a telecommunications Universal Service Guarantee, November 2018, p. 4), a number also cited by the Productivity Commission. These two figures coexist- the Productivity Commission figures predate the ANAO report, and the DOCA use of them comes after. Needless to say this is a A$460 million dollar gap over the 20 year life of TUSOPA. The Telecommunications (overall levy target amount) statement 2019 identified the overall target amount for STS to be $253,863,000.

304. See Australian National Audit Office, Management of the Contract for Telephone Universal Service Obligations, ANAO Report No 12 2017-2018, 29 September 2017, pp. 10, 38-42.

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It is possible that NBN Co’s performance under the contract or grant will be assessed on how successfully it meets its SIP obligations (discussed below). Proposed section 85 (which mirrors existing section 20) only requires the monitoring of performance related to the terms of the contract rather than any minimum reporting requirements on losses, or expenditure.

These risks could be mitigated by the Department ensuring that contracts and grant agreements issued under section 80 contain relevant safeguards or the Minister utilises the determination power under proposed section 82.

During the Committee Inquiry into the 2019 Bills, Senator Urquhart raised concerns about what would occur in the event of NBN Co receiving more money under a contract or grant arrangement then it would need to cover fixed wireless and satellite losses for that year. The Department confirmed that such a surplus would need to be used for the delivery of fixed wireless and satellite services.305 It is not clear where this obligation is found (although it may be intended to set it out in contract and grant agreement terms). Labor Senators’ additional comments to the Committee report on the 2019 Bills noted:

…[t]here is seemingly no mechanism that requires the surplus revenue from the Government's $800 million annual broadband tax to be spent on regional networks… there remain legitimate concerns that once the tax revenues flow into NBN Co the company management can effectively direct surplus tax revenue towards anything they wish once it is washed through an offset account, regardless of whether the expenditure relates to a regional outcome or not.

306 [emphasis added]

The majority committee view was more constrained in its language, but was ‘of the view that additional transparency measures, with respect to the management of the RBS levy, should be implemented’ to ‘easily determine that the off-set arrangements are being managed effectively’ and recommended that such measures be implemented.307 The Committee did not explicitly state that these ‘additional transparency measures’ should be legislated as amendments to the Bill.

Key issue: funding can only be applied to fixed-wireless & satellite connections RBS payments can only be provided for fixed wireless and satellite internet connections, even if alternative technologies are superior.308 This explicitly excludes carriage services delivered over a public mobile telecommunications service, which means services delivered over the Telstra, Optus, and Vodafone 4G and 5G networks cannot receive RBS subsidies.309 However, it must be noted that those mobile networks will not subject to the RBS—this is discussed above under the heading ‘Exclusion of non-fixed connections’.

In effect, NBN Co will continue to receive subsidies for the delivery of fixed wireless and satellite broadband services, even if, in future, mobile networks are able to offer superior and/or cheaper broadband in those areas. Internet Australia raised this as a concern:

305. Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 28. 306. Labor Senators, ‘Additional Comments’, Senate Environment and Communications Legislation Committee, Inquiry Report, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and& Telecommunications (Regional Broadband Scheme) Charge Bill 2019, The Senate, Canberra, 14 February 2019, p. 30.

307. Senate Environment and Communications Legislation Committee, Inquiry Report, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and the Telecommunications (Regional Broadband Scheme) Charge Bill 2019, The Senate, Canberra, 14 February 2019, p. 28-29.

308. TCPSS Act, proposed sections 76AB and 77 and proposed paragraphs 80(1)(c) to (f). 309. Proposed paragraph 76AB(1)(f) of the Telecommunications (Consumer Protection and Service Standards) Act 1999, at item 13 of Schedule 4 of the TLACC Bill.

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The TCC Bill specifically only allows the use of funds to build fixed wireless or satellite infrastructure, and cannot be used to provide any other form of superior technology. The TCC Bill and regime appears to assume that fixed wireless and satellite networks are, and always will be, the lowest cost and optimal method of servicing regional and remote areas. This is at odds with the principal of technology neutrality, and removes any incentive for NBN Co or another funding recipient to install any better technology, even if it would be more cost-effective and provide superior services in those local conditions.

310

Internet Australia went on to warn of ‘a perverse incentive for NBN Co to maximise the footprint of its fixed-wireless and satellite areas, even into areas where it would be more economic in the long term to install a superior fixed-line technology’.311

The RBS Special Account Proposed section 89 of the TCPSS Act, at item 13 of Schedule 4 to the TLACC Bill, establishes the RBS Special Account for the purposes of section 80 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). A Special Account is a limited special appropriation that notionally sets aside an amount that can be expended for listed purposes.312 In this case, the Special Account may be debited to:

• pay amounts payable by the Commonwealth under an eligible funding entity contract (under proposed section 80)

• make grants to eligible funding entities

• make distributions of the balance of the account back to carriers and

• make refunds of the charge in the event of overpayment of the charge, including when a person becomes the holder of a charge offset certificate.313

The Special Account must be credited with those amounts paid to the Commonwealth for the RBS charge, under an eligible funding recipient contract (including compensation or damages for breach of that contract) and repayment of an eligible funding recipient grant.314

The Secretary may distribute the whole or part of the balance of the account to carriers who have paid into the account. This can only be done if a legislative instrument made by the Minister regulating the process exists, which the Secretary must comply with.315

Reimbursement of ACCC & ACMA expenses Proposed section 92A enables the Secretary to direct, by notifiable instrument, that funds may be debited from the Special Account to reimburse the ACCC and ACMA for the costs of running the RBS scheme. The funds do not actually flow directly to the ACCC and ACMA, but rather are transferred to the Consolidated Revenue Fund (CRF) out of which the Government can fund those entities in the usual manner.

The amount which can be transferred by the Secretary must be the lesser of:

310. Internet Australia, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, 6 January 2020, op. cit., p. [10].

311. Ibid. 312. Public Governance, Performance and Accountability Act 2013 (PGPA Act), subsection 80(1). 313. TCPSS Act, proposed section 92. 314. TCPSS Act, proposed section 90. 315. TCPSS Act, proposed section 91.

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• the total of the relevant Budget amounts listed in proposed subsection 92A(3) and

• the annual administrative cost component of the charge collected for the year.

Information gathering & legislative review

ACMA and ACCC powers Division 8 in proposed Part 3 of the TCPSS Act (at item 13 of Schedule 4 of the TLACC Bill) provides powers to ACMA and the ACCC to:

• require carriers and carriage service providers to disclose information or documents to ACMA

• require eligible funding recipients to disclose information or documents to the ACCC

• enable ACMA and the ACCC to share information among various Commonwealth bodies including with each other, the Department and declared (by way of notifiable instrument) Commonwealth, state and territory bodies.316

One-off carrier reporting obligation Carriers are required to submit a report to the ACCC on their current number of chargeable premises, potentially chargeable premises, exempt premises, exempt lines, and potentially concessional premises. This is scheduled to occur within three months after Schedule 4 to the Bill commences.317 According to the Explanatory Memorandum to the TLACC Bill: ‘[t]he ACCC may decide to use this information to give the Government advice about the base charge and administrative cost components … of the Charge Bill.’318

A strict liability offence with a maximum penalty of 50 penalty units is imposed for failing to comply with the requirements to lodge or failing to disclose specified information in the report— each day the contravention continues constitutes a separate offence.319 A statutory declaration may be required to accompany the report—it is a criminal offence with a maximum penalty of four years imprisonment for intentionally making a false statement in a statutory declaration.320

Legislative Review of the RBS Proposed section 102ZFA requires the Minister to cause a review of the RBS and associated legislative framework. This Review must occur within, or as soon as practicable after, four years of the commencement of the RBS and include public consultation.321 The Minister may give a written direction to the ACMA or ACCC requiring them to make available specified information to the review.322 The report tabled within 25 sitting days of each House after the completion of the Report.323

Key Issue: ‘set and forget concerns’ The statutory requirements to review the RBS as well as the administrative and base component of the charge (see above: ‘Box 1: ACCC advice about the base and administrative cost

316. TCPSS Act, proposed sections 102P, 102U, 102Z and 102ZA. 317. TCPSS Act, proposed section 102ZF, paragraph 102ZF(2)(d) and subsection 102ZF(7). 318. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019, p. 204. 319. TCPSS Act, proposed subsections 102ZF(5) and (6). 320. Statutory Declarations Act 1959, section 11. 321. TCPSS Act, proposed subsections 102ZFA(2) and (3). 322. TCPSS Act, proposed subsections 102ZFA(4) and (6). 323. TCPSS Act, proposed subsections 102ZFA(8) and (9).

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components’) is perceived by some stakeholders as being too far into the future. In this respect, stakeholders have expressed concern that the RBS charge is inflexible and risks becoming an entrenched tax—Vodafone noted in its 2017 submission:

It is concerning for example that the RBS does not have a sunset clause or automatic requirements for fundamental reviews in certain circumstances, such as privatisation of the NBN. [Vodafone] understands the RBS is intended to be in place until at least 2040. 324

In its 2017 submission, TPG states that the RBS should be ‘reviewed every 18 months after implementation to gauge the effect on competition and the ongoing sustainability for the funding of the nbn’s non-economic services’.325 Internet Australia recommends the ACCC’s review of the base component of the charge occur every year and indexation be removed.326 These concerns were raised by the Australian Greens in their Dissenting Report to the 2017 inquiry, and formed a key line of questioning in the 2019 inquiry.327 The Productivity Commission stressed the importance of regular reviews:

It reduces the risk that the Government takes a ‘set and forget’ approach to what could become an easy way for the Government to move NBN costs off its ledgers, without regard to the distortions that a poorly designed levy could create. 328

The Commission also noted that ‘the risk of policy inertia is high once a policy is implemented, given a demonstrated preference among policymakers for default policy settings.’329

Charge and policy reviews not synchronised Additionally these two review processes are not synchronised and will be conducted by different entities on different reporting timelines—the policy review is required to be commenced before the ACCC is required to review the costings of the RBS and the amount of the charge (by a year).330 There is then a distinct possibility that the policy review will be conducted, and public consultation to that review carried out, with the ACCC RBS costing modelling underway and forthcoming, but not complete, or even engaged in parallel consultation processes.

324. Vodafone Hutchison Australia (VHA), Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, 14 July 2017, pp. 1-2.

325. TPG, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 2], 14 July 2017, p. 8.

326. Internet Australia, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 10], 6 January 2020, p. 4.

327. Australian Greens, Dissenting report, Senate Standing Committee on Environment and Communications, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 [Provisions] and Telecommunications (Regional Broadband Scheme) Charge Bill 2017 [Provisions], The Senate, 6 September 2017, , pp. 52-53; Senate Environment and Communications Legislation Committee, Official Committee Hansard, 30 January 2020, p. 31.

328. PC, Telecommunications Universal Service Obligation, op. cit., p. 325. 329. Ibid., p. 326. 330. TCPSS Act, proposed subsection 102ZFA(4) and Charge Bill, clause 17.

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Consequential changes

Amendments to the CCA Items 1A and 1B of Schedule 4 to the TLACC Bill insert reference to the RBS into the telecommunications industry record keeping rules detailed in Division 6 of Part XIB of the CCA. The amendments create new requirements to retain records related to the operation of proposed Part 3 of the TCPSS Act on telecommunication carriers (item 1A), and provide that the ACCC may publicly disclose, or direct a carrier or carriage service provider to publicly disclose, reports received or retained under the record keeping rules, if satisfied that such a disclosure would facilitate the operation of proposed Part 3 of the TCPSS Act or the Telecommunications (Regional Broadband Scheme) Charge Act (items 1B-1D).

Amendments to the Telecommunications Act Item 5 of Schedule 4 inserts the power for ACMA to cancel carrier licenses for failure to pay the RBS charge. Item 3 creates a process for determining when an individual is disqualified for failure to pay the RBS charge. Items 1, 2, 4, 6 and 7 make related amendments to the disciplinary and penalty provisions under Telecommunications Act.

Statutory Infrastructure Provider scheme Quick guide to Statutory Infrastructure Provider (SIP) scheme Purpose of the SIP Scheme The SIP Scheme is intended to ensure that, on request by an end-user, every premise in Australia has access to peak internet download speeds of at least 25mbps. It does this by imposing obligations on SIPs (predominately NBN Co). What are the SIP’s obligations? Upon request by a carriage service provider on behalf of an end user, a SIP is obligated to both connect a premise to a network and enable the premise to be supplied with broadband internet. A SIP is obligated to connect a premise in its service area to:  a fixed-line network if it is reasonable to do so or  if it is not reasonable—to connect it to a wireless or satellite network. A SIP is further obligated to enable a carriage service provider to supply fixed-line, wireless or satellite broadband internet to the premises which has a peak download speed of at least 25mbps and a peak upload speed of at least 5 mbps—the peak speed is the speed to be expected during peak demand. This may not be the speed the consumer ultimately receives—that speed is determined by a range of factors, including, for example, the broadband package the customer has purchased and the capacity and congestion of the network units purchased by the carriage service provider from the SIP. What area is the SIP responsible for? The proposed SIP scheme has two forms: the scheme as it exists before and after the official completion of the NBN—this is currently set for 1 December 2020 but may be extended by the Minister. A SIP must fulfil its obligations for its service areas—there are four service areas:  interim NBN areas: only exist before NBN completion—NBN Co is the SIP  the general area: only exists after the NBN completion—NBN Co is the SIP  nominated areas: exist both before and after the NBN completion—non-NBN Co carriers

who have installed telecommunications infrastructure are the SIPs for those areas and  designated areas: exist both before and after NBN completion—the SIP is a carrier the

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Minister determines.

What is the SIP scheme? Division 2 in Part 1 of Schedule 3 to the TLACC Bill inserts a new Part 19 into the Telecommunications Act and makes consequential amendments to the Competition and Consumer Act 2010 (CCA). The purpose of new Part 19 is to ensure that all end-users can request that their premises be connected and supplied with superfast broadband services—Part 19 achieves this by, broadly:

• defining who the responsible statutory infrastructure provider (SIP) is for various ‘service areas’ (Division 2 of Part 19) and

• imposing obligations on the SIP to supply the necessary infrastructure so that the premises can be connected and supplied with superfast broadband (Division 3 of Part 19).

The proposed SIP scheme has two forms: the scheme as it exists before ‘the designated day’ and the scheme as it exists after that day.331 The designated day is the date, in the Minister’s opinion, the NBN is deemed to be built and fully operational as provided for under the National Broadband Network Companies Act 2011. This declaration must occur by 31 December 2020 but may be continually extended by ministerial declaration in 12 month intervals.332

What are the service areas and who is the SIP? Proposed Division 2 of Part 19 of the Telecommunications Act sets out the various kinds of SIP service areas, how they come about, and who is the SIP for those areas. As noted above, the SIP scheme has two variants: as it exists before and as it exists after the NBN is declared completed (known as the designated day). There are four SIP service areas, the existence of which depends on the designated day:

• interim NBN service areas—only exists before the designated day

• the general service area—only exists after the designated day

• nominated service areas—exists both before and after the designated day, and

• designated service areas—exists both before and after the designated day.

NBN Co is responsible for the interim service areas and general service area while other carriers are responsible for the nominated service areas—for example, where other carriers have rolled out their own fibre networks. The Minister may designate a carrier as the SIP for designated service areas.333

Interim service areas Where: interim service areas only exist before the designated day—they are the areas NBN Co declares or has declared are ready for service that are not nominated or designated service areas.334

331. Telecommunications Act, proposed subdivision A (before) subdivision B (after) and C (both before and after) in Division 2 of Part 19. 332. National Broadband Network Companies Act 2011, subsections 48(1) and (2); Telecommunications Act, proposed section 360A definition of ‘designated day’. 333. Telecommunications Act, proposed section 360. 334. Telecommunications Act, proposed subsections 360D(1) to (3).

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The Minister may make rules, by way of legislative instrument, regulating NBN Co. declarations that an area is ready for service.335

Who is the SIP: NBN Co.336

Variable/revocable? A declaration that an area is ready for service cannot be revoked.337

NBN Co cannot vary a declaration that an area is ready for service except in the case of ‘clerical error or obvious mistake’.338 The Minister may vary a declaration in writing but must conduct a consultation process of not less than 10 business days, and consider any submissions received, before making a variation.339 This variation is not a legislative instrument.340

Key issue: Telstra’s obligations prior to the completion of the NBN It was initially expected that the pre-designated day SIP scheme would be in operation for at least two years. However, given the time that has passed since the Bills were originally introduced into the 45th Parliament, the operation of the interim provisions may be brief. While the designated day is currently set as 1 December 2020, it is possible this could be indefinitely extended until the NBN is declared complete.341 Prior to the designated day, the NBN is responsible for ‘interim NBN service areas’ declared under proposed subsections 360D(2) and (3) of the Telecommunications Act. Telstra, as the body with ongoing USO obligations to connect all of Australia to telephone services expressed concern that this would lead to gaps in the SIP scheme that Telstra would have to fill:

This will lead to a ‘Swiss cheese’ effect where large areas within a region are serviced by nbn co, but neighbouring pockets (or even a single neighbouring premises) have no SIP in the lead up to the designated day and are reliant on Telstra supplying services under the USO. As USO provider, Telstra still has to meet service requests, and in the absence of NBN infrastructure, provide its own fixed or wireless infrastructure in order to supply services for a potentially indeterminate period prior to the designated day (after which nbn co will be the SIP and required to connect the premises and supply wholesale services).

342

However, the brief likely operation of the interim provisions mitigates many of these concerns.

The general service area Where: the general service area only exists after the designated day—it is the whole of Australia other than a nominated or designated service area.343

Who is the SIP: NBN Co.344

335. Ibid., proposed subsections 360D(13)-(14). 336. Ibid., proposed section 360E. 337. Ibid., proposed subsection 360D(6). 338. Ibid., proposed subsection 360D(8). 339. Ibid., proposed subsections 360D(9)-(12). 340. Ibid., proposed subsection 360D(16). 341. National Broadband Network Companies Act 2011, subsections 48(1) and (2); Telecommunications Act, proposed section

360A definition of ‘designated day’. 342. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge

Bill 2017, [Submission no. 9], 14 July 2017, p. 6. 343. Telecommunications Act, proposed section 360F. 344. Ibid., proposed section 360G.

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The general service area reflects the default assumption that NBN co will be the SIP for all of Australia except where specific circumstances arise.345

Nominated service areas Where: an area where a non-NBN carrier must nominate as the SIP because if it meets conditions specified by the Minister and is contracted (or has previously been contracted) to install telecommunications infrastructure in:

• a real estate development or

• a building redevelopment, and

• the area is not a designated service area.346

A carrier has the option, but is not required to nominate as the SIP, if the carrier:

• is contracted to install infrastructure that will enable the supply of eligible services to all of the premises in a given area (excluding a real estate or building redevelopment project) and

• that contract requires or did require the carrier to connect premises to a qualifying telecommunications network on request of a carriage service provider so that eligible services can be provided to the end-user at the premises.347

The Explanatory Memorandum to the TLACC Bill identifies shopping centres and business districts as possible examples of the use of this third, non-compulsory avenue of nominating and provides the following justification:

It is compulsory for a carrier to declare a provisional nominated service area when it installs infrastructure under a contract for a real estate development project or a building redevelopment project. This is because generally there will only be a single carrier servicing these areas. By contrast, it is at a carrier’s discretion whether it declares a provisional nominated service area when it enters into a contract to install infrastructure that is not a contract for a real estate development project or a building redevelopment project. This is because the carrier may not be the only network provider to the premises in question… if a carrier becomes the only network provider to the premises in question, it would be open for the carrier to declare a provisional nominated service area. If the carrier did not, the Minister could designate the area as a designated service area, and declare the carrier to be the SIP for the service area.

348

Real estate development project ‘Real estate development project’ is defined as either:

• any project that involves the subdivision of land in Australia, and then the sale or lease of those lots or building units (practically, residential accommodation) on those lots—this includes greenfield development, the gazetting and development of new suburbs or

• any project that involves the construction and sale of new building units on areas of land. This would include the construction of new apartment blocks and the sale of units within those apartment blocks

345. Explanatory Memorandum to the TLACC Bill, p. 145. 346. Telecommunications Act, proposed subsections 360H(2) to (5). 347. Proposed subsection 360H(6). The Minister may specify additional conditions on the definition by legislative instrument under proposed subsection 360H(7).

348. Explanatory Memorandum to the TLACC Bill, p. 150.

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which meets any conditions specified by the Minister.349

Building redevelopment project A ‘building redevelopment projects’ is defined as any project that involves ‘the significant refurbishment or repurposing of one or more buildings so as to bring into existence one or more building units’ and the sale or lease of those units. The project must also meet any conditions specified by the Minister.350

How: the process for declaring a real estate development or building redevelopment as a nominated service areas is as follows:

1. If a non-NBN carrier enters into a contract that would give rise to nominated SIP requirements (real estate developments and building redevelopments), then they must give the ACMA written notice of the contract.351

The notice must specify the project area, describe the telecommunication network infrastructure to be installed, and estimate the completion date of the installation.

This notice must be given within 10 business days of entering into the contract.352 If the contract had been entered into before commencement and the installation has not yet been completed, the carrier must give the ACMA notice within 90 days of commencement, or within a longer period that the ACMA allows.353

The ACMA must maintain a register of the notices of contracts provided by carriers.354

2. After completion of the installation of the infrastructure, the carrier must by written instrument declare the project area is a provisional nominated service area within 10 days of completion.355

3. The carrier is then the service infrastructure provider for the area, provided that it is not a designated service area or covered by a subsequent nominated service area declaration.356

Box 3: provides an example of how a carrier becomes the SIP for a nominated service area for contracts entered into after commencement.

Who is the SIP: the carrier required to declare itself as SIP for a given area, or else a carrier specified in a legislative instrument.357

Proposed section 360J also lists three carrier license condition declarations (held by OptiComm, Pivit, and NT Technology Services Pty Ltd), prescribing that the areas served under these carrier licenses are automatically nominated services areas. These areas are already subject to SIP-like obligations under these declarations—proposed section 360J translates these obligations into the SIP scheme.

349. Telecommunications Act, subsections 372Q(1) and 372Q(5). 350. Ibid., proposed subsection 360Y(1). The Minister may specify additional conditions that must be met, by legislative instrument under proposed subsection 360Y(3). 351. Ibid., proposed subsections 360HA(1) and 360HA(3). 352. Ibid., proposed paragraphs 360HA(1)(c) and 360HA(3)(c). 353. Ibid., proposed paragraphs 360HA(2)(e) and 360HA(4)(e). 354. Ibid., proposed paragraphs 360Z(1)(c). 355. Ibid., proposed paragraphs 360H(2)(d) and 360H(4)(d). 356. Ibid., proposed subsection 360K(1). 357. Ibid., proposed subsections 360H(1) and 360K(1) and (2).

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Box 3: how a carrier becomes the SIP for a nominated service area—post commencement A new suburb is gazetted, and a private (non-NBN Co) carrier is contracted by a 2,000 home real estate development project to provide FTTP telecommunication infrastructure to all premises within the real estate development area. Provided that any conditions imposed by the Minister are met, this satisfies the requirements specified by proposed subsection 360H(2) of the Telecommunications Act for the carrier to nominate itself as SIP for that area. The carrier is required to give anticipatory notice to the ACMA under proposed subsection 360HA(1), that:  states that the carrier has entered into the contract  specifies the project area  describes the infrastructure that is to be installed and  specifies the carrier’s estimate of the likely installation completion date. The carrier must provide this notice within 10 business days of entering into the contract. After the network infrastructure is completed, the carrier must make a written declaration within 10 business days (as required by proposed paragraphs 360H(2)(d) and (e)), that the whole project area is a ‘provisional nominated service area’. The carrier must publish a copy of the declaration on their website and give a copy of the declaration to the ACMA.358 The result of the carrier’s declaration is that the whole project area is a ‘nominated service area’ and the carrier is the SIP for that area.359

Exceptions: the Minister may, by legislative instrument:

• exempt a specified real estate or building redevelopment project from nominated service area requirements360

• substitute a different carrier than the one that is nominated as the SIP for a nominated service area361 and

• specify additional conditions that must be satisfied in order for projects to qualify for nomination requirements.362

Variable/revocable? A carrier declaration cannot be revoked.363 The Minister may vary a declaration of a provisional nominated service area by a carrier. The Minister must conduct a consultation process of not less than 10 business days, and consider any submissions received before making a variation. This variation is not a legislative instrument.364

Key Issue: nominated service area requirements unclear Telstra raised a concern in its submission to the 2019 Senate Inquiry that the drafting of the nominated service area requirements in proposed section 360H(2) may inadvertently require some mobile carriers to nominate as a SIP for the area upon the installation of telecommunications infrastructure:

358. Ibid., proposed subsections 360H(8) and 360H(9)). 359. Ibid., proposed subsections 360H(1) and 360K(1)). 360. Ibid., proposed subsections 360H(3A) and 360H(5A). 361. Ibid., proposed subsections 360K(2) and 360K(4). 362. Ibid., proposed subsections 360H(3) and 360H(5). 363. Ibid., proposed subsection 360H(12). 364. Ibid., proposed subsection 360H(13) to (19).

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Under the draft SIP legislation, a carrier is required to nominate as the SIP where it installs network infrastructure to enable the supply of ‘eligible services’ to premises in the whole of a real estate development project or building redevelopment project, and the installation was carried out under a contract. Eligible services include a ‘listed carriage service’ which includes ‘a carriage service between a point in Australia and one or more other points in Australia’. Accordingly, the installation of almost any telecommunications network infrastructure could trigger the requirement to nominate as the SIP.

365

And that further:

In effect, there is a legislative mis-match between the (broader) kinds of telecommunications network infrastructure that can trigger the requirement to nominate as the SIP, and the (narrower) kinds of telecommunications network infrastructure to which a SIP is required to connect premises. 366

This concern could be practically mitigated by the Minister issuing an exemption under 360H, 360P or 360Q to relevantly impacted carriers on an individual case by case basis.

Designated service areas Where: anywhere that the Minister specifies by legislative instrument. Designated service areas are automatically ‘carved out’ of both the general service area and any overlapping nominated service area.367

Who is the SIP: any carrier that the Minister, by legislative instrument, designates as the SIP for the area.368

Variable/revocable? Yes.

Key issue: power is extremely broad The Explanatory Memorandum to the TLACC Bill describes this provision as a ‘reserve power’, stating that the powers were ‘deliberately cast broadly as there could be specific circumstances that need to be taken into account on an area by area basis.’369 Telstra raised issues with the scope of this power in its 2017 submission:

This power is so broadly framed that it could be exercised in future to unreasonably shift responsibility for infrastructure deployment from nbn co to another carrier: in effect, to substantially reverse the policy that nbn co should be the primary provider of national broadband infrastructure. 370

Telstra proposed a series of limitations on this power to prevent abuse, none of which has been adopted. Telstra reiterated these concerns in its 2019 submission.371

365. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge Bill 2019, [Submission no. 16], 17 January 2019, p. 6.

366. Ibid., p. 10. 367. Ibid., proposed subsection 360L; proposed subsections 360D(1) and 360H(1); proposed section 360F. 368. Ibid., proposed paragraph 360L(b). 369. Explanatory Memorandum to the TLACC Bill, p. 153. 370. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 9], 14 July 2017, p. 6. 371. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 & Telecommunications (Regional Broadband Scheme) Charge

Bill 2019, [Submission no. 16], 17 January 2019, pp. 10-11.

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The following justification for the ministerial power is provided in the Explanatory Memorandum to the TLACC Bill:

The power under proposed subsection 360L(1) is a reserve power for the Minister. For example, it could be used to designate real estate development projects that were installed before the commencement of proposed Part 19, and are serviced by a single superfast fixedline network provider (other than NBN Co). In such cases, it may be appropriate for the network provider to be the SIP for the area and so the Minister would be able to determine this. The Minister’s powers under the section are deliberately cast broadly as there could be specific circumstances that need to be taken into account on an area-by-area basis. However, as any Ministerial determination would be a legislative instrument, it would be subject to the consultation, disallowance and sunsetting requirements under the Legislation Act.

372

What are the obligations of a SIP? Proposed Division 3 of new Part 19 of the Telecommunications Act imposes an obligation on SIPs to connect and supply premises with qualifying services within their relevant service area, at the reasonable request of a carriage service provider.373

Obligation to connect premises The obligation to connect is provided by proposed subsection 360P(1)—the SIP must on the ‘reasonable request’ of a carriage service provider, connect the premise to:

• a fixed-line telecommunications network to supply fixed-line carriage services, or

• if it is not reasonable to connect the premises to a fixed-line—connect the premises to a telecommunications network to supply wireless or satellite carriage services.

The obligation to connect premises upon ‘reasonable request’ is different to the obligation to connect it to a ‘fixed-line’ network where it is ‘reasonable’ to do so—this is outlined in Box 4 below.

Requirements: the Minister may set requirements of SIPs in connecting premises by legislative instrument.374

Exceptions: the Minister may, by legislative instrument, specify circumstances in which the obligation to connect does not apply.375

Terms and conditions: the SIP must publish a set of terms and conditions on its website on which it offers to connect premises. The SIP must connect premises on these terms if a carriage service provider requests.376

Response to requests: upon receiving a request to connect a premise by a carriage service provider, a SIP must either notify that it will connect the premise or refuse the request within 10 business days of receipt (or a longer period as set by legislative instrument).377 If the SIP refuses the request to connect, it must provide written notice to the carriage service provider within five

372. Explanatory Memorandum to the TLACC Bill, p. 153. 373. Telecommunications Act, proposed sections 360P and 360Q. 374. Ibid., proposed subsections 360P(4) to (7). 375. Ibid., proposed subsections 360P(2)-(3). 376. Ibid., proposed subsection 360(8) and proposed section 360W. 377. Ibid., proposed subsections 360P(11A) and (11B).

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business days of the refusal, who in turn must provide a copy of the notice to the end user within five days of receiving the notice.378

Box 4: ‘reasonable request’ and ‘reasonable’ to connect to a fixed-line Reasonable to connect a premise When a carriage service provider’s request to connect a premises will be a ‘reasonable request’ is not defined, and accordingly, it takes its ordinary meaning. However, the ability of the Minister to set exceptions to, or impose requirements on the SIP’s obligation to connect premises by way of legislative instrument, means that the Minister can effectively determine the circumstance in which a request is reasonable.379 The Explanatory Memorandum to the TLACC Bill provides the following explanation of the obligation:

As general principle, it is envisaged that SIP obligations would apply to the connection and supply of services to premises that are generally accepted as places of residence, business or other ongoing activities. SIPs will not necessarily need to connect premises and provide services to premises that are only being occupied on a temporary or periodic basis… It is envisaged that a SIP would publish the circumstances in which it considers a request would not be reasonable. For example, a SIP may consider that it should not have to connect premises where doing so would expose workers to unreasonable dangers (such as in an unsafe building), or where it may not be able to obtain relevant approvals to install a facility from a land owner or council. A CSP may also reject a SIP’s standard offer for the connection of premises (see proposed section 360W, as discussed below), and in this case the request would not be a reasonable request.

380 [emphasis added]

Reasonable to connect a premise to a fixed-line network The obligation to connect to a fixed-line is qualified by requirement that it is ‘reasonable’ to do so—the Explanatory Memorandum to the TLACC Bill provides the following example of when it would not be reasonable:

For example, if NBN Co were to receive a request from a CSP to supply a fixed-line carriage service to premises within the NBN fixed wireless footprint, it would not be reasonable for NBN Co to have to fulfil the default obligation. It could instead connect the premises to a fixed wireless network. It is envisaged that SIPs would be able to set network preference rules that match the network technology they have deployed in particular areas. They could determine the most appropriate technology on an area-by-area basis.

381

Additionally, proposed subsection 360P(10) allows the Minister to, by legislative instrument, specify one or more conditions, which, if satisfied, would make it not reasonable to connect the premise to a fixed-line. If it is not reasonable, then the SIP must connect the premises to a wireless or satellite network

Obligation to supply eligible services The obligation to supply eligible services is provided by proposed subsections 360Q(1) and (1A)— The SIP for a service area must, on the ‘reasonable request’ of a carriage service provider:

• supply an eligible service to the carriage service provider so they can supply qualifying carriage services to end-users at the premises and

378. Ibid., proposed subsection 360P(12). 379. Telecommunications Act, proposed subsections 360P(2) to (7). 380. Explanatory Memorandum to the TLACC Bill, p. 154-155. 381. Ibid., p. 155.

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• the carriage services must be capable of making and receiving voice calls, except where the premise is serviced by satellite.382

An eligible service is, broadly, any telecommunications service where at least one point is in Australia.383 A qualifying carriage service is a:

• qualifying fixed-line carriage service

• qualifying fixed wireless carriage service or

• qualifying satellite carriage service.384

These are, broadly, broadband services provided over fixed-line, wireless or satellite, with peak download transmission speeds of at least 25 megabits per second, and peak upload speeds of 5 megabits per second.385 This implicitly excludes legacy copper fixed networks, such as ADSL2+ from being capable of being ‘qualifying carriage service’ as ADSL2+ is only capable of 24 mbps per second at best.386

The peak download and upload transmission speeds are speeds which the Government expects the SIP to be able to support should the carriage service provider utilise the full capacity of the network, but they are not the actual speeds the end-user can expect from their carriage service provider.387 The end-user speed will be determined by a range of factors, including, for example, the broadband package the customer has purchased and the capacity and congestion of the network units purchased by the carriage service provider from the SIP.388

Both wireless and satellite carriage services do not include public mobile telecommunication services—this excludes mobile networks, for example: Telstra, Optus and Vodafone, from being used to satisfy SIP obligations.389 Further, the Minister may, in the case of the meaning of wireless carriage services, determine conditions that must be satisfied.390

Box 5: what is ‘peak download transmission speed?’

‘Peak download transmission speed’ is not defined within the legislation or the existing Telecommunications Act. The ordinary meaning of the term could indicate that this is the highest speed possible, however, the term is more likely to take its accepted meaning in the industry, being speeds during peak demand—that is, when the network is at its most congested and slowest, also known as ‘evening peak speeds’—this is consistent with the interchangeable use of ‘baseline’ speeds referred to in the Explanatory Memorandum to the TLACC Bill.391

382. Telecommunications Act, proposed subsections 360Q(1), (1A) and (1B). 383. Under proposed section 360A of the Telecommunications Act, ‘eligible service’ has the same meaning as in section 152AL of the CCA—where an eligible service is defined as a listed carriage service or a service that facilitates the supply of a listed carriage service, where the service is supplied, or is capable of being supplied, by a carrier or a CSP (whether to itself or to

other persons). A ‘listed carriage services’ is a carriage service between one or more points whether in or outside Australia, so long as one point is in Australia (Telecommunications Act, section 16). ‘Carriage service’ means a service for carrying communications by means of guided and/or unguided electromagnetic energy (Telecommunications Act, section 7). 384. Telecommunications Act, proposed section 360A, definition of ‘qualifying carriage service’. 385. Ibid., proposed section 360A, ‘qualifying fixed-line carriage service’, ‘qualifying fixed wireless carriage service’, ‘qualifying satellite carriage service’ and proposed section 360AA. 386. ACCC, Inquiry into NBN access pricing, op. cit., p. 36. 387. Explanatory Memorandum to the TLACC Bill, p. 156-157. 388. Ibid. 389. Telecommunications Act, proposed section 360A, definition of ‘qualifying fixed wireless carriage service’ and proposed paragraph 360AA(1)(f). 390. Ibid., proposed subsection 360AA(2). 391. Explanatory Memorandum to the TLACC Bill, p. 156-157.

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Requirements: the Minister may set requirements of SIPs in supplying premises by legislative instrument.392

Exceptions: there are two exceptions to the obligations to supply eligible services:

• if the SIP is already subject to a standard access obligation, then they are exempt from the SIP obligation to supply393 and

• the Minister may, legislative instrument, specify circumstances in which the obligation to supply does not apply by.394

The SIP is only obligated to supply an eligible service on the ‘reasonable request’ of the carriage service provider—this obligation is explained above in ‘Box 4’ in relation to the SIP’s obligation to connect a premise. Similarly, in this case, the Minister may, by legislative instrument, specify circumstances in which the obligation to supply does not apply, and in doing so, determine when a request is not reasonable—the Explanatory Memorandum to the TLACC Bill provides the following example: ‘a SIP could refuse to supply if it cannot obtain required approvals from a land owner or a local council’.395

Terms and conditions: the SIP must publish a set of terms and conditions on its website on which it offers to supply premises under its obligations. The SIP must supply premises with an eligible service on these terms on the request of a carriage service provider.396

Key issue: peak bandwidth SIP obligations may be inadequate Professor Mark Gregory, senior telecommunications and network engineering academic at RMIT University, was of the view that the obligation of the SIP to provide infrastructure to service 25mbps download and 5mbps upload peak speeds, was inadequate to modern and ongoing user needs: ‘[t]o vote for this Bill is to become an active supporter of the second rate NBN and this is not something that opposition and cross bench Senators should willingly agree to - history will not be kind’.397

The 2017 Senate Inquiry considered these concerns and received evidence from the Department that the 25/5mbps obligation ‘reflect anticipated consumer need for speed in the foreseeable future.’398 The Department offered the following additional evidence:

In 2014, as part of the Vertigan cost-benefit analysis of the NBN, Communications Chambers was contracted to construct a bottom-up model of the 'technical' bandwidth required for the applications utilised by various types of household, and used this to estimate future demand. Its report estimated that by 2023 the median Australian household will have 'technical' demand (that is, generated by actual application usage) for download bandwidth of 15 Mbps. Therefore, a 25 Mbps download service is considered to be a service that will actually support most applications that people will need for the

392. Ibid., proposed subsections 360Q(5) to (8). 393. Ibid., proposed subsection 360Q(2). 394. Ibid., proposed subsections 360Q(3) and (4). 395. Explanatory Memorandum to the TLACC Bill, p. 157. 396. Ibid., proposed subsections 360Q(9) and (10) and proposed section 360X. 397. Professor Mark Gregory, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 9], 14 July 2017, p. 5. 398. Senate Environment and Communications Legislation Committee, Inquiry Report, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, The

Senate, Canberra, September 2017, p. 23.

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foreseeable future. This conclusion is consistent with current usage on the NBN with 29 per cent of services being 12/1 Mbps and 55 percent being 25/5 Mbps. 399

As covered in this Digest in relation to the RBS under the headings ‘Key issue: reliance on outdated information’ and ‘Key issue: exclusion of non-fixed connections from the charge’, consumer demand for data has rapidly increased since these underlying assumptions were made.400Advances in telecommunication technology are frequent, and speed capabilities and consumer requirements increase rapidly. In June 2010 for instance, just over 60 per cent of Australian broadband connections had speeds under 8mbps—a SIP guarantee of 25mbps may quickly become inadequate to consumer expectations and business requirements.401

As the speed minimums are currently defined in proposed sections 360A and 360AA of the Telecommunications Act, updating the SIP minimum speed guarantees to reflect evolving markets and consumer expectations will require a legislative amendment.

Key issue: limitations of fixed-wireless definition The definition of a qualifying fixed wireless carriage service requires, among other things, that the carriage service is supplied using a ‘fixed wireless technology platform’—the phrase is defined as having the ‘meaning generally accepted within the telecommunications industry’.402 The Explanatory Memorandum to the TLACC Bill states that fixed wireless technology involves wireless transmission to an ‘antenna installed at the premise’ as distinct from mobile technology which allows a user to move around.403 This would seemingly exclude some other technologies that have been described as ‘fixed wireless’, such as mobile home broadband that has an antenna built into the modem and requires no installation—such technologies would not appear to be sufficiently ‘fixed’.404 While the exclusion of public mobile networks is consistent with the Government’s policy, this may introduce perverse outcomes—for example requiring a SIP such as NBN Co to install fixed antennas at premises, even when they may be able to roll-out cheaper and less labour intensive desktop modem solutions.

399. Department of Communication and the Arts, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 10], July 2017, p. 3.

400. The Communication Chambers report from 2014 that the Department relies upon for example underestimated the growth in data demand in several ways: 1) It estimated Australian 4K TV penetration would reach 43% in 2023 (p. 26). 4K TVs are now an industry standard for any TV retailing above A$550. Globally, 4K TVs now make up 53.5% of all sales, and in 67% in Australia (December 2018). 2) It stated that there was “still a strong preference for physical copies” of gaming software (p. 40). Digital sales overtook

physical sales in 2016, and now has 80-85% market share in the US and the UK. The Report also assumed that the average game size of Generation 8 Consoles (PS4, Xbox One) in 2020 would be 17GB (p. 41). Data on the current ‘average size’ is not available, but the top selling game of 2019, Call of Duty: Modern Warfare, is currently 175GB. Further growth is expected with the arrival of Generation 9 consoles in 2020. 3) The report assumed that Internet TV would only represent 25% of all Australian TV viewing by 2023 (or about 23 hours

and 15 minutes per month (p. 25), and that HD (let alone 4k UHD) would only represent 28% of internet viewing (p. 26). (HD is 720p resolution). In June 2019, the average Australian YouTube viewer (16.5 million adults) watched 24 hours and 18 minutes of YouTube alone (Google Digital Content Rating Report June 2019). The underestimation of future bandwidth demand in the Communication Chamber Forecast was also recognised early, see R Tucker, ‘Broadband projections fail reality test’, The Conversation, 8 September 2014. Current household data utilisation is at around 258GB per month and grew by around 25 per cent in 2019. 401. Australian National Audit Office, Management of the Australian Broadband Guarantee Program, ANAO Report No.28,

15 February 2011, p. 124. 402. Telecommunications Act, proposed paragraph 360AA(1)(a) and proposed subsection 360AA(3). 403. Explanatory Memorandum to the TLACC Bill, p. 144. 404. R Crozier, ‘Optus unveils an NBN-like 50mbps-plus wireless service’ Itnews, 31 January 2019.

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Key issue: SIP Issues with Low Earth Orbit Satellite Broadband. A qualifying satellite carriage service is among other things, a carriage service that is ‘supplied using a satellite’, but does not include a public mobile telecommunications service’.405 Low earth orbit satellite broadband (LEOSB) networks are an emerging satellite broadband technology which may be a public mobile telecommunication network (LEOSB networks are discussed in further detail above in relation to the RBS under Key issue: emergence of Low Earth Orbit Satellite Broadband).

The NBN Sky Muster satellites and other traditional satellite carriage services located in geostationary orbit are not public mobile telecommunications services, principally because such services are not designed or largely capable of being used while moving, and do not appear to involve ‘intercell handover functions’—both requirements of the definition of ‘public mobile telecommunications service’.406 LEOSB networks will likely be different to geostationary because they will be capable of being accessed while the consumer is roaming and require intercell handover functions.407

There is existing ambiguity around whether or not LEOSB networks are a public mobile telecommunications service.408 In any event, if LEOSB networks are classified as such, then NBN Co (or any other SIP) would not be able to utilise them to satisfy their SIP obligations. As detailed above under Key issue: emergence of low earth orbit satellite broadband, in evidence to the Senate Inquiry into the 2019 Bills, NBN Co indicated that it was examining the possibility of either owning or purchasing capacity on an LEOSB network to replace its existing Sky Muster satellite service.409

Additionally, the current SIP framework does not allow for there to be multiple SIPs responsible for different technology types over a single area, on the assumption that the SIP in regional areas would be NBN Co which provides all three qualifying service types (fixed-line, fixed wireless, broadband).

This may pose difficulties if the government seeks to designate a LEOSB carrier (that is not the NBN) as SIP for regional areas under proposed section 360L of the Telecommunications Act (at item 7 of Schedule 3 to the TLACC Bill). As the SIP, the LEOSB provider would be required to connect premises to a qualifying fixed-line network at first instance unless unreasonable.410 A LEOSB carrier such as SpaceX will likely not operate a fixed-line network. The Minister may be able to mitigate this risk via their ability to define ‘reasonable’. 411

405. Telecommunications Act, proposed section 360A, definition of ‘qualifying satellite carriage service’. 406. Telecommunications Act, subsection 32(1); ‘intercell handover functions’ is defined undersection 33 of the Telecommunications Act. In short, if a network has more than one base station serving a single area (cell), and the network is capable of automatically ‘handing over’ service from one base station to another as the consumer side equipment moves,

then it has ‘intercell handover functions’. 407. The ACMA already licenses satellite mobile networks, such as the Pivotel Globalstar network. (Relevant space apparatus license). Regardless of if they are predominantly used to make phone calls however (or used in a mobile fashion), the nature

of LEO constellations require that customers have the ability to handover between cells as satellites drop off the horizon relative to the customer. 408. For example, under section 33 of the Telecommunications Act the use of ‘cell’ appears to envision application to a stationary base station serving a fixed area, rather than orbiting base stations. 409. Mr Gavin Williams, Chief Development Officer, NBN Co, Evidence to Senate Environment and Communications Legislation

Committee, Inquiry into Telecommunications (Regional Broadband Scheme) Charge Bill 2018 and Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018, Official committee Hansard, 30 January 2020, p. 34. 410. Telecommunications Act, proposed section 360P(1)(a). 411. Telecommunications Act, proposed subsections 360P(2) to (7).

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What if a SIP can’t meet its obligations? SIPs must lodge periodic compliance reports to the ACMA on terms that the Minister determines by legislative instrument.412 If the SIP for a nominated or designated area (that is, a non-NBN Co SIP) becomes aware that it will be unable to meet its SIP obligations, it must notify the Department and the ACMA as soon as practicable.413 If the SIP becomes aware that another carrier is willing to become the SIP for that area they must also notify the Department and the ACMA.414 The Minister may also delegate most of the Minister’s powers in this new Part the ACMA.415

Standards, benchmarks and rules The Minister may, by legislative instrument set standards and performance benchmarks which bind SIPs on a broad range of matters.416 This mostly concerns the particulars of the supply, service delivery, performance, complaint resolution and wait times for connection and fault rectification.

The Minister may, by legislative instrument, make rules which a SIP must comply with, which may cover:

• processes for resolving complaints about eligible service supplied by a SIP to CSPs

• any other matter concerning the supply of such an eligible service to a CSP

• processes for resolving complaints about the connection of premises in the service area to a qualifying telecommunications network and

• any other matter concerning the connection of premises in a service area to a qualifying telecommunications network.417

Amendments to the CCA provide that these standards and rules prevail over various other instruments including access determinations, rules of conduct and access agreements entered into after commencement,418 and special access undertakings entered into at any time, in the event of inconsistency.419 There do not appear to be any specific offences for breaches of these standards and rules.

NBN Co targets NBN Co ‘must have regard’ to both a speed and coverage target in relation to fixed-line services when fulfilling its obligations as a SIP.420

412. Telecommunications Act, proposed section 360XA. 413. Ibid., proposed subsection 360R(2). 414. Ibid., proposed subsection 360R(3). 415. Ibid, proposed section 360ZA. 416. Ibid., proposed section 360U. 417. Ibid., proposed section 360V; Explanatory Memorandum to the TLACC Bill, p. 161. 418. An access agreement is an agreement between a carrier (access provider) and an access seeker for the supply of declared

services. The requirements for a legally valid Access Agreement are set out in section 152BE of the CCA. An access seeker is a content service provider or carriage service provider that makes, or proposes to make, a request to NBN Co for access to its services, as defined in section 152AG of the CCA. 419. Items 1 to 4 in Division 2 of Part 1 of Schedule 3 to the TLACC Bill. 420. Telecommunications Act,, proposed subsection 360S(3).

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Speed target of fixed-line connections Under the current NBN Co statement of expectations, NBN Co should ensure that 90 per cent of fixed-line connections within NBN service are capable of enabling carriage service providers to provide 50 mbps peak download speeds to end-users.421 This expectation is being codified into a statutory target under proposed subsection 360S(1).

Fixed-line connections coverage target Proposed subsection 360S(2) requires NBN Co to take all reasonable steps to ensure that NBN Co’s fixed-line service is capable of being connected to at least 92 per cent of premises in Australia. According to the Explanatory Memorandum to the TLACC Bill, this is intended to complement and reinforce the proposed subsection 360S(1) target by ensuring that the speed target is in effect as widely as possible.422

NBN Co service maps Schedule 5 to the Bill amends the National Broadband Network Companies Act 2011 to require:

• NBN Co to provide mapping data to the Secretary, and

• the Secretary to make that mapping data available on the National Map website.

The data must be made available on the National Map website no later than 60 days after the commencement of Schedule 5 (the day after Royal Assent).423 The mapping data required to be provided is about premises connected, or due to be connected, to the NBN based on geographic location and technology type.424

While proposed subsection 98B of the National Broadband Network Companies Act imposes a one-off obligation, proposed subsection 98B(2) allows for the Secretary to direct NBN Co to provide subsequent mapping data. However, the amendments do not require the Secretary to do this regularly or at all. According to the Explanatory Memorandum to the TLACC Bill:

NBN Co has progressively increased the level of transparency in the information it has provided to consumers over time. The company’s ongoing development of its online website rollout maps already allows consumers and stakeholders to see the information sought through this amendment. NBN Co’s website is regularly updated to provide the viewer with the most current information available on rollout progress and technology for each premises. In the interest of further enhancing transparency, the proposed measure in Schedule 5 would result in mapping data about the NBN being uploaded to the National Map to facilitate comparison with other publicly available datasets on the map.

425

Amendments to the ‘superfast network rules’ Schedules 1 and 2 of the TLACC Bill amend the legislative framework which applies to superfast fixed-line networks by:

• repealing Part 7 of the Telecommunications Act 1997, which deals with the regulation of non-NBN carriers offering Layer 2 bitstream services, and making consequential amendments to the CCA (Schedule 1) and

421. NBN Co Statement of Expectations, 24 August 2016. 422. Explanatory Memorandum to the TLACC Bill, p. 159. 423. National Broadband Network Companies Act 2011, proposed section 98B. 424. Ibid., proposed subsection 98B(1); Explanatory Memorandum to the TLACC Bill, p. 20. 425. Explanatory Memorandum to the TLACC Bill, p. 207.

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• amending Part 8 of the Telecommunications Act, which deals with the regulation of non-NBN carriers offering superfast fixed-line networks (Schedule 2).

Background The Telecommunications Act, together with associated provisions of the CCA, provides the regulatory framework for the telecommunications industry—as stated in the Explanatory Memorandum to the TLACC Bill:

The superfast network rules in Parts 7 and 8 of the [Telecommunications Act] were introduced in 2011 and apply to superfast fixed-line networks servicing residential and small business customers (other than the NBN). Part 7 requires operators of such networks to supply a Layer 2 bitstream service to access seekers. Part 8 requires the networks to be wholesale-only (that is, structurally separated).

426

Part 7: supply of layer 2 bitstream services to access seekers Currently, under the Telecommunications Act, a Layer 2 bitstream service is an ethernet service (‘cable’) supplied for transporting data from one point to another. Or, a Layer 2 bitstream service has the meaning as specified in a legislative instrument made by the ACMA.427 This enables retail service providers (access seekers) to supply broadband services to end-users (homes, small business customers) without needing to build a direct physical connection to them.428

Part 7 of the Telecommunications Act (and associated provisions of the CCA) concern the regulation of non-NBN carriers supplying Layer 2 bitstream services. Part 7 requires the owners of private superfast broadband networks built or extended after 2011 to make a Layer 2 bitstream service available to access seekers on an open-access (which means that it must not unreasonably refuse access) and equivalent access basis (which means it must offer substantially the same terms to all businesses, including any subsidiaries that it has).429

The regime to regulate the provision of Layer 2 bitstream services includes a mandatory requirement for the ACCC to declare a Layer 2 bitstream service, and this declaration remains in force indefinitely so as to provide ‘certainty in relation to the enduring nature of this requirement.’430

The so-called superfast network rules in Parts 7 and 8 of the Telecommunications Act have been in place since 1 January 2011. They apply to local access lines (other than NBN) that are:

• part of a fixed line local access network built after 1 January 2011 and used to supply superfast carriage services wholly or principally to residential and small business customers or

• part of a fixed-line local access network that was built, upgraded, altered or extended after 1 January 2011, so that it became capable of being used to supply superfast431 carriage services to residential or small business.432

426. Explanatory Memorandum to the TLACC Bill, p. 3. 427. Telecommunications Act 1997, section 7.

428. The definition of a Layer 2 bitstream service is ‘not intended to capture services provided through mobile, satellite or wireless networks.’ Source: Revised Explanatory Memorandum, Telecommunications Legislation Amendment (National Broadband Network Measures - Access Arrangements) Bill 2011, p. 167.

429. DITRDC, ‘Telecommunications Act Parts 7 and 8 requirements and exemptions’, DITRDC website. 430. Competition and Consumer Act 2010 (CCA), subsection 152AL(3C); Revised Explanatory Memorandum, Telecommunications Legislation Amendment (National Broadband Network Measures - Access Arrangements) Bill 2011, p. 174. 431. This means a usual download speed of more than 25 megabits per second (Telecommunications Act, section 142A). 432. CCA, section 152AGA.

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The operational effect of the ACCC declaring a Layer 2 bitstream service is that carriers and carriage service providers who supply a declared service are required to comply with the ‘Category A standard access obligations’ in relation to that service (section 152AR of the CCA).433

Exemptions from standard access obligations The ACCC may make a ‘class exemption’ from Class A standard access obligations where it is satisfied that this will promote the long term interests of end-users (section 152ASA of the CCA). Individual carriers and carriage service providers may also seek an ‘anticipatory individual exemption’ from any or all standard access obligations (section 152ATA of the CCA). This exemption may be granted on a conditional or unconditional basis and may specify time limits. The ACCC must be satisfied that the giving of the exemption would promote the long term interests of end-users.434

Part 8: structural separation of retail and wholesale networks Part 8 of the Telecommunications Act seeks to deal with discrimination in the market and requires that high speed broadband networks built after 1 January 2011 be wholesale-only (structurally separated in terms of wholesale and retail business). The aim of these separation rules is to provide a level playing field as the basis for enabling opportunities for fair competition for the operation of new superfast broadband networks.435 This level playing field is also intended to encourage and provide greater investment certainty for network builders with the goal of providing enhanced consumer choice and value for money in terms of quality of services.

Part 8 does not apply to extensions of pre-2011 networks of less than 1 kilometre from any point on the infrastructure of the network (as it stood immediately before 1 January 2011).436

The key aim of the proposed changes to Part 8 is to make the obligations target:

[a]ny single local access line that forms part of a network (other than the NBN) that is wholly or principally supplying services to residential customers and is used to supply a superfast carriage service to residential customers in Australia. 437

Repeal of Part 7 Item 24 in Part 1 of Schedule 1 repeals Part 7 of the Telecommunications Act which deals with access to Layer 2 bitstream services. The Vertigan Review recommended the repeal of Part 7, arguing that it acted as an unnecessary fetter on competition.438 The Vertigan Review also recommended that Part 8 should be amended to enhance its operation by providing a baseline of structural separation of superfast broadband networks, while also creating:

433. Category A standard access obligations mandate that an access provider: supply the service to an access seeker on request, ensure that the quality and fault handling of the service provided to the access seeker is equivalent to that which it provides itself and, allow interconnection.

434. CCA, subsection 152ATA(6). 435. Explanatory Memorandum to the TLACC Bill, p. 27-43. For a general discussion on structural separation in telecommunications, see S Dounoukos and A Henderson, ‘Structural Separation in Telecommunications: A Review of Some Issues’, Agenda, Volume 10, Number 1, 2003, pp. 43-60.

436. Explanatory Memorandum to the TLACC Bill, p. 3. 437. Ibid., p. 5. 438. Vertigan Review, NBN market and regulatory report, op. cit., pp. 17, 25.

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a process under which the Australian Competition and Consumer Commission (ACCC) could authorise providers operating on a functionally separate, rather than structurally separate, basis where this promotes the long-term interests of end-users. 439

The amendments to Parts 7 and 8 are broadly in line with recommendations made by the Vertigan panel.440 The repeal of Part 7 is being done on the basis that Part XIC of the CCA is sufficient to properly regulate any access to Layer 2 bitstream services.441 The Explanatory Memorandum states:

The ACCC has declared the ‘Superfast Broadband Access Service’ (SBAS) under Part XIC of the CCA. As a result, the SBAS is required to be supplied to access seekers on a range of superfast networks. 442

The consequence of this repeal is that ‘access to specific wholesale services on superfast broadband networks would only be mandated if the services are declared by the ACCC under Part XIC of the CCA.’443 There are a few networks declared under Part XIC, which are not currently captured by Part 7 of the Telecommunications Act. Also, because of the proposed amendments to Part 8, ‘superfast networks would operate on either a functionally or structurally separated basis. They would therefore supply eligible services on a wholesale basis.’444

Transitional provisions The Minister may grant exemptions under section 141A or section 144(1) of the Telecommunications Act. Subsection 141A confers power on the Minister for Communications to exempt:

• a specified network

• a specified local access line or

• a specified owner

from the Layer 2 bitstream obligations under of section 141.445

Subsection 144(1) of the Telecommunications Act confers similar powers on the Minister to exempt specified networks from the wholesale-only requirements of section 143 of the Telecommunications Act (Part 8). As a general rule section 143 of the Telecommunications Act (Part 8) requires that supply of superfast broadband services be provided on a wholesale only basis. Networks that existed before 1 January 2011 are exempt from this requirement.

Item 27 in Part 2 of Schedule 1 covers transitional provisions for the repeal of Part 7, namely the continued validity of various instruments made under section 141A of the Act. Also, while the

439. Explanatory Memorandum to the TLACC Bill, p. 27. 440. Ibid. 441. Part XIC of the CCA is a specific access regime for the telecommunications industry, and for the supply of declared telecommunications services, and it displaces the generic access regime in Part IIIA of the CCA. In deciding whether to declare

a service under Part XIC, the ACCC must decide whether access should be provided, and it will consider technical feasibility issues and the legitimate commercial interests of the access provider. The objectives to which the ACCC must have regard are the long term interests of end-users (section 152AB), and also the promotion of competition and the economically efficient use of, and investment in, the infrastructure by which the services are provided. It must also have regard to the ability of end-users to communicate with each other, irrespective of the network to which they connected. 442. Explanatory Memorandum to the TLACC Bill, p. 77. 443. Ibid., p. 4. 444. Ibid., p. 4. 445. Telecommunications Act, subsections 141A(1) to (3).

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Minister cannot grant any further exemptions under subsections 144(1)-(3) after commencement, the Minister is able to vary any exemption.446

Amended definition of layer 2 bitstream services Items 23A and 23B in Part 1 of Schedule 1 amend the definition of ‘Layer 2 Bitstream service’ as defined in section 7 of the Telecommunications Act to give it the ordinary meaning of that expression (rather than the technical definition currently in place). This amendment reflects the technical reality that Layer 2 Bitstream services can be supplied in a number of forms.447 The Explanatory Memorandum states that ‘for the purposes of determining the ordinary meaning of the expression… the reader is to assume that Layer 2 has the same meaning as in the Open Systems Interconnection (OSI) reference model for data exchange’.448 The consequence of this amendment is that it will not be necessary for the ACMA to have the power to specify a Layer 2 Bitstream service for the purpose of the new and functionally inclusive definition.

Amendments to Part 8

Removal of regulation for networks servicing small business customers Item 34 of Schedule 2 inserts proposed section 142C into Part 8 of the Telecommunications Act, which will replace section 143 for local access lines created or upgraded after the designated commencement date (three months after Royal Assent). Section 143 will continue to operate for access lines that came into existence between 1 January 2011 and the designated commencement date. These sections mandate that the supply of superfast broadband is to be on a wholesale basis. Items 35-41 mirror the structural amendments to section 142C into 143 including:

• a new subsection 143(3) creating an exception if a functional separation undertaking is given

• reworked contravention provisions in proposed subsection 143(5) and

• removal of small businesses from section 143.

Item 42 inserts a new Division 2A - Exemptions, a revised scheme of statutory exemptions from the general wholesale only requirement under sections 142C and 143. These include:

• proposed section 143A: class exceptions for small providers (up to 2,000 premises and possibly up to 12,000 premises if the regulations permit) as determined by the ACCC. Detailed discussion of this section can be found on pages 93-95 of the Explanatory Memorandum to the TLACC Bill

• proposed section 143E: creates exemptions for certain real estate developments that were underway before 1 January 2011. The Explanatory Memorandum to the TLACC Bill states that ‘a number of real estate development projects that were under way before 1 January 2011 continue to be developed. It is therefore necessary to preserve the existing rules’449

• proposed section 143F: details the new ‘close proximity’ exemption replacing the existing 1km rule under subsection 156(4) as amended by item 64 of Schedule 2

• proposed section 143G: carries forward four existing exemptions for certain networks, specifying those networks in the section and

446. Explanatory Memorandum to the TLACC Bill, pp. 78-79. 447. Ibid., p. 77. 448. Ibid; See ‘The OSI Reference Model’, networking.layer-x.com; ‘Layer 2’ refers to a particular layer in the network and it is formally described in the Open Systems Interconnection (OSI) model.

449. Explanatory Memorandum to the TLACC Bill, p. 95.

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• proposed section 143H: introduces a new exemption for networks marketed exclusively as business networks.

Item 43 amends section 144 to limit the ability of the Minister to issue new exemptions by written instrument after the commencement date.

Key issue: removal of the 1km exemption Section 143 of the Telecommunications Act creates a general rule that the supply of superfast broadband services must be provided on a wholesale only basis. Networks that existed before 1 January 2011 are exempt from this requirement. Section 156(4) creates an additional exemption allowing pre-existing networks to extend up to 1km from their 1 January 2011 limits without engaging the wholesale only requirement in section 143.

Item 64 of Schedule 2 removes this exemption and replaces it with the ‘close proximity’ exemption under proposed section 143F—it would allow for new access lines to be exempt only if, among other things, ‘the premises are in close proximity to a line that forms part of the infrastructure of the network as the network stood immediately before the designated commencement date.’ It is the proposed that Minister has, by way of legislative instrument, the ability to define ‘close proximity’ under proposed section 162 (at item 77 of Schedule 2 to the TLACC Bill). This power is delegable to the ACCC.450 The Explanatory Memorandum to the TLACC Bill provides:

It is envisaged the close proximity would facilitate the connection of existing network infrastructure in the street to premises, but not the extension of that network infrastructure to allow connection in a new location where the network is not already ‘in close proximity’. 451

Various telecommunication providers, including TPG and Telstra have used this exemption to extend their legacy fibre networks to new customers.452 It was also reported in 2016 that NBN was at a competitive disadvantage to other FTTB providers, such as TPG, which has been utilising the 1km exception to roll-out FTTB and are not structurally separated.453 In support of the removal of the exemption, the Department has cited the Vertigan Review recommendation to remove the exemption on the basis that it:

...advantaged carriers with pre-2011 network over those who build networks after 2011, especially those with larger network footprints, and enabled carriers with pre-existing networks to roll out large extensions which were not subject to wholesale-only requirements, designed to protect residential consumers.

454

Telstra and TPG, as operators of legacy networks able to expand under the 1km exception, argued against the amendment in their submissions to the 2017 Senate Inquiry.455 The 2017 Senate

450. Telecommunications Act, proposed subsection 162(4). 451. Explanatory Memorandum to the TLACC Bill, p. 98. 452. TPG’s FTTB network that exploited the 1km rule may have been the impetus for these Bills, see C Duckett ‘TPG spooks government into AU$7 monthly broadband tax to replace NBN cross-subsidy’, ZDnet, 12 December 2016

453. C Duckett, ‘TPG spooks government into AU$7 monthly broadband tax to replace NBN cross-subsidy’, ZDNet, 12 December 2016. 454. Senate Environment and Communications Legislation Committee, Inquiry Report, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, The

Senate, Canberra, September 2017, p. 21. 455. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge

Bill 2017, [Submission no. 9], 14 July 2017, pp. 18-21; TPG, Submission to Senate Environment and Communications

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Committee Inquiry ultimately considered that it had ‘not been convinced of the need for amendments’ to the Bill.456 The 1km rule was not again raised in submissions to the 2019 Inquiry.

Key issue: removal of networks servicing small businesses Section 143 of the Telecommunication Act requires that networks ‘…used, or proposed to be used, to supply a superfast carriage service wholly or principally to residential or small business customers’, must be provided on a wholesale only basis—it is an offence to contravene this requirement. The Bill proposes that small business customers are removed from the scope of Part 8, leaving it to apply to networks servicing residential customers.457 As noted above, proposed section 143H sets out an exemption (from the general wholesale only requirement) for networks marketed by the carrier exclusively as a business network, where any incidental residential use is minor.

The effect of this change is that ‘lines which supply superfast carriage services to small business will not be subject to the structural or functional separation requirements’.458 The intention of this is to enhance flexibility in the supply of superfast carriage services to small businesses, however it is unclear whether this will also result in an improved cost-effective service.459 The RIS attributes this reform to the Government Policy Statement of 2014, but the statement makes no mention of such a reform.460 The RIS also states that ‘existing networks, subject to the current rules, will have more scope to service small business customers and operate retail businesses as well as networks.’461

Industry and other stakeholders have mixed positions on this issue; Optus in 2017 opposed the change stating that the ‘amendment is inconsistent with the principle that superfast broadband network infrastructure should operate on the basis of a level playing field’.462 Telstra in 2017 supported the change in general but considered the drafting of the exemption unworkable: ‘[t]his exemption does not reflect the commercial reality that almost every network will have mixed uses’.463 Telstra recommended that the ‘marketed exclusively’ requirement in the exemption be replaced with the lower bar of ‘wholly or principally’.464 Vocus, Superloop, and others supported the Bill’s proposal more strongly.465

Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 2], 14 July 2017, pp. 7-8. 456. Senate Environment and Communications Legislation Committee, Inquiry Report, Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, The

Senate, Canberra, September 2017, p. 21. 457. Explanatory Memorandum to the TLACC Bill, p. 6. 458. Explanatory Memorandum to the TLACC Bill, p.6. 459. Ibid., p. 6. 460. Ibid., p. 29; Australian Government, Telecommunications Regulatory and Structural Reform, December 2014. 461. Explanatory Memorandum to the TLACC Bill, p. 42. 462. Optus, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications

Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 13], July 2017, p. 8. 463. Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge

Bill 2017, [Submission no. 9], 14 July 2017, p. 22. 464. Ibid., p. 23. 465. Vocus Group, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 4], July 2017, p. 3; Superloop, Submission to Senate Environment and

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Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 and Telecommunications (Regional Broadband Scheme) Charge Bill 2019 86

The Department recommended that amendments adopting Telstra’s proposal ‘would not be consistent with the policy objectives of the legislation’ and that such a change would enable carriers to ‘roll out substantial integrated local access networks where only a bare majority of customers (50 per cent plus one, for example) need to be business customers’.466

Professor Mark Gregory of RMIT strongly opposed this proposal, describing the Government’s justification of flexibility for network operators as ‘simply nonsense’ and suggesting it would only benefit larger telecommunication companies.467

Functional separation undertaking provisions Item 51 of Schedule 2 inserts a new Division 2B—Standard Functional Separation Undertakings into Part 8 of the Telecommunications Act, which underlines the new functional separation provisions and a new Division 2C-Non-discrimination Rules, which outlines the wholesale rules for such functionally separated entities.

These provisions are uncontentious, with no stakeholders raising issues with functional separation undertakings in the Senate Inquiry process.

Division 2B: standard functional separation undertakings Proposed section 151A of the Telecommunications Act outlines the basic features of a functional separation undertaking, including:

• a requirement that the person making the undertaking must maintain an arm’s length functional separation between that person’s wholesale business unit and retail business (proposed paragraphs 151A(2)(a) and (b))

• various safeguards to ensure that this is effective concerning for example, communication systems and accounts (proposed paragraph 151A(2)(e))

• publication requirements for wholesale prices and terms of conditions (proposed paragraph 151A(2)(f)) and

• requirements in relation to the form of the undertaking, expiry, compliance reporting and so on.468

Proposed sections 151B and 151C mirror section 151A provisions for non-standard functional separation undertakings. Proposed 151B concerns ‘deemed’ undertakings, where the ACCC has made a determination of variant rules for a specified class of corporation, and the corporation agrees to be bound by those rules. Proposed 151C concerns joint undertaking between multiple persons.

Proposed sections 151F-151J outline the ACCC’s responsibility to either accept or reject proposed undertakings and the process of acceptance or rejection,469 consultation requirements,470 and

Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 & Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 15], 14 July 2017, p. 1.

466. Department of Communications and the Arts, Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, Answers to questions on notice (received 22 August 2017), pp. 4-5.

467. Professor Mark Gregory, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2017 and Telecommunications (Regional Broadband Scheme) Charge Bill 2017, [Submission no. 14], July 2017, pp.6-7.

468. Telecommunications Act, proposed subsections 151A(4) to (11).

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criteria for acceptance.471 The key criteria for acceptance is ‘whether the undertaking promotes the long-term interests of end-users of carriage services or of services supplied by means of carriage services’.472

Proposed sections 151K-151V concern the variation, renewal, replacement, and expiry of undertakings, and consultation and other requirements imposed on the ACCC.

Proposed sections 151W-151Z concerns the revocation of functional separation undertaking. Revocations may be issued if the person has ‘breached a fundamental provision of the undertaking’ (151W(1)(b)(i)) or breached the non-discrimination rules in Division 2C. Proposed 151X imposes consultation requirements on the ACCC before issuing a revocation notice. Proposed section 151Y requires the ACCC to notify a person if that person’s compliance with the undertaking is unsatisfactory.

Proposed sections 151ZA-151ZC concern reporting requirements of entities generally, including the requirement to notify ACCC of changes in control and that the ACCC maintain a register of functional separation undertakings.

Proposed section 151ZD-151ZE concern compliance and enforcement provisions, and provide for civil penalties for contravention. Proposed 151ZE empowers the Federal Court to hear applications concerning potential breaches of functional separation undertakings, and provides for a wide range of remedies and penalties.

Division 2C: non-discrimination rules Proposed section 151ZF sets out the general principle that structurally separated entities must provide wholesale services on a non-discriminatory basis, without any favour to itself, and provides for civil penalties for contravention. Proposed section 151ZG extends this principle to related activities.

Proposed section 151ZH imposes publication requirements for terms and conditions to wholesale customers, and proposed section 151ZHA provides for judicial enforcement by way of application to the Federal Court.

Other amendments

Item 52 inserts provisions into Division 3 of Part 8 of the Telecommunications Act, including anti-avoidance provisions and related civil penalty provisions,473 provisions concerning self-incrimination,474 and delegation of ACCC powers to SES employees of the ACCC.475

Proposed sections 151ZL-151ZN concern the role of the Australian Competition Tribunal in reviewing ACCC decisions made under these divisions.

469. Ibid., proposed section 151F. 470. Ibid., proposed section 151G. 471. Ibid., proposed section 151J. 472. Ibid., proposed paragraph 151J(2)(a). 473. Ibid., proposed section 151ZI. 474. Ibid., proposed section 151ZJ. 475. Ibid., proposed151ZK.

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Concluding comments There is consensus across politics, industry, civil society, and other stakeholder groups that ensuring universal access to broadband is a worthy social goal. The principle of the use of public funding to provide subsidies to non-commercial services in regional areas in support of this goal is also uncontroversial. No submissions by any stakeholders expressed in-principle opposition to the policy objectives of these Bills or their predecessors.

The challenges these Bills face instead arise from widespread concern about their suitability as a method to achieve these uncontroversial policy objectives. Nearly every stakeholder that considered the RBS at a technical level expressed concerns with at least one aspect of its operation. The Vertigan Panel, the Productivity Commission, and the ACCC have all either recommended against an RBS style levy, or expressed concerns with the RBS’s operation. All three regarded an RBS style levy as needlessly distortionary, while also being neither technologically nor competitively neutral. All three recommended direct budget funding as the preferred method of providing subsidies, a position shared by various industry and community groups.

Broader stakeholder concerns stretched from other macro-scale issues, such the exclusion of wireless technologies from the RBS levy base, through to micro-scale issues such as perceived drafting issues.

2020 is a year of extremely rapid shifts in the telecommunication industry, with the 5G network rollout accelerating, the first LEOSB constellations expected to come online for consumers globally and the NBN network expected to reach completion. These shifts have the potential to upend the market, and present inherent challenges to any attempt at a long term funding arrangement, particularly one developed nearly half a decade ago.

A key concern of stakeholders and the Senate Environment and Communications Legislation Committee is the lack of transparency on how RBS funds are actually spent, reflected in the 2019 Senate Inquiry’s majority recommendation that further measures be developed.

A running theme of these Bills’ long history has been a repeated emphasis on the role of future legislative reviews of the RBS to address the variety of issues raised during its development. The Productivity Commission’s view that ‘industry would derive greater certainty if the levy design issues are resolved before implementing the proposed Regional Broadband Scheme’476 is particularly relevant. There is merit in getting it right the first time.

476. Productivity Commission, Telecommunications Universal Service Obligation Inquiry Report, No 83, 28 April 2017, p. 325.

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