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Telecommunications Act 1991 - Australian Telecommunications Authority (AUSTEL) - Competitive safeguards and carrier performance - Report - 1993-94


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A G P S P r e s s , A u s t r a li a n G o v e r n m e n t P u b l i s h i n g S e rv i c e , GPO Box 84, C a n b e r r a , ACT 2 6 0 1 .

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ITE W a n g C rea tive C o m m u n i c a t i o n s (0 3 ) 3 2 9 5 7 9 9

COMPETITIVE SAFEGUARDS AND CARRIER PERFORMANCE 1993-1994

A Report To

The Minister for Communications and the Arts

Under Section 399 of

The Telecommunications A ct 1991

November 1994

I'll

30 November 1994

The Hon Michael Lee Minister for Communications anti the Arts Parliament House CANBERRA ACT 2600

Dear Mr Lee

This is AUSTEL's third report on competitive safeguards and carrier performance within the Australian telecommunications industry, as required under section 399 of the Telecommunications Act 1991 The report covers the period from 1 July 1993 to 30 June 1994.

Chapters One and Two report on the operation and effectiveness of competitive safeguards currently in place, and outline activities with respect to these matters during the reporting period. Chapters Three, Four and Five report on carrier performance over the 1993-94 year in terms of pricing and affordability, quality and

adequacy of service and fulfilment of carrier obligations.

The sixth and final chapter provides a different focus, responding to the following comments in your letter of 22 March 1994 to ALISTEL in relation to the section 399 report for 1992-93 -

“The section 399 report is o f central importance in providing the Government with feedback on the performance o f the industry, including carrier economic performance, to enable it to monitor the effectiveness o f its economic reforms. This is especially important in view o f the forthcoming review o f the regulatory framework leading to the end of the duopoly in 1997.

It is evident... that some progress is still needed in reporting in this area, particularly in relation to development o f consistent performance indicators relating to the carriers’ financial/economic performance and efficiency against world’s best practice. ”

Chapter Six presents comparisons of carrier and industry performance in Australia with those of other countries for which reasonably comparable OECD and International Telecommunication Union data are available. The comparisons are presented under broad headings, selected to address six key questions which are commonly asked about the Australian telecommunications industry.

This aspect of AUSTEL's information-gathering and reporting activities is at an early stage of development, and will be refined and expanded as information acquisition and comparison processes are improved.

Neil Tuckwell Chairman

Bob Horton Member

ii

A ________ _

C O N T E N T S

CHAPTER ONE

Competitive Safeguards: Parts 5,8 & 9 of the Telecommunications Act 1991 .......................................................2

P a rt 5 - Licensing an d General Obligations o f C a rrie rs..................................... 3

Introduction....................................................................................................................... 3

Carrier Licence Monitoring............................................................................................... 3

Mobile Issues..................................................................................................................... 5

Accounting and Charging Procedures.............................................................................6

P a rt 8 - Access by C arriers to N etw orks an d Services o f O ther C a rrie rs ............................................................................................. 7

Introduction....................................................................................................................... 7

Access Agreements............................................................................................................7

AUSTEL Assistance............................................................................................................7

Interconnection Model Study...........................................................................................7

P a rt 9 - Supply o f Basic C arriage Services by C a rrie rs..................................... 9

Introduction.......................................................................................................................9

Unbundling........................................................................................................................9

Non-Discrimination....................... 9

Tariffing...............................................;...........................................................................12

AUSTEL’s Remarks...........................................................................................................16

Hi

A _________

CHAPTER TWO

Competitive Safeguards: Parts 4,6,7,10 & 11 of the Telecommunications Act 1991................................................18

P art 4 - Establishment, Functions and P ow ers q f AUSTEL.............................. 21

Introduction.....................................................................................................................21

Damage to Competition.................................................................................................21

Facilitating Market Entry ................................................................................................22

AUSTEL’s Remarks..........................................................................................................22

Part 6 - R eserved R ights o f C a rrie rs.................................................................... 23

Introduction .....................................................................................................................23

Reservations and their Application............................................................................... 23

Exceptions as Specified in Part 6 of the A ct................................................................23

Telecommunications (Authorised Facilities) Direction No. 1 of 1991..................................................................................................25

Other Issues..................................................................................................... ;............. 25

AUSTEL's Remarks..........................................................................................................25

P art 7 - General C a rriers’ P ow ers and Im m unities...........................................26

Introduction.....................................................................................................................26

The Telecommunications National C ode.....................................................................26

Carriers' Powers to Enter L and..................................................................................... 26

Part 10 - Supply o f Telecommunications Services Under Class L icences................................................................................. 28

Introduction.....................................................................................................................28

Class Licences................................................................................................................. 28

Ministerial Directions......................................................................................................29

Other Issues.....................................................................................................................30

AUSTEL's Remarks...........................................................................................................31

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A Part 11 - Supply o f Telecommunications Services G enerally.........................32

Introduction....................................................................................................................32

Competition....................................................................................................................32

Number of Telecommunications Services...................................................................32

CHAPTER THREE

Carrier Performance: Pricing and Marketing Strategies.................. 36

Introduction ....................................................................................................................37

Price Control Arrangements......................................................................................... 37

Prices for Domestic Long Distance Services........ ......................................................41

Prices for International Services....................................................................................42

Prices for Mobile Services.............................................................................................44

Mttjor Pricing Proposals Considered in 1993-94 ................................................... .....46

ALJSTEL’s Remarks on Pricing Aspects........................................................................ 48

Affordability of Home Telephone Services.................................................................49

CHAPTER FOUR

Carrier Performance: Quality and Adequacy of Service..................................................... 54

Introduction.................................................................................................................. 55

Overview of Telstra’s Quality of Service................................................................... 56

Provision of Service.............................................................. ........................................ 60

Restoration of Service.............................................. ■ .................................................... 61

Public Switched Telephone Network.........................................................................62

Operator Assisted Services.......................................................................................... 63

Payphones ....................................................................................................................... 63

Analogue Mobile Telephone Network.......................................................................64

Billing............................................................................................................................ 64

Complaints............................................................ v......................................................65

Telstra's Long Term Quality of Service Performance Trends....................................65

Optus1 Quality of Service........................................................................................... 71

AUSTEL's Remarks....................................................................................................... 73

A ________ _

C h a p te r FIVE

Chapter Five - Carrier Performance: Carrier Obligations................. 74

Introduction......................................................................................................................75

The Universal Service O bligation..................................................................................75

Continued Access to Untimed Local Calls....................................................................80

Prompt Identification and Repairs of Faults........................... *................................... 80

Provision of Accurate Call Charging............................................................................. 82

Optus’ General Carrier Obligations.............................................................................. 83’

CHAPTER SIX

Performance Evaluation: Six Comparisons of Australian versus Overseas Telecommunications Industries........................................ 86

Introduction..................................................................................................................... 87

1. How Does The Size And Rate Of Growth Of The Australian Telecommunications Industry Compare With That of Other Countries?............................. ................. 88

2. What Are The Prospects For Future Growth Of The Australian Telecommunications Industry?................................................................................ 94

3. How Does Quality Of Telecommunications Service In Australia Compare With That of Other Countries?......................................................................................... 99

4. How Do Telecommunications Price Levels In Australia Compare With Those in Other Countries? ..................................................................................................... 103

5. How Do Australian Carriers' Profit Figures Compare With Those of Overseas Telecommunications Companies?......................................................................... H4

6. How Do Australian Carriers’ Efficiency Levels Compare With Those of Overseas Telecommunications Companies?........................................................................

vl

A

CHAPTER ONE

COMPETITIVE SAFEGUARDS: PARTS 5, 8 & 9 OF THE TELECOMMUNICATIONS ACT 1991

Part 5 - Licensing and General Obligations o f C arriers.....................................3

Introduction...................................................................................................................... 3

Carrier Licence Monitoring.............................................................................................. 3

Mobile Issues.......................................................................................................... 5

Accounting and Charging Procedures............................................................................6

Part 8 - Access by C arriers to N etw orks and Services o f Other C a rrie rs ......................................................................................................... 7

Introduction...................................................................................................................... 7

Access Agreements...........................................................................................................7

AUSTEL Assistance...........................................................................................................7

Interconnection Model Study.......................................................................................... 7

P art 9 - Supply o f Basic Carriage Services by C a rriers.....................................9

Introduction......................................................................................................................9

Unbundling....................................................................................................................... 9

Non-Discrimination......................................................................................................... 9

Tariffing........................................................................................................................... 12

AUSTEL's Remarks.......................................................................................................... 16

The follow in g inform ation relates to P a rt 5 o f the Telecom m unications Act 1991 - Licensing an d General Obligations o f Carriers.

INTRODUCTION

Since the enactment of the Telecommunications Act 1991 (“the Act”) the general carrier and public mobile carrier licences have been

instrumental in ensuring that the Government’s intentions in relation to the carriers’ rights, privileges and

obligations are satisfied.

If not revoked sooner, the general carrier and public mobile licences granted to Telstra and Optus extend until 31 December 2016. Vodafone’s

public mobile carrier licence expires on 31 December 2017.

CARRIER LICENCE MONITORING

Under section 41 of the Act. AUSTEL must monitor the conduct of licensed carriers (Telstra, Optus and Vodafone) and enforce the conditions of these

licences. In this context, AUSTEL has established and is maintaining a carrier licence monitoring program to -

• identify licence conditions which require compliance by a specified date and those which require compliance on a regular basis; •

• alert the carriers to licence conditions about to fall due;

• request the carriers to submit reports to AUSTEL, detailing evidence of compliance with the relevant licence conditions; and

• notify the carriers whether AUSTEL is satisfied that the licence conditions have been met.

Telstra, Optus and Vodafone have been advised of AUSTF.L's monitoring program.

Telstra an d Optus

At the time of writing, the general carriers had submitted some information to AUSTEL advising how they have complied, or intend to

comply, with their respective licence obligations. Information relating to compliance with those licence obligations not requiring action by a

specified date is still to be submitted. Once this information is received, AUSTEL will be in a position to make a formal report on carrier compliance.

Vodafone

During the current reporting period, AUSTEL has experienced some unavoidable delays in reporting on Vodafone’s compliance with its licence

obligations. Two issues have arisen which have required clarification. These are -

• variation to the Public Mobile Licence Declaration No. 2 o f 1991\ and

• definition of ‘customer’.

Legislative amendments

Clause 4.2 of the Telecommunications (Public Mobile Licences) Declaration No. 2 o f 1991 states that -

The guidelines relating to handling inquiries and complaints are to be published and made available to customers (in a document that does

not include similar guidelines fo r other licences under section 5 7 o f the Act) not more than 6 months after this declaration comes into force."

The date which was six months from the date of this declaration coming into force was 22 May 1992.

However, clause 3.2 of Vodafone’s public mobile licence prohibited Vodafone from supplying services as a carrier before 30 June 1993. In other words, Vodafone was not operating in the period within which this condition was to have been met. Accordingly, an amendment to clause 4.2 is currently being considered by the Minister for Communications and the Arts, in consultation with Vodafone, with a view to ensuring that the wording of the licence appropriately reflects the intent of the legislation.

Definition o f customer’

In July 1993, Vodafone advised AUSTEL that it intended to operate solely as an airtime wholesaler, with resellers providing retail mobile

telecommunications services to end- users.

This raises the issue of whether Vodafone’s licence obligations to its ‘customers’ extend to the end-users of its service, or only as far as the service providers reselling its mobile service,

and the impact of any such interpretation. Legal opinion sought by AUSTEL stated that Vodafone’s customers’ are those persons with

whom the licensed carrier has a direct and immediate relationship (ie. Vodafone’s service providers). However, the licence conditions specified for Vodafone are the standard conditions relating to -

• the provision of raw data for directory services;

• itemised billing;

• compliance with the industry Ombudsman scheme;

• the obligation to develop and publish a statement on customer service standards; and

• provision of access to the emergency call service.

These conditions clearly indicate a need for Vodafone to extend some of its ‘customer’ obligations to end-users of its service. AUSTEL is currently liaising with Vodafone with a view to

ensuring that Vodafone's contracts with its service providers do in fact

provide end-users of its services with the safeguards intended by the legislation.

MOBILE ISSUES

A u th o rised D ealership Agreem ents

In 1993, AUSTEL investigated Telecom MobileNet’s and Optus Mobile’s dealer agreement schemes to determine whether they had any implications

which would impact upon the entry of Vodafone into the market. There was no evidence to suggest that competition in the mobiles market

was being affected or impeded because of these arrangements, and consequently AUSTEL took no action.

Since then, a number of large retail chains have commenced to sell mobile phones and service. Whilst the introduction of large retailers into the

supply chain is not considered to be an issue at present, AUSTEL, in consultation with the Trade Practices Commission, will be monitoring the effect of this activity as appropriate.

While retail chains presently account for only a small proportion of sales, should the distribution channels for mobile products and services become

dominated by a few large retailers with exclusive carrier arrangements, the implications for competition in the mobile products and services markets

may require investigation.

Inter-C arrier Transfer o f C ustom ers

During the year AUSTEL received four complaints concerning the unauthorised ‘churn’ or transfer of

customers from Telecom MobileNet to Optus. These complaints were resolved with the customers being returned to Telecom MobileNet and

reimbursed for costs incurred when their service was provided by the Optus Network.

In addition, Telecom MobileNet brought to the attention of AUSTEL procedural shortcomings whereby Optus was not in all cases providing a

copy of the application for a new service completed by the intending customer. This documentation is seen as necessary to validate Telecom’s

action in physically transferring the connection of the customer.

Several customer complaints alleging harassment by way of frequent contact to persuade them to transfer carriers were also received.

To ensure that appropriate safeguards are in place and that these problems do not recur, AUSTEL has been working with the carriers to review

and modify existing procedures where necessary. An industry code of practice for mobile churn is also to be developed. The objective of this will be to facilitate the transfer of customers quickly and efficiently in

accordance with their wishes and to promote industry relationships which are fair and reasonable.

ACCOUNTING AND CHARGING PROCEDURES

Chart o f A ccounts/C ost Allocation Manual

The Chart of Accounts (COA) and Cost Allocation Manual (CAM), which give effect to accounting separation, require each of the carriers to provide to AUSTEL confidential quarterly product based financial statements to assist AUSTEL in achieving its statutory objectives.

AUSTEL foreshadowed in last year’s Section 399 Report that modifications to the COA and CAM in a number of areas would be required in the future.

However due to the fact that the Government is to undertake a review of accounting separation later in 1994, AUSTEL decided that it is not appropriate to undertake any modifications until after completion of the review.

In addition to addressing its primary statutory objectives, the COA/CAM was used during the year on the following matters - •

• the establishment of a framework for monitoring the efficiency of Telstra's payphones business following the increase in payphone

charges approved during the year;

• provision of financial data to assist where required in the mediation of inter-carrier charges; and

• provision of financial data to assist in the consideration of Telstra’s dominance in the PMTS market and ongoing monitoring of that market through the COA/CAM reports.

During the year Vodafone became the third carrier to be subject to the COA/CAM. Vodafone commenced to submit regulatory financial statements to AUSTEL in accordance with COA/CAM requirements in May 1994.

Cross-Subsidisation Analysis

During the year AUSTEL undertook a review of Telstra’s Paging Services, Mobile Terminals (Handsets), Other Enhanced Services, Other Directory Services, Data/Text Products, National Assisted Calls, Recorded Services and Packet Switching to determine if, based on COA/CAM information, there was any cross-subsidisation involving these products. Based on our analysis there is little evidence of any anti-competitive cross-subsidisation present in these markets.

mm

The follow in g inform ation relates to P a rt 8 o f the Telecom m unications Act 1991 - A ccess by C arriers to N etw orks

an d Services o f O ther C arriers.

INTRODUCTION

Under the provisions of the Act, a party to an access agreement may apply to AUSTEL for registration of the agreement. If AUSTEL is satisfied that

the agreement meets the requirements of the Act and the Ministerial Charging Principles (which relate to terms and conditions about charges payable by one carrier to another for

interconnection, carriage, etc.), it must register the agreement. The effect of registration is to exempt carrier activities under the agreement from

the restrictive trade practices section of the Trade Practices Act 1974.

ACCESS AGREEMENTS

During the reporting period AUSTEL registered seven access agreements between the carriers, deregistered two such agreements, and placed four

previously confidential agreements on the public register. Further details are set out in Chapter 1 of AUSTEL's Annual Report 1993-94.

It is clear that the carriers have continued to make use of the registration process, which exempts them from the anti-competitive

behaviour provisions of the Trade Practices Act 1974. AUSTEL’s role in

facilitating and expediting agreements has provided certainty to the carriers as to the basis for operation in the competitive market.

AUSTEL ASSISTANCE

F acilitated N egotiations Between C arriers

At the request of carriers, AUSTEL facilitated outcomes of negotiations between carriers in relation to -

• ‘13’ services;

• Telstra/Optus subsequent charges, and

• AMPS International Charges.

AUSTEL’s participation in this regard has included providing informal advice on request, formal mediation on request, and arbitrated determination where other processes

have failed to yield a solution. Further details are provided in Chapter 1 of AUSTEL’s Annual Report 1993-94.

INTERCONNECTION MODEI. STUDY

With the growing complexity of network services now becoming subject to interconnection and equal access, it became apparent during the

reporting period that the initial interconnection concepts developed by AUSTEL in 1991 required reconsideration and refinement. It

was decided to develop a more

advanced interconnection model using modular concepts, incorporating the ability to construct conceptually network services derived from multi­ carrier and service provider networks.

The intended model, developed with the assistance of Professor Peter Gerrand of the Collaborative Information Technology Research Institute (CITR1), Telstra, Optus and

Vodaphone, uses defined network functionality blocks and structured provider and customer relationships to clarify the essential roles of all participants in a whole range of network services.

It is intended that this model, when finalised, will provide clear guidance to networking organisations regarding their rights and obligations when

initiating or reacting to new network service proposals.

The model, in draft form, was referred to industry participants for comment. AUSTEL has yet to finalise the model following consideration of respoi received.

The follow in g inform ation relates to P a rt 9 o f the Telecom m unications Act 1991 - Supply o f Basic C arriage Services (BCS) by Carriers.

INTRODUCTION

The basic carriage service concept in Part 9 of the Act gives the carriers control over their infrastructure while encouraging them to engage in the

resale of these services provided by the means of this infrastructure. In this way, the practical value of the carriers’ licences is retained

throughout the period prior to the introduction of full competition in 1997. It also ensures that service providers can gain access to basic carriage services to develop

competitive telecommunications services on an equitable basis.

There are essentially three safeguards regarding the supply of basic carriage services, these being -

• unbundling;

• non-discrimination; and

• tariffing.

These safeguards are designed to promote competition and are targeted against particular abuses of market power by the carriers.

UNBUNDLING

The unbundling provisions of the Act [sections 179-182] permit AUSTEL to direct a dominant carrier to supply a particular BCS. This power is designed

to -

• prevent a dominant carrier that is supplying BCS from precipitately withdrawing that service where this will have significant consequences for

existing users of that service; and

• provide a structured process for the unbundling of BCS.

The effectiveness of the Act's unbundling powers has not yet been tested. It should be noted that several industry participants have informally

advised AUSTEL that they would be reluctant to see the unbundling provisions invoked because of the perceived lengthy delays intrinsic to

the process. This is due in part to the prior public inquiry specified and to the complexity of the analysis required.

NON-DISCRIMINATION

The non-discrimination provisions of the Act [sections 183-189) provide the competitive safeguards to protect service providers and end users of

telecommunications services from discrimination by carriers. Under

those provisions -

• a carrier in a position to dominate a market for a particular kind of telecommunications service is prohibited from discriminating between acquirers of that service (section 1831 unless the discrimination is allowable because it falls within one of the exceptions [sections 185 and 185A] to the prohibition (noting, as discussed below, that these exceptions were amended during 1994);

• a carrier must not, in relation to the supply of a BCS, discriminate against a person for the reason that the person is or wants to be a service provider [section 184]; and

• a dominant carrier is not to favour itself when using its own BCS to supply certain services [section 187],

Dominant ca rrier not to discrim inate betw een acqu irers o f services

During the year, issues were raised in relation to section 183 of the Act which required AUSTEL to consider in detail the application of this provision.

One of the major issues raised was a request by firms within the industry for AUSTEL to investigate various Telstra resale agreements to determine

whether the entities through which the services v Provided actually

‘acquired’ telecommunications services in accordance with the requirements and intent of the Act.

AUSTEL found some difficulty in applying this safeguard because of the uncertainty as to the meaning of ‘acquire’ and subsequently, what constitutes a ‘reseller’ and ‘resale’ under the Act. AUSTEL regards the resolution of this issue as a priority as

this safeguard is fundamental in determining whether the Government’s policy objectives for resale are being realised.

During the reporting period AUSTEL sought legal advice from the Attorney- General’s Department on the meaning of ‘acquire’. This has since been received, and AUSTEL has decided to conduct an investigation under Part 15 of the Act.

Exceptions to proh ibition o f discrim ination

Since the proclamation of section 185 in 1991, the above-mentioned prohibitions on discrimination did not apply where such discrimination was cost justified. In May 1994, however, this section was amended by the

Telecommunications Amendment Act 1994. Specifically, the amendments allow a dominant carrier to discriminate between customers in the charges or other terms and conditions of supply of telecommunications

services if the discrimination is -

II

• generally available to consumers or residential and business consumers in that it is a legitimate charging option under section 185 of the Act; or

• permitted by AUSTEL under section 185A of the Act because AUSTEL decides that the discrimination is justified by

differences in costs borne by the carrier, or is in the community interest in furthering equitable access to the standard telephone

service, or is associated with a legitimate trial programme.

The amendments to section 185 have made the rules on prohibition of discrimination, as they relate to a dominant carrier, more flexible. This

flexibility is intended to allow for innovative and flexible charging options which are in the public interest for customers and which do

not have an anti-competitive effect.

Given that the amendments are relatively new, AUSTEL is not yet in a position to assess the effectiveness of this safeguard.

Dominant carrier not to fa v o u r itse lf when using its own BCS to su pply certain services

To date, this safeguard has not been used extensively. However, where it has been used it has provided an effective means for resolving issues

relating to equitable access by service providers to BCS used by the carriers in their supply of higher level services.

One example of its effectiveness is AUSTEL's investigation of a complaint from service providers regarding Telstra’s decision to discontinue access

to service providers for incoming international traffic using 0055 telecommunications services. The aim of this investigation was to ensure that Telstra did not favour itself when using

its own BCS to supply these services. As a result of this investigation, in early 1994 Telstra amended its BCS tariffs for service provider access to

international 0055 callers.

Dominance

A number of the competitive safeguards in the Act apply to the carrier which is in a position to dominate a market for a particular

kind of service. To enforce these provisions, AUSTEL must form views on which carrier is dominant in the relevant markets. It has the benefit of

trade practices legislation and case law to assist in this task, but a number of factors, including the emerging nature of competition in telecommunications,

mean that AUSTEL’s analysis must also be focussed on telecommunications industry specific matters.

After an investigation of a breach by Telstra of Part 9 of the Act, AUSTEL concluded on 14 July 1993 that Telstra was bound by the dominant carrier

pricing rules in the market for public mobile telephone services. This decision on dominance was challenged by Telstra and the matter remained largely unresolved and subject to litigation for some nine

months. AUSTEL reviewed its decision in early 1994 and it determined on 28 April 1994 that Telstra was no longer dominant, subject to it meeting the requirements of certain safeguards.

AUSTEL’s opinion on dominance in the mobiles market appears to have been borne out by early experience in the market since the decision. The carriers' market share trends have not changed significantly, overall market

growth has continued at high levels and there are important early signs that competition in GSM services is developing. Further time is necessary before more definite conclusions can be justified.

While AUSTEL is satisfied with its decision making in this case, the experience highlighted the difficulty in forming opinions on dominance without a widely accepted and objective basis for determining dominance. Case law provides no black and white solutions to this problem. Given the importance of such decisions to both the incumbent carrier and the new entrant, it is likely

that subsequent AUSTEL decisions on dominance will be the subject of contention.

AUSTEL will be formulating rebuttable presumptions regarding dominance to give the industry clear indications of its position and to assist its

administration of the dominant carrier safeguards. These presumptions should provide guidance on AUSTEL’s position on which carrier is dominant and make its administration of Part 9 of the Act transparent to the industry.

TARIFFING

Filings during 1993-94

The number of BCS tariff filings submitted by the carriers continued to grow during the 1993-94 year, to an overall total of 136 filings. This

growth has been accommodated within AUSTEL through significant streamlining of the tariff consideration

process.

Figure 1.1 shows the distribution of these filings according to carrier and the time of year.

MONTH VODAFONE TELSTRA OPTUS TOTAL

Jut-93 10* 3 13

Aug-93 - 11* 2 13

Sep-93 1 12 3 16

Oct-93 - 9 2 11

Nov-93 1 10 2 13

Dec-93 1 8 1 10

jan-94 - 7 2 9

Feb-94 - 11 2 13

Mar-94 1 8 2 11

Apr-94 - 6 2 8

May-94 - 7 2 9

Jun-94 - 9 1 10

4 108 24 136

* including filing disallowed 27-8-93

Figure 1.1 Num ber offilin gs by c a rrier and tim e o f y e a r

An examination of the breakdown of tariff filings according to type (Figure 1.2) shows clearly the effect of on­ going differences in the approach

taken by each of the carriers, and of the differing tariffing regulations that apply in the emerging competitive environment. More than a third of Telstra's filings during 1993-94

introduced special promotions, demonstrating the reliance on these discounts as a tool for competing with the other carriers. On the other hand,

Optus has chosen to use adjustments in its standard charges (42 % of filings) introducing new services and ‘off- tariff’ initiatives to establish its

presence in the market. In contrast to Telstra, Optus as the non-dominant carrier is not required to tariff its

special promotions which involve discounts on the filed tariff rates.

The growth in the variety of telecommunications products as a whole is reflected in the fact that new services account for more than a fifth

of the total number of tariff filings. (Note that because many of the filings referred to in Figure 1.1 involve changes across several of the

categories used here, the totals in Figure 1.2 are significantly greater).

CATEGORY Admin' Flexi-Plan2 New Service1 Service Charge4 Price Change5 Withdrawal1 ' Spec. Promotion7 Trial"

Disallowed7 TOTAL

VODAFONE 0 0 2 0

1 0 2 0 0 5

TELSTRA 10 11

27 3 32 3 55

7 1

Ϊ4 9

OPTUS TOTAL 16 12 41

4

48 4 57 7

1

190

Notes:

1 General housekeeping changes such as clarification of the services description or how charges are applied.

2 The introduction or amendment to flexi-plans.

3 Tlie introduction of a new service or features within existing services, such as the introduction of National Connect or GSM digital mobile services.

4 A notable change in the nature of the service, such as the introduction of per second charging.

S A variation in price - both increases and decreases.

< S The removal of a service from the tariffs.

A short-term special offer, such as the one hour discounts on STD and IDD calls. H The offering of a new service on a trial basis.

9 1 a riff considered by AUSTEL but disallowed

F igure 1.2 C um ber o f F ilings by C a r r ie r a n d C ategory

In May 1994 the Government amended the Act to clarify the dominant carrier’s pricing behaviour. The amendments to the Act were

backdated to March 1994 and led to a major review ot BCS tariffs on Telstra's behalf, involving many changes of an administrative nature (such as wording changes to accommodate new definitions).

T elstra’s Replacem ent o f the Strategic P artnership Agreem ents

Following the May 1994 amendments to the Act, Telstra decided to withdraw its Strategic Partnership Agreements (SPAs). The SPAs were pricing and management options structured for customers with large and diverse needs. Discounts were offered to customers based on their aggregate telecommunications expenditure.

Telstra developed a number of discount tariffs to replace the SPAs which in effect provided similar discount levels to the SPAs but which complied with the changed legislation. The new replacement tariffs were

intended to remove any bundling of products that could be considered anti-competitive and meet the general availability requirements of the new

legislation.

The following is a brief description of the main features of the SPA replacement tariffs -

1. Multi Site Plan 1 is a pricing discount option that covers business residential access charges, local calls, certain multi-charged

calls and associated exchange based facilities such as in-dial and Easycall.

2. Call Saver 8 is a price discount plan that covers STD, IDD and other long distance services.

3. Netplans 1, 2 and 3 offer discounts covering leased analogue products, leased digital products and video network services.

4. Pacplan offers a price discount option for Austpac services.

Interim Decision Making F ram ew ork D ecisions

The May 1994 amendments to the Act gave AUSTEL new powers to disallow anti-competitive tariffs and to

determine whether price discrimination should be permitted. Under the new legislative arrangements AUSTEL is required to

develop a Decision-Making Framework (DMF) to administer the new tariffing mles and to assist it in forming an opinion on whether the

tariffs or other charging options offered by the dominant carrier are discriminatory or likely to have an anti-competitive effect.

During the interim period before the DMF arrangements were finalised AUSTEL agreed with the carriers that

tariff filings would not be lodged which -

• required AUSTEL to determine whether a carrier was dominant; or

• were based on cost justification; or

• contained anti-competitive bundling.

It was also agreed that under the interim arrangements AUSTEL would undertake broad overview tests of any

filing to ensure there were no apparent inconsistencies with the intent of the new legislative arrangements.

During the interim period Telstra filed a number of tariffs which were designed to replace the SPAs.

AUSTEL decided not to disallow these after taking account the advice of

AUSTEL consultants assisting with development of the DMF. The decision was made without prejudice to the outcomes of the finalised DMF. The replacement tariffs will be reviewed by AUSTEL after the DMF is finalised to ensure compliance with the recently amended Act.

AUSTEL’s REMARKS

Given the concerns raised by certain participants in the industry about their reluctance to request AUSTEL to use iLs unbundling powers under Part 9 of the Act, there is some public perception that the current unbundling provisions may not be effective. AUSTEL supports these views based upon its own considerations of the issues.

The Act's non-discrimination safeguards appear, in general, to be operating effectively. Hov/ever, there are issues to be resolved in the interpretation of section 183 which could impact on the extent of sustainable service provider competition by bypassing relevant charging and discrimination provisions.

In respect of the filing of BCS tariffs, AUSTEL notes the rapid growth in the number of such filings. Two observations arise from this, as follows -

• it appears that every tariff for every product is being filed by carriers and hence all retail products appear now to be treated as BCSs; and

• an increasing administrative load is apparent for carriers and AUSTEL, with few attendant benefits.

As a consequence, AUSTEL is increasingly of the view that the original intentions of the Act regarding the definition of a BCS, and the import of filing the associated tariff, may now

be subsumed by the present process. This is a matter that AUSTEL intends to address in the industry review of arrangements beyond 1997.

A

IP CHAPTER TWO

COMPETITIVE SAFEGUARDS: PARTS 4, 6, 7,10 & 11 OF THE TELECOMMUNICATIONS ACT 1991

Part 4 - Establishment, Functions an d P ow ers o f AUSTEL..............................21

Introduction.....................................................................................................................21

Damage to Competition.................................................................................................21

Facilitating Market E ntry................................................................................................22

AUSTEL’s Remarks.......................................................................................................... 22

Part 6 - R eserved R ights o f C a rrie rs.................................................................... 23

Introduction.................................................................................................................... 23

Reservations and their Application...............................................................................23

Exceptions as Specified in Part 6 of the A ct...............................................................23

Telecommunications (Authorised Facilities) Direction No. 1 of 1991................................................................................................. 25

Other Issues.................................................................................................................... 25

AUSTEL's Remarks..........................................................................................................25

P art 7 - General C arriers’ P ow ers and Im m unities.......................................... 26

Introduction.................................................................................................................... 26

The Telecommunications National C ode.................................................................... 26

Carriers’ Powers to Enter Land.....................................................................................26

A

Ptirf /Ο - Supply o f Telecommunications Services Under Class L icences.................................................................................................. 28

Introduction..................................................................................................................... 28

Class Licences.................................................................................................................. 28

Ministerial Directions.......................................................................................................29

Other Issues..................................................................................................................... 30

AUSTEL’s Remarks...........................................................................................................31

P art 11 - Supply o f Telecommunications Services Generally.......................... 32

Introduction ..................................................................................................................... 32

Competition ..................................................................................................................... 32

Number of Telecommunications Services.................................................................... 32

"1

(jp The follow in g inform ation relates to P a rt 4 o f the Telecom m unications Act 1991 - Establishment, Functions and

P o w ers o f AUSTEL

INTRODUCTION

Part 4 of the Act sets out the overall responsibilities of AUSTEL. These include the promotion of fair and efficient market conduct within the

industry and the promotion of competition, as follows -

• protecting persons who supply telecommunications services, or supply facilities, from practices of the carriers that are damaging to competition [section 37(a)]; and

• facilitating market entry for persons wishing to supply telecommunications services or facilities [section 37(b)],

DAMAGE TO COMPETITION [SECTION 37(A)]

In order to effectively employ the damage to competition safeguard contained in section 37(a) of the Act, AUSTEL has developed the following

criteria which a complaint must meet before AUSTEL will consider that complaint. •

• Does the complaint relate to supply of a telecommunications service or facility?

I f no telecommunications service or facility is involved, the complaint may he passed to the Trade Practices Commission (TPC) or the

complainant advised to consider private action.

• Does the complaint refer to an allegation against a carrier?

• Have the carrier’s practices prima facie damaged competition in the relevant market?

Actual, not potential, damage to competition in the market generally (as opposed to damage to an individual competitor) is the basis

upon which A USTEL may take effective action under section 46. If there is prima facie evidence o f damage to an individual

competitor or the potential to damage competition generally, AUSTEL may consider referring the matter to the TPC.

AUSTEL's damage to competition test has assisted in clarifying to the market the kinds of complaints which ALISTEL handles. With increasing competition

in the telecommunications market, AUSTEL is receiving regular representations on matters requiring consideration under section 37(a) ot

the Act.

Most of the complaints handled are resolved with minimum regulatory intervention by raising the issue with

H P the carrier concerned. In the majority of cases, the issue is resolved either by the carrier clarifying a misunderstanding by the complainant, advising that it will remedy the situation without further need for AUSTEL intervention, or the carrier and complainant negotiating a solution with or without AUSTEL's assistance.

AUSTEL believes that this safeguard is operating effectively, particularly as its formal intervention, beyond raising a particular matter in the context of section 37(a), is seldom required.

FACILITATING MARKET ENTRY [SECTION 37(B)]

AUSTEL has relied on the safeguard contained in section 37(b) of the Act as the basis for its conduct of its Service Provider Industry Study. The aim of this study is to determine

whether the service provider industry is evolving in accordance with Government policy objectives. In particular, the study is aimed at identifying characteristics within the industry which may affect its development. On the basis of its study outcomes AUSTEL will identify whether there is a need to recommend measures to facilitate service provider competition.

AUSTEL’S REMARKS

In addressing its responsibilities to resolve complaints concerning anti­ competitive behaviour by carriers. AUSTEL believes that, to date, its general powers and functions for

promoting competition under Part 4 of the Act are proving effective.

Jml The follow in g inform ation relates to P a rt 6 o f the Telecom m unications Act 1991 - R eserved Rights o f Carriers.

INTRODUCTION

Part 6 of the Act gives effect to the Government's intention that the general carriers will be the primary providers of Australia’s public

telecommunications infrastructure and networks. It does this by giving them a reserved duopoly in the provision of certain infrastructure until June 1997.

RESERVATIONS AND THEIR APPLICATION

R eserved Line Links

Under section 90 of the Act, the general carriers have the reserved right to install and maintain line links between ‘distinct places' within

Australia. Cabling between ‘distinct places’ is generally reserved to the general carriers, while cabling within a distinct place can be provided on a

competitive basis either by a carrier or by an AUSTEL licensed cabler.

AUSTEL has provided advice to the public and industry on the carriers’ reserved right to install and maintain line links between distinct places. AUSTEL has also provided specific

advice on the distinct places concept on a number of occasions, most commonly with reference to

retirement villages, residential developments and resorts.

Eligible Combined A reas

The Eligible Combined Areas Determination provides that if a building contains more than one property the building is an eligible

combined area. The effect of the Determination is to make a building (eg. an office or apartment block) containing two or more properties

(e.g. offices or apartments), which would normally constitute distinct places in their own right, one distinct place. The right to install cable within

a distinct place is not reserved to the general carriers and therefore may be performed on a competitive basis.

AUSTEL has provided advice on eligible combined areas to five cablers during the reporting period.

EXCEPTIONS AS SPECIFIED IN PART 6 OF THE ACT

General E xceptions

Under section 96 of the Act, carriers are able to contract other persons to install reserved facilities or supply services reserved to them on their

behalf. The carriers remain accountable for any regulatory requirements in relation to things done for them or on their behalf.

During the reporting period, AUSTEL provided a number of industry participants with advice on this

legislative provision.

E xceptions Relating to Line Links

Sections 97 to 102 of the Act outline a number of exceptions relating to reserved line links.

Under section 98, designated transport authorities are able to install and/or maintain their own reserved line links for the purpose of providing the aviation or transport service for which they are responsible. AUSTEL

provided advice on this exception to the Queensland Department of Transport and to two telecommunications consultants.

Section 99 enables broadcasters to install or maintain their own reserved line links which are to be used for the supply of radio or television

broadcasting services by means of facilities that may include a radiocommunications transmitter. During the reporting period, AUSTEL responded to 24 requests for information on this exception. The majority ol queries concentrated on cable television provision.

Section 100 enables persons authorised to install line links by or under previous laws to install and/or maintain their own reserved line links.

Advice on this exception was provided to eleven organisations during the reporting period. This advice related to organisations

previously granted an authorisation by Telstra’s predecessor under section 13(l)(a) of the Telecommunications Act 1975.

Section 101 enables defence organisations wishing to use line links to carry communications necessary' or desirable for defence purposes to install or maintain their own reserved line links. During the reporting period AUSTEL provided advice on this exemption to two areas within the Australian Defence Force.

Exceptions Relating to Satellite- B ased Facilities

Section 103 of the Act provides an exception to the carriers’ exclusive right to supply telecommunications services by use of satellite-based facilities between a place within Australia and a place outside Australia. During the reporting period, AUSTEL provided advice on the supply of international services by satellite-based facilities under section 103 of the Act to fourteen organisations.

Section 104 of the Act provides an exemption to the carriers’ reserved right to be the primary suppliers of satellite services for a person supplying a service exclusively for the use of a defence organisation carrying communications necessary or desirable for defence purposes. Any unused capacity can be sold to a carrier. During the reporting period AUSTEL provided advice on this

exemption to the Defence Science and Technology Organisation.

TELECOMMUNICATIONS (AUTHORISED FACILITIES) DIRECTION NO. 1 OF 1991

Section 108 of the Act enables AUSTEL to authorise certain persons to install, maintain, use or dispose of line links or supply (by the use of specified

satellite-based facilities) specified telecommunications services if so directed by the Minister.

During the reporting period, AUSTEL granted a total of 113 authorisations under section 108 of the Act. Of these, 112 related to Clause 4 of the Direction

(involving the 500 metre rule), and one to Clause 3 of the Direction (where the general carriers gave consent to the installation of a line link by the user).

During the reporting period, AUSTEL received no applications for authorisation under other clauses of the Direction.

OTHER ISSUES

N etw ork B oundaries

The network boundary defines where a carrier’s network ends and where the provision of facilities is open to competition.

AUSTEL was requested by the Minister to conduct an investigation into the

implications of changing the network boundary from -

• the first telephone wall socket for single-line premises; or

• the main distribution frame (MDF) for multi-line installations

to the property boundary in accordance with section 11 of the Act.

In September 1993, AUSTEL’s final report on its investigation into the network boundary was submitted to the Minister recommending that the

network boundary be reallocated at or near the building boundary.

AUSTEL’S REMARKS

AUSTEL is satisfied that during the reporting period Part 6 of the Act has been effective in protecting the general carriers’ rights while allowing

telecommunications users to have greater opportunity and choice when determining the communications solution best able to meet their

individual needs. Clause 4 of the Direction has continued to be the most frequently used.

There continues to be a considerable level of interest in Part 6 issues which has led AUSTEL to develop ways to further streamline its industry advice. To this end, AUSTEL has developed a

range of Fact Sheets to assist in the public’s understanding of those key provisions.

[nil The follow in g inform ation relates to P art 7 o f the Telecommunications Act 1991 - General C a rriers’ P o w ers and Immunities.

GENERAL INTRODUCTION

Part 7 of the Act provides for carriers’ general powers and immunities, industry codes of practice and general carriers' power to enter land.

THE TELECOMMUNICATIONS NATIONAL CODE

The D raft Telecommunications National Code

AUSTEL administered the draft Telecommunications National Code (the draft Code) from September 1992 until June 1994 when the final Code was gazetted. The objective of the draft Code was to enable carriers to

roll out networks quickly while remaining sensitive to environmental, cultural, planning and development standards.

AUSTEL’s role was to monitor and ensure carrier compliance with the draft Code. While no breaches of the draft code were identified, there was

increasing evidence of consumer concern. AUSTEL received 40 written complaints about the erection of mobile towers from residents and councils. Some complaints were in the form of petitions, including one

with some 700 signatures. Concerns related to location, environmental issues, the consultation process and possible impacts on property values and health.

The Pinal Code

On 30 June 1994 the Telecommunications National Code was tabled in Parliament in its final form as a disallowable instrument. It incorporated responses to consumer criticism of the draft code by incorporating -

• more stringent environmental requirements;

e enhanced requirements for carriers to consult and liaise with Municipal Councils; and

• provision to encourage the co­ location or co-siting of tower facilities.

AUSTEL will oversight the impact of the new code in the coming year.

CARRIERS’ POWERS TO ENTER LAND

Under Part 7 of the Act, carriers have the right to access private property for the purposes of installing telecommunications infrastructure. In exercising their rights, carriers must take reasonable steps to ensure the least amount of detriment to property

and inconvenience to landowners as is practicable. If a person suffers loss or damage due to a carrier’s actions, the carrier is required to pay a reasonable

amount of compensation as is agreed between the carrier and the complainant or, failing agreement, as is determined by the

Telecommunications Industry Ombudsman or a competent court of jurisdiction.

While AUSTEL does not have a role in determining compensation for damage to property, it is responsible for ensuring that the carriers meet their

licence requirement of giving reasonable written notice of their intention to exercise their powers in relation to any land access. No new

complaints in relation to this aspect were received in this reporting period.

gm fl The follow in g inform ation relates to P a rt 10 o f the Telecommunications Act 1991 - Supply o f Telecommunications Services under Class Licences.

INTRODUCTION

Part 10 of the Act tasks AUSTEL with establishing and monitoring a class licence system designed to allow non­ carriers to compete directly with general carriers in the supply of

telecommunications services.

CLASS LICENCES

AUSTEL’s class licences allow any person to provide a range of telecommunications services, provided they comply with the provisions of the licence, without requiring each supplier of a service to apply for an individual licence.

AUSTEL has issued three class licences under the Act -

• the public-access cordless telecommunications services (PACTS) class licence;

• the service providers class licence (SPCL); and •

• the international service providers class licence (ISPCL).

PACTS Class Licence

A PACT service enables customers to make telephone calls in public places through the use of a portable handset where base stations for the service

have been installed. AUSTEL issued the PACTS class licence on 18 September 1991. The provision of PACTS is open to full competition and any enrolled person may supply a PACT service anywhere in Australia.

To date, Telstra is the only organisation enrolled to provide a PACT service.

Service P roviders Class Licence

The Service Providers Class Licence (SPCL) allows any person to utilise telecommunications capacity acquired from Telstra or Optus, or in defined circumstances derived from non­ carrier infrastmcture, to supply a range of national telecommunications services to consumer and commercial

markets including public switched voice, data, value-added and private network services.

Suppliers of services under the SPCL are not required to enrol with AUSTEL.

International Service P roviders Class Licence

The International Service Providers Class Licence (ISPCL), issued on 19

&

EP June 1992, regulates the supply of international telecommunications services by non-carriers. The ISPCL

allows for full resale of international telecommunications capacity provided by carriers and gives suppliers the potential to supply the full range of

international telecommunications services to consumer and commercial markets.

The ISPCL also includes specific use restrictions applicable to particular types of eligible international services. These restrictions are intended to

prevent the misuse of market power or offshore regulatory status by a foreign carrier in the supply of eligible international services, and to provide a

means for AUSTEL to monitor the provision of eligible international services in the marketplace.

As of 30 June 1994, 21 organisations had enrolled as suppliers of eligible international services.

R egistration o f Eligible Services

Under section 222 of the Act, a person may apply to AUSTEL for the registration under a class licence of a particular telecommunications service.

During the reporting period AUSTEL received one application to register an eligible service.

Effectiveness o f Class Licences

It is AUSTEL’s opinion that the class

licences provide an effective way of bringing together all the relevant restrictions and information that a service provider needs to know when

intending to supply telecommunications services. The class licences also provide a way for the regulator to impose conditions

relating to international resale and the use of radiocommunications facilities.

Nevertheless, AUSTEL’s current study into the service provider industry may highlight the need for improvements in this area.

MINISTERIAL DIRECTIONS

Under section 204 of the Act, the Minister may give directions to AUSTEL about how it is to perform its functions with regard to class licences.

To date, AUSTEL has received two such Ministerial Directions.

Telecommunications (R adcom Facilities) Direction

The Telecommunications (Radcom Facilities) Direction No. 1 o f 1991 ( the Radcom Direction’) sets out the restrictions AUSTEL must impose on service providers in relation to the use

of radiocommunications infrastructure which is interconnected to the Public Switched Telecommunications Network (PSTN). In AUSTEL’s

experience the requirements of the Radcom Direction are working as intended.

Telecommunications (Eligible International S ervices) Direction

The Telecommunications (Eligible International Services) Direction No. 1 o f 1991 (the International Direction) sets policy goals about how AUSTEL is to develop the class licence for eligible international services. Having regard to the Direction, AUSTEL imposed restrictions on the provision of certain eligible international services. AUSTEL has received no evidence to suggest that the conditions imposed have proven unduly onerous to persons intending to supply eligible international services under the ISPCL.

OTHER ISSUES

International R esale Investigation

On 20 September 1993, AUSTEL received from Telstra a submission in support of its request that AUSTEL

conduct an investigation into whether the supply by international service providers of double ended interconnected services (DEIS) provided under AUSTEL's ISPCL is in

the public interest.

After investigation, AUSTEL decided to amend the Guide to the ISPCL to - •

• clarify to the market the sorts of situations where AUSTEL would be concerned that the supply of DEIS was not in the public interest; and

• suggest to service providers that it is in their interests to notify AUSTEL once they have firm plans to provide DEIS in the market, so

that AUSTEL is in a better position to offer service providers the benefit of any advice in advance of the provision of such services.

AUSTEL is in the process of advising industry of the amendments to the ISPCL Guide.

N ational Connect

Following a complaint in September 1993, AUSTEL instigated a review of service provider connection to the Telstra network.

AUSTEL formed the view that the level of the tariff for the National Connect Service posed certain unacceptable barriers to entry, including the charges for establishment, access and rental.

In its preliminary report, AUSTEL found that Telstra should take action to remove the identified shortcomings in the tariff and to explore the provision of other service provider - specific products to meet the needs of

the service provider market.

As at 30 June 1994, Telstra was considering the concerns identified by AUSTEL but had not refiled the tariff.

AUSTEL’S REMARKS

AUSTEL is of the opinion that Part 10 of the Act is assisting in providing a means of facilitating the entry of non­ carriers into markets for a variety of

telecommunications services. Although the current class licence regime facilitates market entry more readily than previously was the case, it

still cannot be considered ideal. It is expected that AUSTEL’s current study into the service provider industry will reveal areas where the class licence

regime could be improved. The question of specific rights for service providers is one such area.

The follow in g inform ation relates to P a rt 11 o f the Telecommunications Act 1991 - Supply o f Telecommunications

Services G enerally.

INTRODUCTION

Part 11 of the Act sets out rules which apply generally to the supply of telecommunications services. Division 1 relates to the goal of promoting competition and Division 2 relates to managing the numbering of Australia’s telecommunications services.

COMPETITION

Section 237 of the Act gives the carriers the ability to refuse to supply particular basic carriage services (BCS) that are not included in their BCS tariff listings. During the year, service providers expressed some concerns about carriers not responding to requests for particular kinds of telecommunication services. This matter will be examined further in AUSTEL's service provider industry study.

NUMBERING OF TELECOMMUNICATIONS SERVICES

New Allocation P rocedu res f o r Analogue Mobile N um bers

New procedures for the allocation of analogue numbers were introduced by Telecom MobileNet and Optus Mobile in January 1094.

The new procedures ensure that allocation of numbers from MobileNet Wholesale to Optus Mobile and Telecom MobileNet is on a non discriminatory basis. This has provided a more equitable system of number allocation by MobileNet

Wholesale and enabled Optus Mobile and Telecom MobileNet to allocate numbers to their dealers on an equal footing. Whereas previously certain analogue mobile numbers had to be connected to a specific supplier’s mobile equipment, the new procedures provide the advantage of enabling any analogue mobile number to be connected to any analogue mobile equipment.

Other advantages of the new procedures include -

• greater consistency in the quantity of numbers allocated;

• provision of sufficient allocations to meet customer demand; and

• a reduction in the double­ allocation of numbers.

AUSTEL, Telstra and Optus jointly developed the new allocation procedures. These procedures were adopted in August 1993.

Pro-C om petitive N um ber A llocations

Number allocations made during the year which have the potential to contribute to competition are as follows -

• approval for the use of the Data Network Identification Code (DNIC) ‘5056’ was given to SingCom Australia;

• codes for virtual private network services (‘188XX’) were allocated to Telstra Australia, Optus Communications and AAP Telecommunications;

• codes for 10-digit 1300’ numbers were allocated to Optus Communications and Telstra Australia for the provision of special network services; and •

• Ό010’ was allocated to AAP Telecommunications for international facsimile services.

N etw ork Conditioning

Network conditioning is required to enable new numbers to be recognised by the network and for calls to those numbers to be handled and routed

appropriately. Given that Telstra provides access to telecommunications services for the vast majority of customers, the introduction of services

by Telstra's competitors requires that

Telstra re-configure its network to support any new numbers.

Because the network conditioning process is almost entirely within the control of Telstra, Telstra's competitors have expressed concerns about the

way the process operates. Network conditioning activity has been perceived to confer on Telstra a competitive advantage, since it has

access to detailed information about new services to be introduced by its competitors.

During the reporting period, Telstra developed procedures to define the various activities required to condition

new numbers in its network. The new procedures -

• prioritise requests for network conditioning on a first in, first served basis;

• specify the information required from the originator of a network conditioning request, to allow preparation of estimates of cost

and length of time required for conditioning; and

• require that these estimates be passed promptly to originators of network conditioning requests.

Notwithstanding these procedures, the lengthy periods of time often required to fulfil network conditioning requests and the lack of certainty about

completion dates for network conditioning, suggests to AUSTEL that there is a problem of limited resources assigned to network conditioning

tasks which Telstra should address.

Telstra's handling of network conditioning requests and of estimates it provides in relation to cost and time

to implement them cannot be regarded as open and transparent. AUSTEL is considering whether there may be a need for some independent oversight of the process. Such

oversight should also ensure that commercially sensitive information received by Telstra in connection with a network conditioning request is not exploited to Telstra’s competitive advantage.

At this point in time AUSTEL is focusing on inter-operator portability, given that portability of individual geographic service numbers between different areas would erode the geographic information in numbers which, AUSTELs research has found, is used and valued by customers.

Operator portability is widely regarded as producing significant pro-consumer and pro-competitive outcomes, in that -

• consumers derive benefits from being able to change the carrier or service provider which provides them with a given service whilst avoiding the costs associated with changing number; and

Number Portability

Since the release of a discussion paper on numbering administration issues in October 1992. AUSTEL has considered the introduction of number portability in certain services as a priority issue. Two categories of portability have been identified -

(a) locational portability - transferability of numbers between different geographic areas; and

(b) inter-operator portability - transferability of numbers between different network operators (ie. carriers or service providers).

• all relevant carriers or service providers are better placed to attract customers from their competitors and a significant barrier to entry into the market for a particular service is removed.

Portability Study Group

In January 1994, AUSTEL established a Portability Study Group which comprises representatives of the carriers, service providers, industry bodies and State and Territory governments to examine the technical

and economic feasibility of introducing number portability. The initial focus is on freephone (T800’) services but a number of other

EP services will be brought into the ambit of the Study Groups investigations.

The Portability Study Group has identified three possible technical options for implementing portability in freephone services. It will next

consider the application of these technical options to other services, identify the financial costs associated with different approaches to

implementing portability, and investigate the options for managing common facilities and functions such as a common number allocation database.

D ata Numbering

In August 1993, AUSTEL adopted new guidelines for allocation of the high- level codes used in packet data services to identify individual

networks (known as data network identification codes or DNIC's). These guidelines provide that -

• DNICs should only be allocated to public data networks;

• public data networks are defined as being generally available to the public; and

• both carriers and service providers may be eligible for allocation of DNICs.

The new guidelines were adopted after a meeting of representatives of the carriers, the Australian

Telecommunications Users Group and the Australian Information Industry Association in June 1993, at which the eligibility requirements for allocation

of DNICs were discussed. The guidelines balance the competing priorities of prudent allocation of a scarce resource on one hand, and

promotion of competition and innovation in the packet data market on the other.

AUSTEL is progressing towards finalisation of a new Data Number Plan which will define the structure ot packet data numbers and codes for

use in Australia, and indicate how these codes and numbers will be allocated. The outcome will be issued as part of the full National Numbering

Plan, which will provide a composite guide to the numbering of public telecommunications services in Australia.

Δ

CHAPTER THREE

CARRIER PERFORMANCE: PRICING AND MARKETING STRATEGIES

Introduction .....................................................................................................................37

Price Control Arrangements.......................................................................................... 37

Prices for Domestic Long Distance Services.............................................................. 41

Prices for International Services ................................................................................... 42

Prices for Mobile Services..............................................................................................44

Major Pricing Proposals Considered in 1993-94 ......................................................... 46

AUSTEL s Remarks on Pricing Aspects.........................................................................48

Affordability of Home Telephone Services................................................................. 49

INTRODUCTION

This chapter examines developments in the pricing of telecommunications services, including the pricing behaviour of Telstra, Optus and the

third public mobile carrier, Vodafone during 1993-94. It considers the current level of prices and the manner in which the carriers strategies have

evolved as the market has developed. The chapter concludes with a discussion on telephone service affordability in the residential market.

PRICE CONTROL ARRANGEMENTS

An important feature of the telecommunications market has been the continued operation of the Government’s price control

arrangements as a mechanism for ensuring that Telstra delivers real price reductions to consumers. As Telstra has adapted its pricing to meet the

specific requirements of the price control arrangements and to respond to the operations of the other carriers, it has provided an example of carrier

pricing behaviour in a partially regulated and partially competitive market.

Telstra and Optus appear to have used 1993-94 to consolidate their position and profile in the market without making any sizeable reductions to

their standard prices, following the relatively large reductions in 1992-93. Telstra focussed its pricing initiatives

on the larger volume customers through offerings such as Strategic Partnership Agreements (SPAs), Flexi- Plans (FPs) and spot discounts, and

was able to meet its price cap obligations primarily through this type of discount activity. The tendency to focus on offering discount pricing

options, rather than standard price changes, was reinforced by the availability of off-tariff charges offered by Optus and Vodaphone.

T elstra’s P rice Cap

The price cap applying to Telstra restricts the overall or average revenue weighted price movement for a basket of services to a limit calculated by

subtracting 5.5% from the movement in the Consumer Price Index ie. CPI minus 5.5%. Further, there are sub­ caps placed on selected groups of services within the overall basket. The price cap method of price control

was adopted to ensure that some of the improvement in Telstra’s productivity is passed on to consumers in the form oi lower prices while Telstra is able to retain any

benefit arising from an increase in productivity in excess of 5.5%. Full details of the price cap mechanism are set out in the AOTC Carrier Charges

Price Control Determination, 1992 and in AUSTEL’s Occasional Paper Economics 3, Price Control Arrangements for the Australian

Telecommunications Industry.

Compliance w ith the P rice Cap, 1993-94

At the conclusion of the price control year, Telstra provided AUSTEL with details concerning its compliance with the price control requirements. According to final audited data

provided to AUSTEL on Telstra’s price movements for the 1993-94 period, Telstra complied with the arrangements.

Telstra was obligated to reduce its price capped charges by a revenue

Service/basket of services

Price Cap Requirement (including carry-over

credits)

Change in Standard Price

Change due to Specials, SPAs &

FPs

Total Price

Movement

Compliance

Local Call CPI = 2.9% -0.49% -1.39% -1.88% Yes

Connections CPI = 2.9% 0.00% 0.00% 0.00% Yes

Rental CPI = 2.94% 0.86% -0.14% 0.72% Yes

Local and Access CPI -2% = -0.23% 0.37% -1.53% -1.16% Yes

Trunk Calls CPI -5.5% = -4.12% 0.00% -5.46% -5.46% Yes

International Calls CPI -5.5% = -3.48% -1.69% -6.97% -8.66% Yes Mobile Calls no separate price cap -2.58% -4.53% -7.10% N/A

Leased Lines no separate price cap -0.44% -2.61% -3.05% N/A

Overall Price Cap

CPI -5.5% = -4.54% -0.24% -3-45% -3.69% Yes*

* Telstra is entitled to defer up to 1% until the following financial year.

Figure 3 1: Revenue Weighted Price Movements f o r T elstra’s Price-Capped Services, 1993-94

weighted average of 4.54% during 1993-94. The relevant CPI figure for price control purposes in the 1993-94 year was 1%. The combination of this

low inflation figure and the need to accommodate an additional 0.04% reduction which was deferred from the 1992-93 year, imposed a tight constraint on Telstra. A breakdown of how Telstra met this requirement and the requirements of the various sub­ caps applied under the arrangements is set out in Figure 3.1.

Two significant features of Telstra’s approach to meeting its price cap obligations in 1993-94 are evident in this table. Firstly, to meet the overall

price cap, Telstra had to rely heavily on the provisions which enable it to defer up to 1% of the required price movements. Its actual reduction in

revenue weighted prices of 3.69% met the price cap requirements on the proviso that the deferred 0.85% reductions are achieved in 1994-95.

Secondly, of the overall reduction in prices of 3.69 percentage points, 3.45 percentage points of this (or 93%) resulted from special promotions (including MobileNet Edge), Flexi-

Plans, and SPAs, while movements in standard charges reduced prices by only 0.24 percentage points.

Figure 3.2 provides a clear illustration of these results. The lightly shaded areas represent the net changes in

standard prices and the dark shaded areas represent revenue weighted changes due to discounts of the types listed above. Figure 3-2 also reveals

that Telstra’s strategy to meet the overall price cap (shown by the horizontal line at -4.5%), relied on price reductions in the most

competitive markets, those for STD. IDD and mobiles. In revenue weighted terms, changes in IDD prices made up by far the largest proportion

of the reductions, followed by mobiles and STD.

1 .0 0 %

0 . 0 0 %

- 1 . 0 0 %

-2.0 0%

-3 .0 0 %

-4 .0 0 %

- 5.0 0 %

-6.0 0%

-7 .0 0 %

-8 .0 0 %

-9 .0 0 %

Local STD IDD Mobiles Leased Lines Rev W Ave

\ ........1 Standard Discounts

Required reduction

Figure 3.2: Stan dard and Discount Components o f Telstra ’s Price Movements f o r P rice-capped Services - 1993-94

The price movement within the access and local calls sub-basket represents the net movement of both increases and decreases in charges. Residential and business rentals rose in January

1994 by 2.9% and 1.6% respectively, but in revenue weighted terms for this basket these were more than compensated by reductions achieved via Flexi-Plans, SPAs and pensioner concessions, as indicated in Figure 3.2 above.

P rice Changes in 1992-93 and 1993-94

Figure 3 3 presents a comparison of the revenue weighted price changes for Telstra’s price capped charges

between 1992-93 and 1993-94, revealing the much greater use of price discounting activity in 1993-94 compared to the previous year. For example, during 1992-93 standard price changes contributed 2.42 percentage points (or 67.5%) of the total reductions achieved, compared to only 0.24 percentage points of the total reductions (or 7%) in 1993-94. It clearly demonstrates that Telstra’s increased reliance on discounts had an impact in all of the relevant sub-baskets. This reliance was also reflected in the customer take-up of the various discount options and the associated changes in revenue

distribution. In 1992-93, some 9% of customers were registered as Flexi-

Service/basket Change in Change due to Total Average Price

of services Standard Price Specials, SPAs Movements

& Flexi-Plans

1993-94 1992-93 1993-94 1992-93 1993-94 1992-93 Local Call -0.49% -0.84% -1.39% -0.55% -1.88% -1.39%

Connections 0.00% 0.00% 0.00% -0.04% 0.00% -0.04%

Rental 0.86% 0.00% -0.14% 0.00% 0.72% 0.00%

Local and Access 0.37% -0.55% -1.53% -0.33% -1.16% -0.87%

Trunk Calls 0.00% -2.07% -5.46% -1.91% -5.46% -3.98%

International Calls -1.69% -7.82% -6.97% -3.75% -8.66% -11.58% Mobile Calls -2.58% -8.73% -4.53% -0.01% -7.10% -8.74%

Leased Lines -0.44% -1.77% -2.61% -0.26% -3.05% -2.03%

Overall Price Cap -0.24% -2.42% -3.45% -1.12% -3.69% -3.56% Proportion of Total Price Change 7.0% 67.5% 93.0% 32.5% 100% 100%

Figure 3-3: C om parative Break-down o f Telstra’s Revenue W eighted Price Changes -1992-93 versus 1993-94

Plan or SPA customers. This proportion increased to 22% during 1993-94. In revenue terms, discounting options represented 11

per cent of Telstra’s business in price capped services during 1992-93, while in 1993-94 this proportion soared to nearly 40%.

Given the attractiveness of many of these discount options to higher volume customers, the significance of the discounts in revenue terms was

considerably greater than the proportion of customers who actually took up such options. Consequently, the benefits of falling prices were not

evenly distributed across customer groups.

B roader Revenue Effects

The 3.7% reduction to charges for price-capped services by Telstra represents a transfer of benefit to customers of about $315 million in

1993-94. This was only slightly above the revenue reduction achieved in 1992-93 of about $300 million. While

the broad size of the revenue transfers in nominal terms was similar in the two years, the make up of these transfers to consumers, in terms of the

proportion stemming from standard price reductions and that from discounts, was markedly different. Changes to standard prices accounted

for some $187 million of the total $300 million revenue reduction in 1992-93, but in 1993-94 they accounted for only $22 million of the slightly

higher $315 million revenue reduction recorded.

PRICES FOR DOMESTIC LONG DISTANCE SERVICES

Pricing developments in the market for long distance calls within Australia during the 1993-94 year were restricted almost entirely to customer calling plans, short-term discounts and off-tariff offers. As evident in Figure

3 3, Telstra did not alter standard prices for its STD calls at all during the period under consideration. Similarly, Optus made only a single change to its domestic long distance charges. Although standard long distance

charges have fallen significantly since Optus began operations in 1992, the vast majority of these changes took place prior to 1993-94.

Although Telstra did not change its standard rates during 1993-94, it offered approximately 20 short term discounts in various forms and for

varying periods. Telstra also made a number of variations to its range of Flexi-Plans and call-savers which impact on STD charges. The most important of

these changes were the introduction of two new call saver plans - numbers 7 and 8 which are focussed on large customers. Call saver 8 was introduced as part of Telstra’s replacement tariffs following

its withdrawal of SPAs.

Optus also offered discounts off-tariff, ie. which are not required to be tariffed.

PRICES FOR INTERNATIONAL Telstra’s charges across all destinations SERVICES of some 3.7%.

Movements in International P rices

Significant changes to the pricing for international calls were evident during 1993-94. One of the more notable changes was Telstra’s introduction of a

progressive discount structure applying to individual calls, with discounts increasing progressively with call duration. For example, the initial charging rate was reduced by

10% for that part of a call exceeding fifteen minutes duration. This change led to an effective reduction in

Both Telstra and Optus made a considerable number of alterations to their standard charges for calls to specific countries. Given increasing competition in the international market, changes in country specific rates were understandably focussed on the routes which attract the most traffic. Figure 3.4 lists the percentage movements over 1993-94 for Telstra’s and Optus’ peak and off-peak charges for a five minute call to major international call destinations.

Destination Percent change, Percent change

peak charges off-peak charges

Telstra Optus Telstra Optus

Canada -7% -5% -10% -5%

China -5% -5% -11% -5%

Egypt -4% 0% -4% -19%

Germany -6% -5% -10% -5%

Hong Kong -8% -5% -7% -5%

Ireland -10% -5% -13% -5%

Italy -7% -5% -7% -5%

Japan -8% -5% -8% -5%

Netherlands -8% 0% -11% 4%

New Zealand -7% -5% -7% -5%

Papua NG -6% -5% -10% -5%

Singapore -10% -5% -13% -5%

Spain -8% 0% -19% -20%

UK -8% -5% -7% -5%

USA -7% -5% -7% -5%

Hiiure Changes in Peak and OJf-Peak Charges f o r a Five Minute International Call (July 1993 to June 1994)

E?4 While the price movements in Figure 3.4 show that Telstra reduced its standard rates by a larger amount than

Optus over the period, it should be observed that in a standard rate comparison, Optus maintained slightly lower rates overall. These percentage

movements are indicative only as they refer to standard rates and do not account for the various discount arrangements available from the carriers. However, almost 7

percentage points of the 8.6% reduction in Telstra’s price capped international call charges were due to the effect of such discount schemes.

Another point worthy of note is that Telstra undertook larger percentage reductions for off-peak charges than peak charges. This was, at least in

part, a response to the situation at the beginning of the period where Optus offered a greater margin below Telstra’s off-peak prices than its peak

prices. Telstra’s reductions in off-peak rates have now resulted in the margin between Telstra’s and Optus’ prices being generally uniform regardless of

the time of day.

Short-term P rom otional Discounts

During 1993-94 short term, promotional discounts continued to be feature of the marketing strategies used in the international market.

While rate reductions on calls to specific countries for specified periods dominated, Telstra also implemented

some different initiatives. During July of 1993 it introduced a promotion known as ‘free speech’. This provided customers with a $5.50 rebate if they

registered and then made a call to Hong Kong, Italy or New Zealand. Presumably this unusual promotion

was designed as a once-off effort to gain market share for the specific routes involved. Another form of promotion offered by Telstra which

generated interest involved reduced rate calls from particular states to particular countries (that is ‘route- specific’ discounts). Several of this type of promotion were offered

during 1993-94.

Call Home A ustralia an d A utom atic A u stralia D irect

The introduction of products enabling customers to call Australia using a specific carrier was another development during 1993-94. Optus

introduced its ‘Call Home Australia’ service in July 1993 and Telstra followed with its ‘Automatic Australia Direct’ service during November 1993

Each of these products enables the customer to call Australia at the relevant Australian carrier’s rates (plus a 40

facility. This type of initiative reflects the Australian carriers' ability to compete with overseas carriers in the international call market.

f t » ·

PRICES FOR MOBILE SERVICES

Although the AMPS (analogue) network is to be phased out of the Australian mobile market by the year 2000, it was within this network that the development of the market focussed in 1993-94. Both Telstra and Optus offer AMPS services and pricing behaviour of the two during the year displayed a tendency for them to

match each other quite closely. This is typical of competitors in a duopoly situation.

Price Cap Outcomes

The methodology used for including mobile call charges in the price-cap was refined considerably between 1992-93 and 1993-94. Under the revised methodology, Telstra’s mobile phone charges fell by approximately

7% over the course of 1993-94. While this did not include the impact of any off-tariff rates, Telstra advised that there was little or no resort to such

off-tariff pricing in 1993-94, notwithstanding that Telstra was considered non-dominant in the latter part of this period. The 1993-94 reductions made a significant

contribution towards Telstra’s obligations within the overall price cap limit.

GSM Service

Telstra and Optus commenced offering GSM services in April 1993

and May of 1993 respectively, and on 30 September 1993 the third mobile carrier, Vodafone, commenced offering its GSM Service in the metropolitan areas of Sydney, Canberra and Melbourne. Since the introduction of these services, both of the established carriers have offered pricing plans which equate almost exactly to their analogue pricing plans. Although Vodafone has elected to

enter the market solely through its GSM-based network, its tariffed charges have tended to follow a structure very similar to that offered by its competitors for analogue services. However, Vodafone’s decision to market its products wholesale, solely through service providers whose margins can be based on off-tariff rates, suggests that its tariffed rates are not likely to represent the actual charges faced by the customer.

Summary o f Mobile Calling Plans

Table 3 5 lists the major features of the carriers' calling plans which were on offer as at June 1994 and whether they were available for analogue and/or digital service.

Analysis of the various mobile calling plans applicable over the 1993-94 reporting period revealed little

difference in competitive pricing options for mobile customers with low or medium usage levels. Some differences were apparent for higher

Carrier Calling Plan

Description Network

Access Call Charges (Peak rate < l65k m s)

Telstra 10 $10 30

20 $20 20

Standard $35 10

80 $80 first $52 free then 10

130 $130 first $125 free then 10C flagfall 36.1C/min A&D

240 $240 first $285 free then 10C flagfall 36.1C/min A&D

Corporate $10 Rate varies by usage, min 10 h'sets A&D

Optus1 Freedom $10 $1.20/mtn A

Security $20 80C/min A

Business $35 40C/min + discounts for high usage A&D

Power 120 $120 first $100 fee then 32C/min A&D

Power 240 $240 first $260 free then 32C/min A&D

Corporate2 $10 Rate varies by usage, min 10 h'sets A&D

MetroPlan $25 40C/min for call within designated zone + discounts for high usage D

Vodafone Plan 1 $35 42C/min D

Plan 2 $46 33.6C/min D

Plan 3 $60 30.2C/min D

1 Optus is currently phasing out its Economy, Maxi and Corporate Optimiser plans.

2 This Plan is called "Corporate Plus” when it applies to a digital service.

Figure 3 5 Mobile Calling Plans Offered by Each Carrier -June 1994

usage customers, but these differences were volatile over the year, owing to competitive responses by the carriers. Nevertheless, the overall trend was

toward price reductions for consumers.

The carriers, having developed a comprehensive range of mobile calling plans, directed much of their marketing activity toward encouraging

customers to subscribe to the calling

plan most appropriate to their calling patterns. Price reductions for customers were an outcome of this optimisation process which, together with increasing customer awareness, is

a feature of developing competition.

The cumulative effect of calling plan tariff changes, optimisation of calling plan selection, and opportunity to subscribe to an alternative mobile

provider made assessment of price

movements available to any particular mobile customer group difficult to estimate. Nevertheless, the overall effect with respect to Telstra’s mobile customers was sufficient to satisfy the price cap requirement. As noted earlier, the revenue weighted price

reduction was of the order of 7%.

It must be emphasised that the above analysis takes no account of the improved levels of customer service, product innovation, lower handset prices, increased network coverage and other ‘quality’ improvements the carriers made over the period. This meant that consumers received benefits in addition to those related solely to price.

The 1993-94 reporting period was the last in which Telstra was considered dominant in the mobile market. AUSTEL determined Telstra to be non­ dominant in the provision of public

mobile telecommunications services from 28 April 1994, subject to its compliance with certain safeguards. This released Telstra from the

requirement to charge only in accordance with its tariff, ie. it may now enter into customer specific or off-tariff deals. It is too early to judge the full impact of this decision in the marketplace, but based on the assessment AUSTEL made at the time, it should lead to an increase in the competitive pressures in the mobile

market and ensure further downwards movements in prices. AUSTEL continues to monitor movements in

tariffed prices for mobile services. These will now be relevant as an indicator of price ceilings, rather than as average prices paid.

MAJOR PRICING PROPOSALS CONSIDERED DURING 1993 94

Business an d R esiden tial Rentals

In November 1993, Telstra proposed increases for its access rental charges for both business and non-business exchange lines. AUSTEL consented to the proposal in December 1993 and it was implemented by Telstra on 1 January 1994. The changes consisted

of the following -

• a $4.80 per annum (2.9%) increase in non-business exchange line rental, to $169.80 per annum, including handset ; and

• a $4.80 per annum (1.6%) increase in business exchange line rental, to $304.80 per annum, including handset.

AUSTEL’s consent was given on the basis that the proposal was consistent with Telstra meeting the arithmetic limits of the price cap; that the alteration was not seen as a misuse of market power by Telstra; and that the affordability of the rental component

of the standard telephone service was not adversely affected when compared to general price movements in the economy as measured by the CPI.

Video N etw ork Services

In January 1994, AUSTEL consented to Telstra’s proposal to vary charges for its Video Outside Broadcast Service, Remote Access Channel Service

(REACH), and Access Video Service. The decision to allow these changes took into account that the services involved represented a small

component of overall charges for video services and were not expected to generate significant revenue. AUSTEL received no evidence that the

proposed changes were a misuse of market power and noted that the overall costs would fall for a majority of customers.

In crease in Public Payphone Charges

On 20 December 1993, in accordance with Price Control Arrangements, the then Minster for Communications sought AUSTEL’s advice as to whether

Telstra’s proposal to raise its public payphone charges from 30 to 40 cents was in the public interest.

AUSTEL advised the Minister on 21 January 1994 that the proposal was in the public interest. This view was based on the rationale that Telstra is,

(or was in the process of) undertaking all reasonable steps to provide an efficient public payphone service of acceptable quality Australia-wide.

Further, AUSTEL believed that as public payphone charges had not

risen since 1986, sustainability of quality improvements since that time may be compromised if a rate increase was disallowed.

In response to an AUSTEL suggestion, Telstra provided supplementary proposals to cushion the effect of a rate increase on those customers

perceived to be particularly disadvantaged by any increase in payphone charges.

On 12 April 1994, following consideration of AUSTEL's advice and Telstra’s supplementary affordability proposals, the Minister for

Communications and the Arts consented to the increase in Telstra’s public payphone charges from 30 to 40 cents effective from 1 September

1994, on condition that Telstra put in place an assistance package to cushion the one-off impact of the rise. The Minister also agreed that, where

necessary, Telstra must provide additional on-going performance measurement for its public payphones to assist AUSTEL’s performance

monitoring.

AUSTEL’s report to the Minister on this payphone proposal was publicly released in March 1994.

AUSTEL’S REMARKS ON PRICING passed on more widely to consumers DEVELOPMENTS at large

Discount Plans

It is evident that in 1993-94, Telstra and Optus attempted to consolidate their position in the telecommunications services market. Compared with 1992-93, the pace of

reductions in standard prices slowed considerably. In that year some standard prices, such as Telstra’s STD rates between Melbourne and Sydney, fell in nominal terms by nearly 19 percent. Greater reductions were available if discount options such as Telstra’s Flexi-Plans or Optus’

Advantage discounts were taken into account.

The nature of most Flexi-Plan offerings and Optus1 Advantage discount offering was to focus the bulk of price reductions on customers

with high usage of long distance services. This had equity implications as eligibility for the larger discounts available from these offerings was

limited to such high usage customers. However, spot special discounts tended to offset this shortcoming to some extent. While the price cap ensured that no consumer was worse off in real terms because of the CPI constraint on increases to charges for a number of consumer sensitive services, the issue remains whether price benefits emanating from a more competitive industry and from technological change should be

To put this matter in context, while some 22% of Telstra’s customer base had subscribed to Flexi-Plan type arrangements by 1993-94, the proportion of revenue generated by these (and other) discount offerings was close to 40% in this period. This

compared to 11% of revenue generated by such offerings in 1992­ 93. Further, in 1993-94 some 93 per cent of the price changes for price capped services were attributable to discount offerings, about three times as high as the comparable proportion of 32 per cent in 1993-93­

In relation to the long distance market it should be noted that, while only about 19% of Telstra’s customers had by 1993-94 subscribed to Flexi-Plan arrangements applicable to long distance (STD and IDD) calls, the proportion of Telstra customers who regularly or occasionally use long-distance services was estimated at 70%.

Should there continue to be concerns about the tendency to target price reductions mainly to high volume users, there are a number of changes which could be made to the current price cap arrangements to address these concerns. As the existing price cap arrangements are currently being reviewed with post 1995 arrangements in mind, AUSTEL will be making specific recommendations to Government in this regard.

N ational Long D istance Call C harges

No significant reductions to standard national long distance prices were evident from either carrier in 1993-94. Telstra achieved all its price reductions

to meet its STD sub-basket requirement of -4.5% by means of price discount offerings and in doing so achieved an actual reduction of nearly 5.5%.

International Call Charges

There were considerably larger reductions in standard charges for international calls from both carriers, but these were concentrated in

selected streams and across particular peak and especially off-peak periods. In this regard, the carriers focussed their activities on the more popular streams and on particularly price

sensitive streams.

ACCESSIBILITY/AFFORD ABILITY OF HOME TELEPHONE SERVICES

On 29 June 1994, AUSTEL was requested by the Minister for Communications and the Arts to address in this report certain aspects of the accessibility and affordability of

home telephone services.

The request was linked to Telstra's submission for a ten cent increase in payphone charges, and the Minister's expressed concerns about the broader

issue of the affordability of home telephones for people on low incomes.

Particular areas of interest were outlined as being -

• the numbers and reasons for disconnection of home telephone services;

• the use of security bond deposits; and

• the numbers and characteristics of non-subscribers to home telephones.

H om e Telephone Penetration

Telstra provided the following information based on an independent survey commissioned during 1993-94. In total, 96.3% of Australian

households had a telephone connected. In the capital cities, this figure was slightly higher at 97.5% and in areas that are not capital cities the

figure was lower at 94.4% of households.

It is noted that a 1991 Australian Bureau of Statistics study of household telephone connections found that 94.4% of Australian households had a

phone connected.

H ouseholds Without a Home P h o n e

The following demographics were provided on households with no telephone.

The survey found that approximately 38% of respondents in households without a telephone were male with the majority, nearly 64%, in the 20 - 39 years age group. 24.3% of

respondents were in the over 50 age group.

1 aider the 'occupation of main earner’ category, semi/unskilled earners made up the majority of people without a home telephone at 44%, followed by

20.8% in white collar occupations and 19.6% in trades.

When questioned about work status, 65% of respondents replied that they didn't work. The income of the main earner was less than $15,000 in 50.8% of households and between $15,000 and $30,000 in 35.8% of households.

The survey found that 41.2% of the main earners in households without a telephone were educated to secondary level and that approximately 54% of households with no telephone were

occupied by 1 or 2 persons.

A key finding of Telstra's Telephone Affordability Study (1990) was that the initial standard connection fee is a major barrier for those people without

a home phone (40% of respondents gave this as a reason they did not have a home phone). To meet the fee would require a substantial period of saving. Telstra’s response to this survey included enhancing flexible payment arrangements, usage control options and customer information.

Service Connections and Cancellations

The following service connection and cancellation information for 1993/94 was provided by Telstra -

‘new’ service connections 563,138 ‘in-place’ connections 1,556,837

total connections 2,119,975

total cancellations 1,814,036

net growth in customer _________

access 305,939

Telstra’s systems do not record the number of reconnections of existing customers and connections of new

customers.

Telstra advised that service cancellation information in gross figures is meaningless in terms of affordability, since most customers who disconnect take up a service at another location and most services which are disconnected are taken up within a short period of time.

c *

E?*l Telstra has no records of the reasons for carrier initiated or customer initiated disconnections. However,

modifications are programmed to Telstra's billing system to enable statistics to be gathered on reasons for disconnections and reasons for

security bond deposits.

On the issue of service cancellations, Telstra provided the following information -

“The Telephone Affordability Survey in 1990 revealed a major contributing factor to carrier initiated disconnections was a restriction o f the

money the customer had available to pay the bill. Reduction o f income (due to low or reduced income from job loss, retirement and illness) and facing

other unusual bills were additional factors mentioned. Most people surveyed in this category reported the relevant bill to be later than usual,

with a few claiming the excess was

incurred by someone else using their phone. Most customers surveyed acknowledged that it was their own use that resulted in a higher than

usual account. ”

When requested to provide information on the numbers of refusals by the carrier to provide service, Telstra responded that it has

no records of its refusal to provide service or reasons for doing so.

Security Bond D eposits

As indicated in Figure 3-6, the number of security bond deposits requested by Telstra has declined markedly over the last two years. Telstra provided the

following market research information on the issue of security bonds.

“On this matter, the (1990) Telephone Affordability Survey revealed that 25% o f respondents without a home telephone thought security deposits/

1 6 0 0 0

1 4 0 0 0

12000 10000 8 0 0 0

6 0 0 0

4 0 0 0

2 000 0

1 9 9 1 / 9 2 1 9 9 2 / 9 3 1 9 9 3 / 9 4

1 5 2 0 0

Figure 3-6: Security D eposits Requests

bonds were a major barrier to connection. As a result o f detailed and ongoing consultation with community groups, Telstra substantially revised its

credit management procedures. Security deposits are now only used as a last resort a n d now are rarely a burner to connection."

Telstra’s Security Bond Policy

Telstra's security bond policy provides that the use of a security bond should only be considered as an option when other appropriate credit management options are not acceptable to the customer or would not adequately protect Telstra revenue. It further states that security bonds should not

be used to exclude low income earners and/or disadvantaged sectors of the community from access to a telephone service.

The policy advocates the use of security bonds where the customer is unwilling to accept the application of other credit management options and also in circumstances where the customer has an established history of'

high credit risk. The policy also outlines situations where increased billing frequency should be applied in conjunction with the use of a security bond to ensure tighter credit control.

Telstra’s policy sets out two security bond levels that may be applied to a new customer with no previous Telstra credit history as follows-

Level 1 - $250

• new customers with a high credit risk profile.

Level 2 - $400

• new customers with a high credit risk profile whose personal details indicate the potential for high STD and/or IDD call usage; and

• new customers with a previous address which was interstate or overseas (unless proof of permanent resident status can be provided).

The level of security required for customers with a previous credit history is based on the value of their previous three bills however the policy states that the minimum should be no less than $250.

Telstra’s policy states that the customer’s account should be checked after 12 months and the security bond, plus accrued interest, refunded if the payment history indicates the customer does not represent a credit risk.

CHAPTER FOUR

CARRIER PERFORMANCE:

QUALITY AND ADEQUACY OF SERVICE

Introduction.....................................................................................................................55

Overview of Telstra’s Quality of Service......................................................................56

Provision of Service........................................................................................................ 60

Restoration of Service.....................................................................................................61

Public Switched Telephone Network...........................................................................62

Operator Assisted Services............................................................................................ 63

Payphones........................................................................................................................63

Analogue Mobile Telephone Network.........................................................................64

Billing...............................................................................................................................64

Complaints...................................................................................................................... 65

Telstra's Long Term Quality of Service Performance Trends.................................... 65

Optus' Quality of Service............................................................................................. 71

AUSTEL's Remarks ......................................................................................................... 73

m

The follow in g inform ation relates to Section 3 9 9 (2 )(b ) o f the Telecom m unications Act 1991, dealing w ith the a dequ acy and qu ality o f the services and fa c ilitie s su p p lied by the carriers.

IN T R O D U C T IO N

R eview o f Telecom’s Q uality o f Service Regim e

AUSTEL initiated negotiations with Telstra in 1989 regarding collection of quality of service information and indicators. Since that time many

changes have occurred in the industry. Indicators have been added along the way, resulting in a data-intensive reporting regime with a significant

resource impact on Telstra.

During the 1993-94 year AUSTEL undertook a review of Telstra's quality of service reporting regime. The aim of conducting this review was to

ensure that the indicators and the methodology used to report on performance were still relevant, and were as constructive as possible. A

major outcome of the review was the adoption of a more information-based and less resource intensive quality of service reporting regime.

The methodology used by AUSTEL to interpret and report on carrier performance and service quality was also addressed through this review.

Advice from Australian Bureau of Statistics consultants was sought, and

a revised statistical methodology for analysis was implemented. Given that quality of service monitoring must be regarded as an evolutionary process, discussions are continuing on the

issue of “triggers” for exception based reporting of service quality information by Telstra.

D evelopm ent o f O p tu s’ Q uality o f Service Regime

AUSTEL has been collecting quality of service information and indicators from Optus across a range of service aspects for the past year. Negotiations

continue between AUSTEL and Optus on expanding this set of indicators. In particular, extensive consultation has been undertaken on developing

appropriate performance indicators for-

• qualitative measures of customer satisfaction; • call charging and billing accuracy; • fault clearance performance; and

• international network performance.

Notwithstanding these consultations and negotiations, quality of service information expected from Optus in the March and June 1994 quarterly

reports to AUSTEL was not provided.

Publication o f Quality o f Service Inform ation

During the 1993-94 year, after consultation with Telstra, Optus and members of its Consumer Advisory

Committee, AUSTEL published its first quarterly Quality of Service Bulletin' covering the March 1994 quarter.

TELSTRA ’S Q U A L IT Y O F SERVICE -

A N O V ERV IEW

Telstra's quality of service over the 1993— 94 year is presented in Figure i .l as a series of quarterly performance statistics. They reveal that some aspects of Telstra’s service performance improved significantly over the year, while others declined. They reflect the fundamental changes

that are occurring in that organisation, such as network modernisation, systems improvements and staff

reductions which impacted unevenly on service performance.

Significant improvements in service performance were achieved in the public switched telephone network and across all operator assisted services. Performance for the analogue mobile phone system

remained stable over the year, while performance lor payphones showed a slight decline in some indicators but

improvement in overall levels of operational quality.

Performance indicators for provision of service and restoration of service declined over the year. Telstra appears to have experienced significant problems with service demand forecasting. Actual service demand levels were significantly

higher than forecast, and service

provisioning times were adversely affected. The level of reported faults also increased substantially over the year, with a consequent degradation of repair times.

The number of people provided with itemised billing continued to increase over the year. The number of first level complaints, which are those reported to Telstra's business units, also increased. Second level complaints, which are those referred to Telstra’s Customer Help Centres, declined over the year.

quarterly average Sep 93 Dec 93 Mar 94 Jun 94

PROVISION OF percentage of customers national 79 80 79 77

SERVICE connected to new services on or met bus 72 78 80 81

before the customer required date met res 86 84 85 82

country 67 69 70 70

percentage of customers national 87 86 85 84

connected to in-place services on met bus 80 79 82 82

or before the customer required met res 90 88 87 84

date country 81 81 83 84

customer access lines installed national 8.6 8.7 8.8 8.9

(in millions of lines) met bus 1.7 1.7 1.7 1.7

met res 3.8 3.8 3.9 3.9

country 3.1 3.1 3.2 3.2

RESTORATION percentage of faults cleared national 82 82 75 72

OF SERVICE within one working day of met bus 92 91 88 82

notification met res 75 76 66 63

country 79 77 70 67

percentage of faults cleared national 94 93 89 89

within two working days of met bus 98 98 97 94

notification met res 92 92 85 86

country 91 90 86 86

customer satisfaction with the national 86 85 82 82

overall fault restoration process met bus 86 84 81 81

(percentage) met res 86 84 81 83

crty bus 84 84 81 81

crty res 89 88 85 84

percentage of calls entering the national 89 82 83 83

service difficulties queue and i S B i f l e i answered within 15 seconds

percentage of calls entering the national 5 7.6 10.1 7

service difficulties queue and 1

leaving without being answered

quarterly average Sep 93 Dec 93 Mar 94 Jun 94

m PUBLIC SWITCHED TELEPHONE

NETWORK

OPERATOR ASSISTED SERVICES

* Actual results not recorded due to calibration of settings. Figures provided are based on estimates.

national metro country

national metro country

national metro country

national metro country

percentage of directory assistance call entering the network national answered within 10 seconds

percentage of directory assistance calls entering the network and national leaving without being answered

customer satisfaction with directory assistance calls national r^orrgntage)

percentage of operator assisted national calls entering the national network and being answered within 20 seconds

percentage of operator assisted national calls entering the national network and leaving without being answered

local call connection - percentage network loss

STD Day call connection - percentage network loss

STD night call connection - percentage network loss

IDD call connection - percentage network loss

0.5 0.4 0.4 0.3

0.4 0.3 0.3 0.2

0.9 0.7 0.6 0.5

1.2 1.2 1.2 1.0

1.0 1.2 1.2 0.9

1.5 1.3 1.1 1.0

2.0 1.6 1.8 1.3

1.7 1.5 1.8 1.1

2.4 1.7 1.8 1.4

1.4 1.5 0.7 0.7

1.1 1.2 0.6 0.6

2.4 2.6 1.2 0.9

45 47 53 71

23 20 18 9

95 95 96 97

„ ,

74 72 80 87

19 18 15 12

'

quarterly average Sep 93 Dec 93 Mar 94 Jun 94

customer satisfaction with operator assisted national national 9 6 9 6 9 6 97

calls (percentage)

percentage of operator * *

assisted international calls national 74 78 82 88

entering the network and being answered within 20 seconds

percentage of operator assisted international calls national 18 14 6 5

leaving the network without being answered

customer satisfaction with operator assisted international national 94 94 96 97

calls (percentage)

MOBILE mobile telephone network call TELEPHONE dropout (percentage) national 3.8 3.8 4 3 8

NETWORK

customer satisfaction with the quality of calls (percentage) national 82 83 80

PUBLIC public payphones - average PAYPHONES hours to clear a fault national 25 26 27 26

percentage of public payphones operating at any one time (audit national not 93 not 94

results) audited audited

public payphones - trouble reports per month per unit national 2.3 2.5 2.6 2.5

quarterly average Sep 93 Dec 93 Mar 94 Jun 94

BILLING percentage of telephone lines national 78 81 82 84

provided with itemised billing metro 98 98 99 100

country 44 52 54 61

COMPLAINTS total first level customer complaints (reported to Telecom business units) reported per quarter (actual numbers)

national 8670 7923 7724 16701

total second level customer complaints (referred to Telecom national 3172 2740 2944 3153 customers help centres) reported per quarter (actual numbers)

F ig u re 4.1: Telecom 's Q u a lity o f S ervice P e rfo rm a n c e

The following information provides background to some of the performance parameters listed in Figure 4.1.

P R O V ISIO N O F SERV IC E

Telstra indicated that service provisioning performance for 1993-94 was affected by unexpectedly strong demand for new services and the adverse effects of a significant increase in the number of faults during the second half of the year.

I elstra provided some explanatory information in relation to this as follows -

Annual growth in new service connections during 1993/94 was 8% higher than expected, whilst that fo r

in-place services was 5% above expectations. ... The high levels of demand were not distributed evenly across the country a n d was highest in Queensland (especially Brisbane) and

Western Australia (especially Perth). This resulted in the need to balance workforce commitments to cope with the workload in the high growth areas as well as to recruit and train additional staff. ”

Telstra experienced particular problems with fault levels in Queensland over the December and March quarters which impacted significantly on service provision performance. A similar situation developed in Western Australia during the June quarter, although on a reduced scale.

m

To provide temporary relief Telstra

took action to transfer staff, from inter and intra state, to the high fault areas in Queensland and Western Australia. Where additional staff was diverted to

repair activities, installation performance for new services was adversely affected.

New Service P rovision

At a national level, new service provision (requiring a visit to the customers’ premises) by the customer required date (CRD) declined by 2%

over the year to reach 77% for the June 1994 quarter. Average national performance for the year was 79% of new services connected on or before

the CRD.

In-Place Service P rovision

Nationally, in-place service connection (where a service previously existed and cabling was in place) by CRD declined by 3% over the year to reach

84% for the June 1994 quarter.

Average performance for 1993-94 was 86% of customers connected to in­ place services by CRD.

C ustom er Access Lines

At June 1994, the number of customer access lines installed in Australia was 8.85 million lines. Annual growth for the year was approximately 310,000

lines (3.5%) at the national level, representing a slight increase over last year’s national growth rate of 3.4%. Most market sectors experienced

network growth over the year, an exception being the metropolitan business sector which remained constant. Approximately 100,000 new customer access lines were installed in

country areas of Australia during the 1993— 94 year, with the balance of approximately 210,000 lines being installed in metropolitan areas.

R E S T O R A T IO N O F SE R V IC E

Fault Clearance

At a national level, fault clearance performance within one working day of notification deteriorated quite significantly over the 1993-94 year from 82% for the September quarter

1993 to 72% for the June quarter 1994. In particular, performance dropped in the second half of the year.

Telstra cited high humidity (which not only increased line faults but also caused a substantial number of standard telephones to fail) as major

reasons for the decline in service restoration performance. This situation, which was particularly prevalent in Queensland and Western

Australia, gave rise to a high workload which affected fault clearance times substantially.

In the first half of 1993-94 fault clearance within two working days of notification at the national level

remained around the 94% mark, and this dropped to 89% in the second half of the year.

Custom er Satisfaction

Customer satisfaction with the overall fault restoration process at the national level declined by 4% over the year to reach 82% for the June 1994 quarter.

increases on intercity paths, and greater pro-activity on Telstra’s part in addressing analysis of call failure trends and customer trouble reports.

Local Calls

Service D ifficulties (1100)

The proportion of calls entering the service difficulties queue and answered within 15 seconds declined by 6% to reach 83% in the June

quarter 1994. Calls to service difficulties answered within 15 seconds averaged 81.75% for the year.

Network loss for local calls improved by 0.2% over the year at the national level to reach 0.3% of calls lost for the June quarter 1994. Average

performance for the year was 0.4%.

Country areas in particular recorded a significant improvement of 0.4% for the year and averaged 0.68% network loss for local calls.

:

The proportion of calls to service difficulties entering the queue and leaving without being answered increased over the year, from 5% for the September quarter 1993 to 7% for the June quarter 1994.

PUBLIC S W IT C H E D T E L E P H O N E

N ET W O R K PER F O R M A N C E

Performance of the Public Switched Telephone Network (PSTN) is expressed primarily in terms of

network call loss, that is, the percentage of call attempts which fail to establish a connection due to a shortage of or malfunction of Telstra’s

PSTN switching or signalling equipment. Telstra's network performance improved markedly over the year for local, STD and IDD calls. This was attributed to continuing

network modernisation, capacity

STD Calls

Network loss performance for both day and night STD calls improved over the year. At a national level, network loss for STD day calls decreased from 1.2% in the September

1993 quarter to 1.0% for the June 1994 quarter. For STD night calls the decrease in calls lost was from 2% in the September 1993 quarter to 1.3% in the June 1994 quarter.

For both day and night STD calls, the improvement in country areas throughout the year was particularly significant. STD day call loss

improved by 0.5%, and averaged 1.2% for country areas over the year. STD night call loss in country areas improved by 1.0%, with an average

1.8% failure rate for the year.

m

IDD Calls

Network Loss for IDD (outgoing) calls also improved markedly during the year. At the national level, performance improved from 1.4% of

calls failing to establish a connection in the September 1993 quarter to 0.7% of calls failing in the June 1994 quarter. Again, country areas

experienced substantial improvement throughout the year with an average call failure rate of 1.8%.

O P E R A T O R A S S IS T E D SERVICES

All of Telstra’s operator assisted services achieved substantial improvement in performance over the year. It should be noted that for

operator assisted national and international services during the March and June quarters in 1994, two switching system technologies were in use during changeover to a new switching system across Australia. Therefore, results from both switching

systems were used to estimate average performance for these quarters.

D irectory A ssistance

Significant improvement was achieved in directory assistance despite an increase in traffic of almost 20% over the year. The proportion of calls

entering the directory’ assistance network and being answered within 10 seconds improved steadily over the year, from 45% in the September 1993

quarter to 71% in the June 1994

quarter. Average performance for the year was 54%. The number of calls leaving the queue without being answered contracted markedly, from

23% in the September 1993 quarter to 9% in the June 1994 quarter.

O perator A ssisted N ational Calls

The number of operator assisted national calls entering the queue and answered within 20 seconds improved by 13% over the year to reach 87% for June 1994 quarter. Average

performance for the year was 78%.

O perator A ssisted International Calls

The proportion of operator assisted international calls answered within 20 seconds also improved substantially over the year, from 74% in the September 1993 quarter to 88% in the June 1994 quarter. Average

performance for the year was 81%. The number of calls leaving the queue without being answered also declined and averaged 11% for the year.

P A Y P H O N E S

Indicators of public payphone performance varied throughout the year. A May 1994 Payphone Serviceability Audit conducted

independently by REARK Resources on behalf of Telstra found that 94% of payphones were fully operational.

This compared with a result ot 93% in November 1993. This survey also

m

found that 98% of payphones were at least partially operational, that is, a call could be made using an optional form of payment or telephone communications with a Telstra operator could be established in order to set up a call.

Average time to clear a public payphone fault increased by one hour over the year to 26 hours. The number of trouble reports per month also increased from 2.3 per payphone in the September 1993 quarter to 2.5 in the June 1994 quarter. Telstra has instituted a payphones improvement project which has focussed on better siting and cleaning, and on improved caller relationships. Telstra points to a 1% improvement in customer satisfaction measurement over the year as indicative of the effectiveness of work being done in the payphones area

A NALO G UE M OBILE T E L E P H O N E

N ET W O R K

Throughout the year the call dropout rate on the analogue mobile telephone network at the national level remained

within the internationally accepted standard of 5%. Average performance for the year was 3.8%, with only the March 1994 quarter rising above this to 4%. Sydney recorded a call dropout rate marginally above 5% for the June quarter 1994. This reflects the particularly difficult terrain and radio obstruction problems typical of the Sydney metropolitan area.

Telstra provided substantial information on the analogue mobile telephone (AMPS) network in

response to AUSTEL’s concerns regarding the increasing number of complaints received about the quality of service on this network.

Telstra advised that its mobile services grew by up to 5% each month during the 1993-94 year, and that growth over budget caused stress in many parts of the AMPS network. There was little spare capacity in the network and consequently many small expansion actions had to be taken, along with constant monitoring and adjusting of plant location and configuration, to optimise its use and performance.

Telstra added record volumes of equipment into the AMPS network, with more than twice as many channels added in 1993-94 as in

1992-93. Capital expansion valued at $204 million was undertaken in 1993­ 94, and Telstra is budgeting to expend $194 million in 1994-95. It is anticipated that, when the exceptional AMPS growth plateaus and the

network is able to be set in a fixed state with adequate capacity in each cell and optimum tuning in place, AMPS performance will be far better than that currently being achieved.

BILLING

The percentage of customers provided with itemised billing rose from 78% in

m

the September quarter 1993 to 84% in the June quarter 1994. This increase, which was comparable to that achieved in the previous year,

provided itemised billing to additional customers in both metropolitan and country areas. Over the year, metropolitan billing itemisation rose

from 98% to 100% of customers, and country billing itemisation rose from 44% to 6l% of customers.

Itemised billing should be universally available to all Telstra’s customers by June 1997.

C O M P LA IN T S

The number of first level complaints recorded by Telstra (ie - those reported to and recorded by Telstra’s business units) increased markedly in

the latter part of the reporting period. Such complaints increased by 92.6% over the year from the September 1993 quarter. This reflected an

increased ability on Telstra's part to capture and record customer complaints correctly, rather than an increase in the number of complaints

actually made. The change could be attributed to improved training, work practices and data storage systems which were applied to this task.

Second level complaints, being those referred to Telstra’s customer help centres for resolution, remained reasonably constant at an average of

approximately 3000 per quarter.

Restoration of service faults, provision of service and billing remained the source of most complaints throughout the 1993-94 year. Telstra reported

that severe weather conditions in the north of Australia gave rise to an upsurge of faults reported in that region in the March 1994 quarter.

T EL ST R A ’S L O N G E R TERM Q U A LITY

O F SERV IC E P E R F O R M A N C E

AUSTEL has been collecting certain performance information from Telstra in a consistent format since the September 1991 quarter . The following provides a view of Telstra's service quality performance over the subsequent period.

While definitive conclusions should not be drawn from this information, some indication of longer term trends in service performance can be

deduced.

The data is presented at a national level only, to give a broad overview of performance. It has been ‘smoothed’ to some extent by accumulating

monthly results into a quarterly averaging process.

Provision o f Service

Figure 4.2 shows provision of new services by cutomer required date (CRD) from September 1991. As is

apparent from the graph, performance from December 1992 has declined. Over the longer term this measure has shown no improvement.

100-r

F igure 4.2: N a tio n a l new se rv ic e p r o v is io n by C u sto m e r R e q u ir e d D ate (%)

Figure 4.3 shows provision of in-place services by CRD from September 1991. There has been a slight declining trend

apparent from September 1992, and over the longer term no apparent improvement in this measure.

100-η

£ Ά I 1 i I I

Figure i..j: N ational in-place service provision by C ustom er R equired Date (%)

R estoration o f Service

Figure 4.4 shows fault clearance within one working day of notification, indicating that fault clearance performance has varied cyclically over time. Each March quarter

appears to display a consistent drop in

performance from year to year, possibly owing to seasonal weather conditions occurring across northern Australia at that time. Allowing for this, the overall

performance appears to be reasonably stable

100-r

F ig u re 4.4: M otional f a u l t c lea ra n ce iv ith in o n e w o r k in g d a y o f n o tific a tio n (% )

Public Sw itched Telephone N etw ork

Figures 4.5, 4.6 and 4.7 show network loss statistics for the public switched telephone network. Network loss indicators for local, STD and 1DD calls

show a distinct improvement in performance over the longer term, with the percentage of calls lost in each case declining steadily since December 1992.

1.2 τ

0.8 - -0.6 - -

0.4 --

0.2 - -

F igure /. 5 lo c a l call co nnection - n e tw o rk lo ss ( %

2.5 τ

1.5 --

0.5 --

F ig u re 4.6: STD d a y ca ll co n n ectio n - n e tw o r k lo ss (% )

3.5 --

0.5 --

F igure 4. 7: IDD call co n n ectio n - network, lo ss (%)

A nalogue Mobile Telephone N etw ork

O p era to r A ssisted Services

Figure 4.8 shows directory assistance calls answered within 10 seconds, and the proportion of calls leaving the queue without being answered. Directory

assistance performance declined slightly between September 1991 and March 1993, but has since shown a reasonably steady improvement in performance.

Figure 4.9 indicated that the call dropout rate on the AMPS mobile network has been maintained steadily between 3% and 4% over the longer term.

4.8: D irecto ry a s s is ta n c e calls a n s w e r e d w ith in 10 seco n d s, a n d calls leaving th e q u e u e w ith o u t being a n s w e r e d (% )

F ig u re 4.9: N a tio n a l m obile te lep h o n e n e tw o r k - call d r o p o u t (%)

Public P a y p h o n e s

Figure 4.10 indicates that the operating performance of public payphones has improved steadily over time, particularly in the last 12 months. Figure 4.11 indicates that the average time taken to clear a public payphone fault has

decreased substantially in the longer term, and Figure 4.12 shows that the occurrence of trouble reports for payphones declined only to increase again over the last year.

100 τ

Figure i W: Public p a yphones operating at any one tim e (%)

I igure t. ! /. t; erage h o u rs to d e a r a public p a yp h o n e fa u lt (h o u rs)

m

3.5 τ

2.5 --

0.5 --

F ig u re 4.12: T rouble r e p o r ts p e r p a y p h o n e p e r m o n th

O P T U S ’ Q U A LITY O F SERVICE

D evelopm ent o f O p tu s’ Regim e

Despite extensive consultation and negotiation with Optus representatives throughout the 1993-94 year, Optus’ quality of service reporting regime remains elementary and less than satisfactory.

The Optus quality of service regime at present continues to focus heavily on the number of customer contacts regarding various categories of

enquiry, and the percentage of these enquiries closed on initial contact. Optus also provides some information on national network operations,

limited information on international network operations, and statistics on the number of people with access to Optus services.

During the year, AUSTEL representatives continued to negotiate with Optus to expand the regime to include more relevant indicators of

performance. In particular, indicators for the following service aspects were agreed upon :

• qualitative indicators of Optus' customer satisfaction

• fixed network fault clearance within the following timeframes

- 0 - 4 hours

- 4 - 2 4 hours

- + 24 hours

• international call congestion as measured by ‘answer to bid ratio'.

Optus has not provided AUSTEL with quality of service information on these indicators as expected. Negotiations on this issue are continuing.

Optus Quality o f Service Summary

Figure 4.13 provides a brief summary of some Optus quality of service results for the 1993-94 year.

quarterly average

Sept 93 Dec 93 Mar 93 Jun 94

total number of complaints received by Optus' Customer Service Centre 36 20 35 65

total number of customer contacts regarding fault reports made to Optus' Customer Service Centre 11020 9301 5715 5215

% of customer fault report contacts which were closed on initial contact (average for the quarter) 92% 95% 92% 89%

network loss on STD calls within the Optus network, as a percentage of call attempts 0.08 0.02 0.01 0.01

F igure 4.13: O p tu s' Q u a lity o f Service R e su lts

C u sto m er Service

As can he seen from Figure 4.13, the number of customer complaints received by Optus increased over the year by approximately 80% from the September 1993 quarter to the June

1994 quarter. However, the base size of this statistic is too small for any conclusion to be drawn.

Fault reports declined steadily over the year, from a high of 11,020 for the September 1993 quarter to 5215 for

the June 1994 quarter. The percentage of these fault reports closed on initial contact declined marginally over the year and averaged 92% for the year.

N ational N etw ork O perations

Network loss for STD calls within the Optus network occurred at a very low level over the year, averaging 0.03% with a visible downward trend.

International N etw ork Operations

Optus provided information on switching and congestion loss for its top ten international destinations. On limited occasions throughout the year congestion and switching loss exceeded 1% for the top ten destinations. Traffic to the United Kingdom suffered greater than 1% congestion on two occasions (one being Christmas day) and traffic to

m

New Zealand suffered congestion exceeding 1% once.

A ccess to Optus

As at 30 June 1994, 77.18% of the Australian population had the opportunity to access Optus’ long distance services. Given that at 30 June 1993 approximately 48% of the

population had such access, this represents an increase of 62% over the year.

A U S T E L S R EM A R K S

Quality of service delivered by Telstra’s Public Swiched Telephone Network continued to show improvement, as should be expected

given Telstra’s modernisation and organisational efficiency initiatives. However, deterioration in service connection times and fault clearance

response times over the reporting period indicated that organisational resources available for these activities probably were insufficient, or were

too inflexible to cope with any demand surge or abnormality. This is a matter for concern which AUSTEL will continue to monitor in some

detail.

Performance of Telstra’s analogue mobile network held up well in the face of extreme levels of demand,

with the initiatives adopted by Telstra’s Mobilenet group to maintain operational viability in the face of that

demand growth appearing be effective. The operations of the three emerging GSM networks were too small during 1993-94 to permit any

realistic reporting or analysis.

Quality of service delivered by the Optus' long distance network appeared very satisfactory on the basis of limited information available to

AUSTEL. Nevertheless, an improvement in the range of “quality of service" information produced by Optus must be achieved before

AUSTEL can report with confidence in this area.

A

CHAPTER FIVE

CHAPTER FIVE - CARRIER PERFORMANCE: CARRIER OBLIGATIONS

Introduction.....................................................................................................................75

The Universal Service Obligation.................................................................................75

Continued Access to Untimed Local Calls................................................................... 80

Prompt Identification and Repairs of Faults................................................................ 80

Provision of Accurate Call Charging.............................................................................82

Optus' General Carrier Obligations..............................................................................83

The follow in g inform ation relates to section 3 9 9 (2 )(c ) an d (d ) o f the Telecom m unications Act 1991, dealing w ith c a rrie rs’ perform an ce w ith resp e ct to their p r e sc rib e d obligations in term s o f

app ro p ria ten ess, a dequ acy and efficiency.

INTRODUCTION

Prescribed carrier obligations are a fundamental consumer protection mechanism in a competitive telecommunications environment. The five currently prescribed carrier

obligations are -

• the universal service obligation, which includes monitoring the delivery of the obligation and administration of the levy

arrangements • continued access to untimed calls using the standard telephone service

• prompt identification and repair of faults • provision of accurate call charging • Optus’ General Carrier Licence

obligations.

These carrier obligations are prescribed in the following - •

• the Telecommunications Act 1991 • the general telecommunications carrier licences • the Telecommunications (General

Telecommunications Licence) Declarations (Nos 1 and 2) o f 1991

T H E U N IV E R SA L SE R V IC E

O B L IG A T IO N

The universal service obligation (USO) remains the most significant prescribed carrier obligation. The universal service obligation is set out

in section 288 of the Act and relates to the provision of the standard telephone service and payphones.

The standard telephone service is defined in section 5 of the Act to mean a public switched telephone service that is supplied by a carrier

and is supplied by means of a telephone handset that does not have switching functions (unless prescribed

otherwise by regulation). No such regulation has been prescribed.

The universal service carrier has responsibility to fulfil the USO as set out in section 288 of the Act. On 9 June 1992, Telstra was designated by

the then Minister for Transport and Communications as the universal service carrier with responsibility to provide the USO. Telstra (or its

predecessor companies) and Optus (or its associated companies) were declared to be participating carriers on 29 April 1992. Vodafone was declared

to be a participating carrier from 1 July 1993.

Oversight of Telstra’s compliance with its universal service obligation is assisted by the provisions of AUSTEL s Views o f Telstra’s Universal Service

Obligation, which was developed in

June 1992. The document is used to provide the basis upon which Telstra’s performance in meeting its USO is measured. It provides a measure of

reasonableness’ in considering whether to direct Telstra to provide a specified service under section 344 of the Act, and also as a guide for the

resolution of consumer complaints where it is alleged that Telstra has failed to fulfil its USO. During 1993­ 94. AUSTEL initiated discussions to

review the document with Telstra. At ISTEL had extensive consultation with Telstra and sought submissions from other carriers and members of AUSTEL s Consumer Advisory Committee on suggestions for change

to the document. Some of the changes expected will result in -

• a reduction in the time frames within which AUSTEL expects Telstra to connect new telephone services;

• greater clarity in terms of how Telstra should calculate annual avoidable cost for provision of individual payphone services; and

• clarification that non-public payphones can be used to fulfil the universal service obligation.

It was anticipated that a final position on the revised View would be reached by the latter part of 1994.

concern to participating carriers and the community which need to be addressed in the context of the present policies and strategies document. Once the 1994 review of the document has been completed, planning will commence immediately to initiate consultations with the community and the carriers with the aim of assessing the need for further refinement of the document to take account of these issues and developments.

Monitoring D elivery o f the USO

In order to effectively advise the Minister on Telstra’s performance in meeting its USO, AUSTEL intends to consult further with the carriers and its Consumer Advisory Committee to develop a range of performance indicators for this purpose.

Quality of service data provided to AUSTEL provides some indication of Telstra’s performance in delivering elements of the USO, such as the responsiveness of Telstra to requests for service provision, and service restoration after the notification of faults (see Chapter Four). However, since the figures are aggregated, AUSTEL is unable to fully assess Telstra’s performance in being timely

in connecting services in those areas representing part of the USO.

AUSTEL is aware of developments in emerging technologies and issues of

P ayph on es

Consumer complaints lodged with AUSTEL during the reporting period indicated that individual consumers and communities hold an increasing

concern regarding Telstra’s actions with respect to the removal of payphones. As a consequence AUSTEL undertook two steps on the

matter.

Firstly, AUSTEL sought Telstra’s assurance that -

• Telstra’s local area Managers would follow more closely Telstra’s own siting guidelines, and consult more closely with the community about

proposed actions in this regard; and

• decisions made about whether to install or remove any payphone would not be made solely on the basis of any Telstra strategy to

simply improve returns or minimise losses through relocation or retirement of units.

Secondly, in order to better assess any trends relating to overall provision of payphones by Telstra as part of its USO, AUSTEL foreshadowed to Telstra

a regulatory requirement for regular provision of statistics on payphone numbers. Initial data provided to AUSTEL indicates that for the 1993/94

year the absolute number of Telstra

public and non-public payphones increased by 5% overall to 37,713, and that the overall number of Telstra- supplied customer operated

payphones declined by 11% to 46,238 in the same period. The number of Telstra public payphones declined by 3% to 32,076 over the six month

period from 1 January 1994 to 30 June 1994.

Statistics on the numbers of payphones in operation does not by itself provide an indication that the USO for payphones has been met.

However, AUSTEL is conscious of the need to ensure that removal of public payphones as part of Telstra business strategy should not be at the expense

of fulfilment of its USO responsibilities.

A ccess to the S tan dard Telephone Service an d P ayph on es f o r A boriginal an d Torres S trait Islan der Communities

Telstra has advised that it is working to finalise guidelines to be used to better assess requests for the provision of payphones in rural and remote

locations, and is planning measures to provide and maintain payphones which most appropriately satisfy the requirements of local communities,

particularly those on more remote Aboriginal outs rations where most of the unmet demand is presently apparent.

Statistics provided by Telstra revealed that as at 30 June 1994 a total of 2,620 standard telephone services had been provided by Telstra in SA/NT, WA and Queensland - 2,405 in major communities and 215 in small communities. Orders on hand for standard telephone services totalled

540, with the majority of these from major communities in SA/NT, small communities in WA and major communities in the Torres Strait

Islands. As at 30 June 1994 Telstra estimated that there were 800 payphones servicing remote Aboriginal communities, with requests on hand for 201 payphones.

Telstra has already indicated that it plans to satisfy a substantial number of these requests during the coming year. AUSTEL intends to monitor

Telstra’s responsiveness to demand for these services and to seek further details of its plans on how best to

satisfy the needs of other Aboriginal communities and individuals who have not advised Telstra of their needs for a standard telephone service or payphone.

USO Levy Adm inistration, 1992-93

The 1992-93 assessment involved the resolution by Telstra of a number of modelling issues. AUSTEL considered Telstra's proposals in this area and

varied its declaration of Net Cost Areas on 9 July 1993. Telstra lodged the first claim for levy credit by a USO carrier

with AUSTEL on 28 July 1993 in accordance with section 299 of the Act, and this was forwarded to Optus on 10 August 1993. Participating carriers are required to provide a return of timed traffic within 28 days of receiving a copy of a levy credit claim. Optus provided a return of timed traffic on 7 September 1993, and Telstra submitted its formal return of

timed traffic on 26 April 1994.

In performing its assessment of the USO liabilities and entitlements, AUSTEL had discussions with Telstra and Optus on areas including the definition of timed traffic for USO share purposes, the USO model methodology for estimating the Net Universal Service Cost (NUSC), auditing and verification requirements, and other issues. During this period AUSTEL had to extend its timeline to perform an assessment of the USO liabilities and entitlements three times. These extensions were required to resolve difficulties with timed traffic data and USO modelling issues.

During April 1994, AUSTEL facilitated an agreement between Telstra and Optus on the estimate of the total NUSC for 1992-93- In essence, while the carriers disagreed on some aspects of the methodology employed within Telstra’s contemporary USO model, both parties decided to accept the

$149,170,304 lodged as Telstra’s USO levy claim as an agreed estimate of the total NUSC for the 1992-93 financial

year. AUSTEL accepted the figure proposed for 1992-93, without prejudice to the methodologies which might be eventually endorsed, as

meeting the requirements of section 301 of the Act, and as being appropriate for long term usage by the USO carriers.

Following the publication of the assessment in the Commonwealth of Australia Gazette on 15 June 1994, Optus made a payment into the USO

levy tmst fund, and Telstra received a payment from the fund.

USO Levy Adm inistration, 1993-94

On 30 August 1993, Telstra filed with AUSTEL (under section 293 of the Act) a list of proposed loss making areas for the 1993-94 financial year. The list

was larger than that for the previous year, primarily because of methodology changes to the 1992-93 model made by Telstra for the 1993-94

filing. In addition, further changes to the model and data made by Telstra after filing meant that Telstra did not provide AUSTEL with adequate time to

perform its analysis rigorously.

On 29 October 1993, pursuant to section 294 of the Act, AUSTEL declared the net cost areas (NCA) for the 1993-94 financial year. As a

consequence of the limitations on analysis and other burdens imposed by the late modelling changes, AUSTEL has insisted that in future

Telstra should not make material methodology changes that have not been approved by AUSTEL.

Timed Traffic

The matter of interpretation of the definition of timed traffic was subject to review and legal scrutiny. On 18 August 1993 AUSTEL decided that, for

the purposes of sharing of responsibility for the universal service levy among the participating carriers for the 1992-93 financial year -

(a) all services which are timed must be included in the definition of timed traffic under section 305. including non-profitable anchor

non-voice services;

(b) conversation time must be used to measure timed traffic;

(c) the resale of AMPS airtime by Optus must be considered part of Optus' timed traffic, on the basis that the network is operated' by it

for the purposes of section 305(1).

(d) all interconnect traffic should be divided equally between Telstra and Optus under section 306; and

(e) pending the completion ot modernisation of exchanges to obtain Call Line Identification (CLI) capability, all multi-metered STD

traffic must be included in the calculation of timed traffic.

On 30 August 1993, AUSTEL approved a form of the return of timed traffic for the 1992-93 financial year pursuant to section 304 of the Act.

Both Telstra and Optus disagreed with several of AUSTEL's principles regarding timed traffic. This disagreement led Optus to issue a writ

in the NSW Federal Court seeking judicial review under the Administrative Decisions (Judicial Review) Act 1972 with regard to AlJSTEL's decision to attribute Optus’ AMPS resale traffic to Optus’ share of timed traffic for USO purposes. This action was subsequently withdrawn.

C O N T IN U E D A C C E SS T O U N T IM E D

CALLS

Section 73 of the Act specifies a prescribed carrier obligation of a General Telecommunications Licence holder to be provision of “ continued access to untimed calls made using the standard telephone service. ”

Effectively this means that, for those consumers residing in areas which did not have access to untimed local calls

at the time of enactment of the Act, Telstra does not have an obligation to provide such access at any time since; nor is the provision of access to untimed local calls a part of Telstra’s universal service obligation.

AUSTEL has received representations from a number of consumer

organisations and individual consumers about their lack of access to untimed local calls. The major concern expressed has been that, as a result of past adjustments by Telstra to charging zones, some consumers have lost access to untimed local calls - usually a consequence of their distance in excess of 32 kilometres from their nearest telephone exchange. As such, they feel disadvantaged compared to other rural and remote or non-rural consumers who may have such access.

Information provided by Telstra indicates that there may be 12,000 consumers who do not have access to untimed local calls.

It is AUSTEL’s opinion that Telstra and Optus are meeting their obligation to provide residential consumers and charitable/welfare organisations with access to untimed local calls.

P R O M PT ID E N T IF IC A T IO N A N D

R EPAIR O F FAU LTS

Clause 7 of Telecommunications (General Telecommunication Licences) Declaration (No. 2) o f 1991 specifies a prescribed carrier obligation with regard to “ prompt identification and

repair o f fa u lts.

Fault repair times are reviewed as part of AUSTEL’s quality-of-service monitoring process and are discussed in Chapter Four of this report.

The COT Cases

In August 1992 the proprietors of five highly “telephone-dependent” small businesses formed a group entitled the Casualties o f Telecom (COT). The

primary aim of this group was to bring pressure to bear on Telstra to resolve the complaints of individual members about the poor standard of service

provided to them by Telstra. A common issue raised by the COT members was that Telstra had failed to investigate their complaints

sufficiently, with some members having complained of faults on their service for a number of years.

Faults reported by the original COT Cases related mainly to incoming calls, and included non-receipt of ring, answered calls dropping out, false

indication of busy condition to callers, misdirected calls and malfunction of multi-line searching facility.

AUSTEL’s early involvement with the COT Cases was to facilitate and promote the settlement of compensation claims put by COT

members to Telstra. Although settlements were achieved, after settlement the COT members with operating businesses continued to

complain of service difficulties. AUSTEL was concerned with these complaints and the incidence of similar ongoing complaints from other

businesses. Consequently, on 12 August 1993 AUSTEL issued Telstra

with a direction under sections 46 and 400 of the Telecommunications Act 1991 to supply certain information to AUSTEL.

AUSTEL’s direction focussed on the standard of service provided to eight businesses, including three of the original COT Cases. The direction

required Telstra to provide AUSTEL with a broad range of documentation on issues such as exchange performance, the type and number of

faults recorded against the specified services and detail on exchange maintenance practices. Telstra was also required to conduct a range oi

tests on the specified customers’ services, to carry out a regime of network test calling programs, and to provide and document simultaneous

monitoring of service performance at the exchange and the customers' premises.

In September 1993 Telstra commissioned an independent consultant, Coopers & Lybrand, to

review its handling of the COT Cases, to assess Telstra’s fault handling procedures against world's best practice, and to make

recommendations for improvment of Telstra’s complaint and fault handling policies and procedures. At the same time Telstra contracted another

specialist consultant, Bell Canada International, to audit Telstra’s network.

Alter assessing the diverse range of material available through AUSTEL’s 12 August 1993 direction, the

representations of the COT group and similar cases, and the reports produced by the specialist consultants, AUSTEL submitted its own report to the Minister for Communications and the Arts on 13 April 1994. AUSTEL’s COT Cases report was highly critical of Telstra's practices in a number of

areas. The report contains 41 recommendations, with the main areas of focus being the need for Telstra to undertake the following action -

• accelerate its program of network modernisation, which involves replacing the analogue (older) components of the network;

• introduce independent arbitration procedures to assess the claims of the COT Cases and like cases;

• accurately convey to its customers in appropriate terms the extent of its legal liability;

• improve fault and complaint handling procedures in a number of specified areas;

• improve monitoring and testing of individual services; •

• effectively enforce its Privacy Protection Policy and Guidelines; and,

• implement the recommendations of the Coopers & Lybrand and Bell Canada International reports.

Telstra has committed itself to implementing the recommendations of AUSTEL’s COT Cases report. By the end of the financial year progress had been made in a number of areas, and comprehensive action was being undertaken to improve fault and complaint handling procedures.

These procedures should provide important benefits to consumers in general. AUSTEL will continue to monitor Telstra’s implementation of the report’s recommendations, and as requested by the Minister for Communications and the Arts, provide the Minister with quarterly reports on Telstra’s implementation progress.

P R O V ISIO N O F A C C U R A TE CALL

C H A R G IN G

Clause 8 of Telecommunications (General Telecommunication Licences) Declaration (No. 2) o f 1991 specifies a prescribed carrier obligation with regard to the “ provision o f accurate

call charging'.

Each carrier must ensure that its call charge recording equipment is correctly set and sufficiently maintained so that charging is accurate and provides auditable call charges.

AUSTEL is working with the carriers to ensure that performance indicators for

charging and billing accuracy are maintained.

O P T U S ’ G EN ER A L C A R R IER

O B L IG A T IO N S

When Optus purchased AUSSAT, it acquired the licences and associated licence obligations previously applicable to AUSSAT. Clause 4.1 of AUSSAT’s licence to operate as a

general telecommunications carrier states that -

“The licensee must provide telecommunications services by the use of satellite-based facilities, or equivalent services, for the

following users:

(a) the Australian Broadcasting Corporation for its Homestead and Community Broadcasting Satellite Service [HACBSS];

(b) remote broadcasting services;

(c) the Department of Defence

(d) the Civil Aviation Authority

(e) providers of pay-TV services (sufficient to allow for the provision of up to 6 national pay- TV channels until June 1994)".

Optus has advised AUSTEL the following details of the manner in which it is fulfilling its obligations for each of these users.

The A ustralian B roadcasting C orporation

Optus provides five transponders for the delivery of five HACBSS services, three being provided on an A-series and two on a B-series satellite. Optus

is engaged in consultation with the ABC in order to dimension the size and nature of its future needs to ensure sufficient capacity is available

for this purpose.

R em ote B roadcast Services

There are three Remote Commercial Television Services (RCTS) operating in the north eastern, central and western regions of Australia. Optus is

consulting with all remote area broadcasters with the intention of identifying and quantifying their needs over the next 10 years.

D epartm ent o f Defence

The Department uses capacity on a B- series satellite. Additional capacity will be allocated in accordance with service requirements.

Civil A viation A uthority

The Civil Aviation Authority (CAA) uses two A-series and one B-series transponders under a ten year agreement. It is planned that services

on the A-series satellite will be transferred to a single B-series transponder.

&

Optus has stated that all functions are satisfactory so far on the recently- launched B3 satellite. The date for service commencement of this satellite has yet to be finalised, with industry advised by Optus that it will be placed in storage orbit for 12 months.

Pay TV

1'he transponders required for the Pay TV service have been freed and are currently available. Optus has indicated that the service has been delayed in accordance with customers'

requests until 1 November 1994.

Summary

In relation to clauses 4.2 and 4.3 of At SSAT's G eneral

Telecommunications Carrier Licence, Optus reported that it is continuing to honour all contractual obligations current at the time it took over that licence and associated obligations on 31 January 1992. In addition, Optus has reported that it is meeting its obligation to offer new contracts to the parties listed in Clause 4.1 of that licence, and has undertaken extensive negotiations to that purpose.

As at 30 June 1994 AUSTEL had not received any complaints regarding the provision of satellite services by Optus.

CHAPTER SIX

PERFORMANCE EVALUATION: SIX COMPARISONS OF AUSTRALIAN VERSUS

OVERSEAS TELECOMMUNICATIONS INDUSTRIES

Introduction....................................................................................................................87

1 1 low Does The Size And Rate Of Growth Of The Australian Telecommunications Industry Compare With That Of Other Countries?................................................88

2 What Are The Prospects For Future Growth Of The Australian Telecommunications Industry?................................................................................94

3 How Does Quality Of Telecommunications Service In Australia Compare With That Of Other Countries?........................................................................................ 99

4. How Do Telecommunications Price Levels In Australia Compare With Those In Other Countries? .....................................................................................................103

5. How Do Australian Carriers’ Profit Figures Compare With Those Of Overseas Telecommunications Companies?.........................................................................114

6. How Do Australian Carriers’ Efficiency Levels Compare With Those Of Overseas Telecommunications Companies?.........................................................................116

INTRODUCTION

This chapter provides an evaluation of the performance of the Australian telecommunications industry relative to that of other countries. The results

have been summarised under the headings of six frequently-asked questions about the industry.

In approaching this process, AUSTEL has used a number of well-recognised telecommunication indicators which are reported by the OECD and the

International Telecommunications Union (ITU) to measure performance. These results have been evaluated by comparing absolute ratios between

countries or companies, comparing rates of growth between countries or companies, and looking at changes in international rankings over time.

A combination of one or more of these approaches has been used to evaluate performance. For example, it can be difficult to draw conclusions

based on comparisons of absolute numbers or ratios because of different accounting or technical definitions and different demographic, economic, geographic and regulatory

environments. Growth trends, on the other hand, can be influenced by a country or company's starting point. Changes in international rankings -

possibly the most accurate way to analyse comparative performance - may not pick up significant changes if there are big differences in statistics

between closely-ranked countries or companies.

OECD nations have been selected for comparison purposes because the information is readily available in relation to countries exhibiting a wide

range of performance. (Asian-Pacific countries such as Hong Kong and Singapore have not been included in the analysis as their

telecommunications industries display significantly different characteristics to those of Australia.) Comparisons have also been made between Australian

carriers and a number of major international telecommunications companies. This latter group was chosen after discussions with the Australian carriers, with the objective

of selecting a broad range of acceptable organisations from different countries.

In keeping with AUSTEL’s charter, this chapter focuses on the Australian telecommunications services industry only. In most cases, the combined

results of Telstra, Optus and Vodafone (as well as Telecom, OTC and Aussat in earlier years) have been used as a proxy for the Australian

telecommunications services market. This method is consistent with the OECD approach. Because detailed financial statistics for service providers

in Australia are not available to AUSTEL, their results are not included in market size and growth measures.

1. HOW DOES THE SIZE AND RATE OF GROWTH OF THE AUSTRALIAN TELECOMMUNICATIONS INDUSTRY COMPARE WITH THAT OF OTHER COUNTRIES?

It is necessary to look at a range of measures in order to assess the size and rate of growth of the Australian telecommunications industry.

Strong growth of the telecommunications industry is not just an Australian phenomenon. Many other countries have also experienced growth over this period of time as shown in Figure 6.2. It should be noted that Australia’s rate of growth for this industry is positive and above the OECD average. Australia’s ranking improved 2 positions over the period 1989 to 1992.

1989 1990 1991 1992 1993 1994

Source: AUSTEL, ABS Source: AUSTEL, ABS

Figure 6.1: Australian telecomm unications revenue as a % o f GDP

Total Telecommunications Revenue as a % O f G ross D om estic P rodu ct (GDP)

Figure 6.1 suggests that the Australian industry has grown faster than many sectors of our economy. It has increased in size from 2.6% of GDP in

1989 to 3.2% of GDP in 1994.

Total Telecommunications Revenue P er Capita

As can be seen in Figure 6.3, Australia has maintained its ranking of 5th highest of the 24 OECD countries over

the period 1989 to 1993. This growth rate is in line with the OECD average. This ratio complements the first

Ranking Ranking 1 9 8 9 1 9 9 2 C o u n t r y 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2

1 1 NewZealand 3.2% 3.3% 3.5% 3.2%

4 2 A u s t r a lia 2 .6 % 2 .8 % 3 .0 % 3 .2 %

3 3 Ireland 2.7% 3.0% 2.9% 2.8%

2 4 United States 2.2% 2.6% 2.7% 2.7%

7 5 United Kingdom 3.0% 2.6% 2.6% 2.5%

5 6 Portugal 2.5% 2.3% 2.4% 2.5%

8 7 Sweden 2.1% 2.3% 2.4% 2.5%

9 8 Switzerland 2.1% 2.2% 2.2% 2.4%

6 9 Norway 2.3% 2.2% 2.2% 2.2%

17 10 Luxembourg 1.8% 1.6% 1.7% 2.2%

10 11 Canada 2.0% 2.1% 2.0% 2.1%

O E C D A V E R A G E 2 .0 % 2 .1 % 2 .1 % 2 .1 %

Source: AUSTEL, ABS, ITU

Figure 6.2: Telecommunications revenue a s a % o f GDP

Ranking Ranking 1 9 8 9 1 9 9 2 C o u n t r y 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2

1 1 Switzerland 552 729 759 847

3 2 Sweden 475 581 595 617

13 3 Luxembourg 344 518 549 593

2 4 Norway 500 551 517 569

5 5 A u s t r a lia 4 2 0 4 8 5 5 0 2 5 2 9

9 6 Denmark 379 438 461 498

4 • 7 United States 469 473 474 479

6 8 Iceland 418 332 343 442

12 9 Japan 350 353 396 441

14 10 Germany 329 397 355 429

7 13 Canada 415 429 436 415

10 14 United Kingdom 352 409 411 406

8 18 New Zealand 415 433 440 390

O E C D AVERAG E 3 2 4 3 7 7 3 8 7 4 1 7

Source: AUSTEL, ABS, ITU Figure 6.3: Telecommunications revenue p e r c a p ita (USS)

indicator and suggests that the Australian telecommunications industry is larger than the OECD average and is growing at about the same rate as that of many other countries.

It should be noted that this measure will be influenced by price levels which are discussed later on in this chapter. OECD statistics indicate that countries such as Switzerland, Sweden and Norway have a cheaper basket of

charges compared to that of Australia.

Telephone Main Lines p e r 100 Inhabitants

As shown in Figure 6.4, Australia is just above the OECD average for this measure and has maintained its

ranking of 11th over the period from 1987 to 1992. This suggests that the Australian telecommunications industry is growing at about the same rate as the OECD average.

Ranking Ranking 1 9 8 7 1 9 9 2 C o u n t r y 1 9 8 7 1 9 9 0 1 9 9 1 1 9 9 2

1 1 Sweden 65.3 68.3 68.6 68.2

3 2 Switzerland 52.8 58.0 59.5 60.6

12 3 Luxembourg 43.5 48.1 51.2 60.6

4 4 Canada 52.4 57.5 58.5 59.2

2 5 Denmark 52.9 5 6.6 57.2 58.1

5 6 United States 51.9 54.2 55.3 56.5

6 7 Finland 47.9 53.5 54.3 54.4

8 8 Iceland 45.9 51.4 52.2 53.9

7 9 Norway 46.5 50.3 51.6 52.9

10 10 France 44.6 49.8 51.0 52.5

11 11 A u s t r a lia 4 3 .6 4 7 .1 4 7 .6 4 8 .7

16 14 United Kingdom 38.8 44.2 44.6 45.2

14 15 New Zealand 40.1 43.6 43.9 44.4

O E C D A VERA G E 4 1 .4 4 5 .3 4 5 .9 4 7 .5

Source: OECD Figure 6.4: Telephone main lines p e r 100 inhabitants

The United Kingdom and Japan have both managed to improve their ranking by 2 places during this time. Senior staff from within the OECD and

the ITU believe that the reform processes within these countries were largely responsible for this improvement.

Telstra has advised that there were approximately 49.6 main lines per 100 inhabitants in Australia as at June 1994.

Public P ayph on es p e r 1,000 Inhabitants

Figure 6.5 shows that, in 1992, Australia’s payphone density of 1.9 payphones per 1,000 inhabitants (4.2 including customer-operated

payphones) was below that of countries such as the United States, United Kingdom, Canada and Japan. Telstra has provided statistics which

indicate that at June 1994, Australia’s public payphone density had increased to 2.1 payphones per 1.000 inhabitants (4.7 including customer- operated payphones).

(1) Based on Telstra public and non-public payphones only

(2) Based on Telstra public and non-public payphones plus customer-operated payphones

Source: ITU, AUSTEL Figure 6.5: Num ber o f public pa yp h o n es p e r 1,000 inhabitants as at 1992

R a n k in g

1 9 8 9

R a n k in g

1 9 9 4 C o u n t r y 1 9 8 9 1 9 9 1 1 9 9 3 1 9 9 4

I n c r e a s e

1 9 8 9 - 9 4

4 1 Finland 3.01 5.21 8.20 10.14 7.13

2 2 Sweden 3.86 6.30 8.58 9.98 6.12

1 3 Norway 4.02 5.14 7.47 9.78 5.76

5 4 Denmark 2.35 3.14 4.50 8.03 5.68

3 5 Iceland 3.06 4.19 6.14 7.12 4.06

1 2 6 A u s t r a lia 0 .5 6 1 .7 4 3 .8 7 6 .8 6 6 .3 0

6 7 United States 2.04* 2.39 4.33 6.25 4.21

7 8 Canada 2.03* 2.28 3.67 4.72 2.69

8 9 United Kingdom 1.40 2.08 2.71 4.49 3.09

10 10 Switzerland 0.98 2.22 3.40 4.44 3.46

9 11 New Zealand 1.25* 1.75 2.70 3.86 2.61

11 12 Austria 0.63 1.19 2.48 3.20 2.57

19 13 Italy 0.10 0.76 1.49 2.84 2.74

20 14 Germany 0.10* 0.46 1.51 2.69 2.59

18 15 Luxembourg 0.11 0.21 0.24 2.21 2.10

16 16 Ireland 0.28 0.77 1.33 1.93 1.65

14 17 Netherlands 0.34 0.67 1.22 1.60 1.26

13 18 Japan 0.53* 0.80 1.29 1.51 0.98

23 19 Portugal 0.02 0.10 0.64 1.27 1.25

15 20 France 0.29 0.58 0.82 1.24 0.95

17 21 Belgium 0.25 0.46 0.63 1.03 0.78

24 22 Greece 0.00 0.00 0.00 0.86 0.86

21 23 Spain 0.07 0.20 0.54 0.81 0.74

22 24 Turkey 0.03* 0.07 0.11 0.17 0.14

*1990 ratio has been used because 1989 figures were not available.

Source: Mobile Communications, Asian Communications, annual reports, AUSTEL, ABS Figure 6.6: Num ber o f m obile ph ones p e r 100 inhabitants f o r OECD countries 1989-94

Number o f Mobile Phone H andsets p e r 100 Inhabitants

Mobile telephony is one of the real growth areas in the Australian telecommunications industry. Figure 6.6 shows that Australia’s growth rate for this service was amongst the fastest of the OECD countries over the period

1989 to 1994.

It is usually difficult to identify major reasons for the popularity of mobile phones in a country. A number of factors such as climatic conditions, population density, land size, level of disposable income, the number of mobile carriers and the quality and accessibility of the existing fixed network might play a role.

G row th o f Non-Voice Services

Although it is difficult to obtain accurate international figures for the non-voice services market, the information available to AUSTEL

suggests that in significant areas such as electronic data interchange (EDI), videotex, audio and video conferencing, Australia’s growth has ·

not occurred at the same rate as in other countries. However, Australia’s information services market does appear to be growing quickly relative

to that of other countries.

Concluding R em arks

Although the Australian telecommunications industry is larger

than that of many other countries, its rate of growth closely matches the OECD average over the period from 1989 onwards.

This does not necessarily mean that the Australian telecommunications industry has performed poorly over this period of time. It simply means that it appears to be keeping pace with, but not out-performing, that of

our OECD partners.

In certain sections of the telecommunications industry such as mobile services, Australia has out­ performed most OECD countries.

However, in other areas such as non­ voice services, it appears that Australia may be under-performing.

2. WHAT ARE THE PROSPECTS FOR FUTURE GROWTH OF THE AUSTRALIAN TELECOMMUNICATIONS

INDUSTRY?

Australia's prospects for future growth can be assessed by considering the following indicators.

Percentage D igitalisation O f Main Lines

This ratio is a popular measure of network modernisation. It represents the number of telephone main lines connected to digital exchanges as a percentage of the total number of

main lines.

Teledensity versu s GDP P er Capita

Various studies have shown that there is a strong relationship between public telecommunications services (measured in terms of teledensity

which is the number of telephone main lines per 100 inhabitants) and wealth (measured in terms of GDP per capita). Figure 6.7 shows Australia’s ranking by this measure.

Figure 6.8 shows that Australia has been slow by world standards to digitalise its fixed network. This slow roll-out of technology may have contributed to slow growth in non­ voice telecommunications services mentioned earlier.

Telstra has recently estimated that Australia’s current level of digitalisation is in the order of 51% . Although Optus’ network is 100%

digital, the number of main lines it has

70.0 -p

60.0 ■­

I 50.0 --

Ϊ Ϊ S 40.0 - -

= fl

| f 30.0 - ­

I E 5 20 0 ■-* 10.0 · -

0.0 ■­

0

Australia

R-squared = 0.70

5,000 10,000 15,000 20,000 25,000 30,000 35,000

GDP per capita (in US$) Source: OECD. ITU

Source: OECD, ITU Figure 6. ~ Teledensity versus GDP p e r capita f o r OECD countries as at 1991

installed to date relative to Australia’s total number of main lines is insignificant.

Telstra’s investment programme, known as the Future Mode of Operation (FMO) should see Australia’s level of digitalisation rise to

59% by the end of 1995 and 100% by the year 1999.

Layout o f O ptic Fibre

Figure 6.9 shows the number of kilometres of optic fibre cable laid out between 1990 and 1992 for selected OECD countries.

Comparisons between countries is complicated because of different demographic and geographic factors

C o u n t r y

1 9 9 0

%

1 9 9 1

%

1 9 9 2

%

New Zealand 72 92 95

Netherlands 33 79 86

France 70 79 83

Canada 50 69 80

Luxembourg 31 50 70

Ireland 55 63 68

United Kingdom 47 55 64

Japan 39 49 60

United States 43 N/A 60

Turkey 48 51 56

Portugal 30 45 54

Sweden 38 47 54

Finland 28 42 51

Norway 38 45 51

Iceland 39 42 49

Belgium 37 45 48

Italy 33 41 48

Switzerland 29 33 43

Denmark 29 33 40

Spain 28 34 36

A u s t r a lia N /A 2 6 N /A

Germany 12 N/A 30

Austria 11 18 27

Greece 1 4 11

O E C D A VERA G E 3 6 4 7 5 4

Source: OECD N/A = Figures not available

Figure 6.8: Digitalisation in the OECD area

The table should therefore only be taken as a rough guide as to which countries are investing heavily in optic fibre cables.

Capital Investm ent as a Percentage o f Telecommunications Revenue

Whereas capital expenditure levels for individual carriers do fluctuate from

year to year, Australia’s total expenditure has been steady, as shown in Figure 6.10. Figure 6.11 provides a comparative international perspective on Australia’s recent performance in this area.

Care needs to be taken when interpreting Figure 6.11 as a range of influences (eg financial restrictions, stage of network development) needs

C o u n t r y 1 9 9 0 1 9 9 1 1 9 9 2 M e a s u r e

United States 8,598,241 10,840,881 12,740,324 Fibre km

United Kingdom 1,441,000 2,045,000 2,337,000 Fibre km

A u s tr a lia 4 5 0 ,0 0 0 7 0 9 ,0 0 0 1 ,1 4 8 ,0 0 0 F ib r e k m

Turkey 35,000 74,500 137,000 Fibre km

Switzerland N/A 100,250 136,252 Fibre km

Finland 47,915 76,953 122,699 Fibre km

Sweden 3,835 12,500 27,000 Fibre km

Source: OECD, AUSTEL, Telstra N/A = figures not available

Figure 6.9· D eploym ent o f fib re optic cable in the OECD area T 3,500

■■ 3,000

■■ 2,500 g

2 9 %

2 6%

■■ 2,000

2 2 % ■ ■ 1,500

· · 1,000

Source: annual reports for Telstra, Optus, Vodafone, Telecom Australia, OTC and Aussat Figure 6.10: Total Australian capital expenditure, an d capital expenditure as a percen tage o f total telecomm unications revenue, 1989-94

70.0%

- 60.0%

Source: ITU, OECD, AUSTEL Figure 6.11: A verage ratio o f capital e x p en d itu re/to ta l telecom m unications revenue f o r OECD countries over the p e rio d 1969-92

to be considered. Australia’s capital expenditure appears to be on the low side given that closely-ranked countries Canada, France and New

Zealand have similar teledensities but more modern networks than Australia (Question 3 provides additional details on this).

Telstra has advised that its capital expenditure will exceed $3 billion per annum over the next few years.

Figure 6.12 summarises the company’s plans for digitalisation of the network.

If Telstra adheres to this programme and Optus and Vodafone maintain their 1994 investment levels, then Australia’s capital expenditure as a

proportion of total telecommunications revenue in 1995 will probably be in the order of 26%, which is below the OECD average for

1992.

Concluding R em arks

Australia’s telecommunications infrastructure does not appear to be as modern as that of other countries such

Indicator 1995 1996 1997 1998 1999

% network digitalisation 59% 74% 87% 96% 100%

Source: Telstra Figure 6.12: Telstra's netw ork m odernisation program m e

as the United States, United Kingdom, Sweden, Canada or New Zealand. Although Australia’s telecommunications capital expenditure as a percentage of

revenue appears low by international standards, direct comparisons are complicated by a variety of factors unique to each country. The

investment programmes of Telstra, Optus and Vodafone may see Australia catch up to our major OECD partners, but this is not yet certain because accurate current and forecast investment levels are not available for other countries.

rnUfi'm

3 . H O W D O E S Q U A L IT Y O F

T E L E C O M M U N IC A T IO N S

SER V IC E IN A U ST R A L IA

C O M P A R E W IT H T H A T O F

O T H E R C O U N T R IE S?

Australia’s quality of service is discussed in detail in Chapter 4 of this report. In this section, AUSTEL compares the quality of Australia’s telecommunications services against a

range of countries based on the latest available OECD figures. Note that in most cases, Telstra’s figures have been

used as a proxy for the overall Australian market.

Call Loss on the Public Switched Telephone N etw ork

Figure 6.13 shows the percentage of local and trunk calls lost due to

network faults and congestion for a range of OECD countries. It suggests that in 1992, Australia lost four times as many local calls as the United

Kingdom and eight times as many local calls as Canada. However, countries ranked below Australia exhibited local call loss rates ranging

from 1.3% to a high of 4.0%. Note that Australia’s 1994 local call network loss rate as shown in Figure 4.1 of this report averaged approximately 0.4%

for the financial year, suggesting that Australia would still be ranked below a number of these OECD countries.

Australia’s average STD and IDD call loss rates for 1994, as shown in Figure 4.1 in this report, were approximately 1.2% and 1.1% respectively. These

figures suggest that Australia’s ranking for tmnk call success rate is probably

Ranking Country Local call Trunk call

1 Canada 0.1% 0.3%

2 United Kingdom 0.2% 0.2%

3 Switzerland 0.4% 0.4%

4 Spain 0.4% 1.5%

5 Turkey 0.5% 0.1%

6 France 0.6% N/A

7 Sweden 0.7% 0.9%

8 Australia 0.8% 1.8%

9 Ireland 1.3% 1.8%

10 Norway 1.4% 2.4%

New Zealand N/A N/A

United States N/A 0.5%

Source: OECD, AUSTEL N/A = figures not available

Figure 6.13·' D om estic call fa ilu re rates f o r OECD countries as a t 1992

Ranking Country 1990 1992

1 Netherlands 90.0% (1)100.0%

2 Denmark 80.0% 95.1%

3 Italy 92.2% 94.4%

4 New Zealand N/A 94.0%

5 Sweden 80.0% 94.0%

6 Austria 93.0% 93.0%

7 France 84.9% 93.0%

8 Norway 89.9% 89.0%

9 Switzerland 80.6% 86.8%

10 Canada 85.5% 85.1%

12 United Kingdom (1) 92.5% 81.7%

15 Australia (1) 91.0% 78.9%

United States N/A N/A

(1) Cleared within 48 hours N/A = figures not available

Source: OECD

Figure 6.14: Faults rep a ired within 24 hours o f notification still below at least six of these OECD countries.

Fault Clearance

Figure 6.14 indicates the percentage of telephone faults repaired within 24 hours of notification. It suggests that Australia's performance in this area was worse than most OECD countries in 1992. Australia’s lower population density and larger land size may have contributed to this result.

Figure 4.1 of this report shows that approximately 78% of all faults in Australia were cleared within one working day of notification. This suggests that Australia was slower to clear faults in 1994 compared to 1992 and may therefore have fallen in international ranking of fault clearance times since 1992.

Time to Connect Services

As with most of the quality of service statistics in this section, Figure 6.15 should be interpreted with care since different countries might use varying definitions of average waiting times

for connection of new services. This is because certain countries may report no waiting list as most orders can be filled within a very short time. This table should therefore only be taken as a rough guide as to which countries are quick to connect new services and those which generally experience significant delays.

Figure 4.1 indicates that in 1994, approximately 79% of customers in Australia were connected to new services on or before the customer required date.

Ranking Country 1992

1 Canada 0

2 Denmark 0

3 Iceland 0

4 Japan 0

5 Sweden 0

6 United States 0

7 New Zealand 2

8 Australia 5

9 Finland 5

10 Norway 7

11 United Kingdom 8

Source: OECD

Figure 6.15: A verage w aiting time f o r a new connection ( d a ys)

Ranking Country 1992

1 France 99.0%

2 New Zealand 98.0%

3 Sweden 98.0%

4 Switzerland 98.0%

5 Austria 97.0%

6 United Kingdom 96.3%

7 Canada 96.0%

8 Japan 95.8%

9 Netherlands 93.0%

10 Italy 90.1%

11 Australia 90.0%

. . .

United States N/A

Source: OECD N/A = figures not available

Figure 6.16: Average % o f p a yp h o n es in w orking o rd er

Public P ay Phones in Working O rder

Figure 6.16 shows that in 1992, Australia had one of the lowest ratios of operating public payphones of the OECD countries.

Figure 4.1 of this report indicates this situation has improved as approximately 94% of all public payphones were fully operational in

1994. This suggests that Australia may still be ranked below eight of the above OECD countries. Telstra has

i B l f c

R a n k in g C o u n t r y 1 9 9 2

1 Canada 100.0%

2 France 100.0%

3 Japan 83.0%

4 United Kingdom 80.7%

5 A u s t r a lia 7 7 .0 %

6 Sweden 60.0%

7 Turkey 56.0%

8 Norway 51.0%

9 Iceland 49.0%

10 Switzerland 20.0%

New Zealand N/A

United States N/A

Source: OECD N/A = figures not available

Figure 6.17: Percentage o f popu lation with access to item ised billing

indicated it is committed to improving performance in this area.

Availability o f Item ised Billing

figure 6.17 suggests that by world standards, a reasonable proportion of Australians had access to itemised STD and 1I)D billing in 1992. Figure 4.1 of this report shows that approximately 84% of Australia’s telephone lines

were subject to itemised billing at June 1994. Telstra has advised that this figure will be 100% by 1997.

Concluding R em arks

It is necessary to refer to a range of statistics in order to compare the quality of Australia’s telecommunications services against leading countries. Although the OECD figures are up to two years old,

they do provide a rough guide to performance, especially when supplemented with current Australian figures.

Australia's telecommunication services appear to be of a higher quality than many OECD countries. If AUSTEL had to generalise about performance

relative to other countries, then Australia was probably ranked in the second-top quartile of the 24 OECD countries in 1992. Sweden, Switzerland, France, Canada and New Zealand generally out-performed Australia in a range of quality

indicators.

4. HOW DO T E L E C O M M U N IC A T IO N S PRICE

LEVELS IN A U ST R A L IA

C O M P A R E W IT H T H O S E IN

O T H E R C O U N T R IE S?

This section provides a comparison between Australia’s telecommunications charges and those of a number of other countries. Much of the data presented is from studies undertaken by the OECD, and has been supplemented with information

which AUSTEL has collected from a variety of sources.

The comparisons in this section are based on standard charges which result in an over-estimate of the total bill for countries in which price

discounting is wide spread (such as Australia). As the OECD data is largely restricted to prices charged by the incumbent carriers, the Australian

figures are for Telstra.

The OECD methodology involves pricing a basket of services for each country. The basket represents total expenditure over a year for these

services. For example, based on a common call usage profile, the national residential and business basket charges consist of one fifth of

the relevant installation charge, one years rental plus the charge for a particular call usage profile.

The difficulty with using a basket approach is that call usage profiles

vary between countries. For example, as the distances between the major cities in Australia are relatively large, a significant number of trunk calls are in the two longest distance bands. In

many European countries, calls over these distances would be to another country, meaning that the OECD baskets place less importance on these

calls than is appropriate for Australia This also means that an Australian profile would not be suitable for many other countries. Consequently, while

the analysis below uses the OECD basket because it is the best ‘international’ call profile available, caution has been used in interpreting

the results.

The OECD commenced its studies in 19901, which enables a comparison to be made of price movements in each country over time. The charge for

each basket is expressed in US$ and has been adjusted on a purchasing power parity (PPP) basis. The additional data which AUSTEL has collected has been used to focus on the movement in charges for particular services, eg local calls.

The countries used in this comparison are those OECD member countries whose telecommunications industries most closely resemble that of

Australia. These include countries with liberal regulatory regimes as well as those which have yet to introduce competition in any significant way.

’The initial figures were for November 1989, but are expressed here as January 1990 figures.

National R esiden tial and Business Charges

Basket' Charges

The national residential and business baskets include both fixed charges (eg installation and rental) and usage

charges (eg for local and trunk calls). The OECD specifies separate business and residential baskets because of the differing usage profiles in each of the two market segments2.

The 1990 and 1994 charges for residential and business baskets are listed in Figure 6.18. The study indicates that while charges for both

the residential and business Australian baskets were below the OECD weighted average5 in 1990, they increased relative to the OECD

average so that by 1994 both Australian baskets were well above the average. As a result, Australia's

ranking within the 23 OECD countries4 fell from 13th to 17th for the business basket and edged down in the residential basket from 15th to 16th.

It is possible that there would be a different finding if the OECD basket placed more emphasis on long haul trunk calls, given that Australia has experienced some notable reductions in the charges for such calls. Further, the 1994 Australian residential basket shown in Figure 6.18 is similar to those of five other countries. This makes it difficult to draw conclusions from the changes in ranking.

The OECD distinguishes between countries with ‘competitive’ market

Country Business Residential

1990 1994 1990 1994

Sweden (Telia) 426 370 192 199

Canada (Bell) 862 848 245 235

Japan (NTT) 905 729 311 279

Germany 1,025 845 344 312

France 860 831 294 312

UK (BT) 809 715 349 333

USA (Nynex/AT&T) 9 44 838 373 346

Australia (Telstra) 898 974 332 349

New Zealand (TCNZ) 914 859 295 371

Spain 914 1,047 324 418

OECD WEIGHTED AVERAGE 914 854 334 326

Source: OECD Figure 6.18: B asket o f business and residen tial non-discounted national charges in USS using PPP ‘ The business basket includes 2,248 calls and excludes taxes while the residential basket involves 772.5

calls and includes taxes. ’ The weighted average is calculated by the number of telecommunication main lines in 1992. 4 Figures are not currently available for the 24th OECD country, being Luxembourg.

wsrswm

Residential Basket

Source : OECD Figure 6.19·' Index o f Business an d R esidential N ational Charges

structures and those with ‘non­ competitive’ structures5. The following diagrams compares the movement in Australian charges with

those of the average for the competitive and non-competitive countries. Australia became a ‘competitive’ country in 1992 with the

commencement of Optus’ operations.

Figure 6.19 suggests that Australia’s standard charges increased during the pre-competitive period, were flat

immediately following the introduction of competition, and have declined since 1993- Because these graphs only show relative price movements,

care should be taken when drawing conclusions as only a detailed analysis of all of the factors contributing to price changes could provide an

accurate picture. For example, local call charges in Australia are untimed and Australia’s local call areas are large by world standards.

5In 1990 the competitive countries included the US, the UK, Japan and NZ. Canada and Australia joined in 1992 and Sweden joined in 1993

Installation a n d R ental Charges

AUSTEL has collected data on the installation and rental charges for selected countries in 1988 and 1993. These charges have been adjusted for inflation. The percentage changes to residential installation and rental charges between 1988 and 1993 are detailed in Figure 6.20. The changes suggest that there has been a general

reduction in the residential installation and rental charges with some notable exceptions, particularly Spain and Sweden. The Spanish increases are

from a low base, while the Swedish

result is affected by the introduction of a consumption tax. Australia appears to have made a mid-range reduction in installation charges and there has been a negligible movement in rentals.

Figure 6.21 details the percentage change between 1988 and 1993 in the charge for a 3 minute call made locally, over the shortest distance trunk band and over the longest distance trunk band. These charges have been adjusted for inflation.

f o >> c § -σ § s p

s

o

2

Q > |

f re CO

I

ω

* i 1

0

1 i

z>

Source . AUSTEL

In s ta lla tio n Π Rental

Figure ft.20 Percentage change in residential installation and rental charges 19SS 199i

119%

2 0 %

■ 1 0 %

- 2 0 %

- 3 0 %

- 4 0 %

- 5 0 %

<0

"5 Μ 3

<

Source : AUSTEL

Figure 6.21:

s £ *g 1 ω p

§

Φ o

1 1 z

I S 1 5

I Local Call Π S hort Dial ϋ ΐ Long Dial

Percentage change in dom estic call ch arges .1988-199-}

This chart indicates that most countries, including Australia, have experienced a decline in long distance rates. The large increase in the cost of

a local call in Spain was due to the introduction of a flagfall which doubled the cost of a 3 minute call.

International Charges

The OECD adopts a basket approach for comparing international charges, using both a call pair and a zonal comparison. The call pair approach

represents the relative cost to users of making a call from one country to another and is expressed as a percentage of the cost of the same call

made in the opposite direction.

The data in Figure 6.22 comes from different OECD publications and hence the values are in nominal terms. The figures correspond to a constant

OECD average of 100. Consequently the increase in Australia’s figures between 1990 and 1994 does not necessarily imply an increase in

standard charges, but rather that standard prices have not declined by as much as has occurred in other countries.

The OECD survey of 23 countries reveals that Australia slipped from 2nd to 6th position using the business basket and from 1st to 5th using the

residential basket. This indicates that while Australian standard charges are not high, they have become relatively less economical than those of other

countries since 1990. The effects of discounts are not reflected in this comparison. A discussion of the impact of discounts appears below

and in Chapter 3·

Country Business Residential

1990 1994 1990 1994

Japan (KDD) 90 92 75 79

New Zealand (TCNZ) 88 94 95 79

Australia (Telstra) 80 87 72 82

Canada (Bell 84 96 84 92

Germany 96 97 91 95

Sweden 82 87 78 97

France 87 95 92 99

UK (BT) 96 96 102 101

USA (AT&T) 90 113 78 104

Spain 123 119 121 117

OECD WEIGHTED AVERAGE 100 100 100 100

Source OECD

Figure 6.22: B asket o f business an d residen tial international telephone charges ( call p a i r m ethodology) in 1989 and 1993 P PP nominal values 1 0 % T

- 2 0 %

3 0 % -I

4 0 7.

- 5 0 7.

6 0 %

I Low Charge Π Mid Charge

Source ; AUSTEL

Figure 6 23: Percentage change in international call charges, 1988-1993

Figure 6.23 shows the percentage change in the cost of a three minute call from various countries. The ‘low charge’ refers to a destination to which the call charges are close to being the cheapest, representing a nearby country or frequently-called destination. The ‘mid charge’

destination refers to a country to which the call charges are between the most and least expensive, representing a country which is called regularly but not frequently.

These findings are consistent with the finding from Figure 6.22, in that while

Australia has reduced its standard charges, the reductions do not appear to be as significant as the reductions made in many of the other countries between 1988 and 1993-

The two exceptional cases were France and New Zealand. The former did not reduce the charges for calls to nearby countries but reduced them

significantly for calls to Japan, while the latter significantly reduced charges for calls to Australia.

F ixed to Usage Charge R atio

Figure 6.24 shows changes between 1990 and 1994 in the fixed to usage charge ratio. An increase in the ratio indicates that fixed charges (ie.

installation and rental) have increased relative to usage or call charges.

Figure 6.24 also shows that over the period from 1990 to 1994, Australia’s fixed to usage ratio remained constant for business customers and declined for residential customers. The change

for residential customers may be due to a reduction in installation charges and the opportunity for customers to acquire their own handset. Further, Australia’s price control arrangements

constrained Telstra from significantly increasing installation and rental charges.

Im pact o f Discounting

The following analysis is based on the standard prices listed for the carriers or countries involved. The development of competition has seen

Country Business Residential

1990 1994 1990 1994

Australia 21% 21% 37% 32%

Canada 41% 37% 45% 42%

France 15% 16% 20% 25%

Germany 13% 13% 39% 37%

Japan 16% 20% 32% 35%

New Zealand 41% 51% 50% 69%

Spain 12% 13% 34% 39%

Sweden 41% 46% 58% 56%

UK (BT) 21% 30% 46% 51%

USA (Nynex) 16% 23% 40% 44%

OECD WEIGHTED AVERAGE 18% 20% 37% 40%

Source : OECD Figure 6.24: F ixed charges as a percentage o f total ch arges

carriers offer a range of pricing options which enable customers to acquire discounts from the standard tariffs. The countries in which the carriers offer significant discounts

include Australia, the US, the UK, New Zealand, Canada, and Japan.

Currently there is no agreed means of comparing the discounts available in individual countries. In order to provide some comparison of

discounts, an analysis was undertaken using two baskets of calls, one for residential customers and the other for business customers. The charges which several carriers would levy for each basket, both with and without the discounts, were determined using

available information from Telstra, Optus, Telecom New Zealand and British Telecom. The percentage difference between the charges reflect

the overall effective discount available. These are detailed in Figure 6.25.

The baskets used were developed by the Association Francaise des Utilisateurs du Telephone et des Telecommunications (AFUTT), being based on a survey of calling patterns of French users. The advantage of these baskets are that they are fairly

simple to use, they include profiles for both residential and business customers, as well as a component of international calls. The assumed duration of all calls is four minutes.

(•roup Monthly Basket Telstra Optus Telecom NZ BT

Residential 60 local 6 peak trunk 1.68% 335% 9.95% 0.89%

Business

11 off-peak trunk 1 near international 840 local 112 peak trunk 56 off-peak trunk 6.42% 6.16% 13.33% 6.16%

20 near international 2 mid international 1 far international

Source : AUSTEL

t I'.’ u r t 6 25 E xam ples o f discounts ai iiiluhle

Residential Business Carrier Telstra Family and Friends Call Saver 5

Enhanced Family and Friends

Optus Instant Saver Instant Saver

Telecom NZ Friends and Family

Toll Bonus Saver

Brilliant Deductions Toll Bonus Saver

BT Option 15 Option 40

Source : AUSTEL

Figure 6.26- Discount options u sed in exam ples

The discount options used in the comparison are shown in Figure 6.26.

These options represent the largest discount possible to a customer with the assumed usage profile. Since Optus does not offer local calls on a

general basis6 , the figures for the Optus business customer in the table above include a discount on local calls achieved through subscribing to Telstra’s Call Saver 5.

The following observations can be drawn from this analysis -

• a range of discounts are available in Australia, and while those which Telstra offers appear similar to those of BT, they are not as

significant as those offered by Telecom NZ;

• discounts generally are significantly larger for customers with a higher level of expenditure on calls, and

these typically are business customers;

• Telstra and BT typically levy subscription fees for their pricing options which reduce the impact of the discounts, particularly for

customers with low levels of expenditure; and

• options which do not include a subscription fee, such as those offered by Optus and Telecom NZ, appear to offer higher net

discounts and are likely to be of benefit to a broader range of customers.

The wide variety of pricing options available makes it difficult to compare the price discounting available in different countries. For example,

some options have one discount rate while others offer a range of discounts. Further, different options apply to a different range of services

6 Optus can offer local calls through its BusinessNet Premier service; however, this is on a very limited

« Π *

(eg. local calls, selected trunk calls, or all calls). Finally, some options involve subscription fees while others do not.

Even if a 'standard discount’ could be determined for each country, it would not be possible to ascertain what proportion of the market took advantage of the discounts available. This issue is further complicated when

the market is serviced by more than one carrier.

Much of the difficulty with comparing discount options available in different countries arises because the relevant data is confidential and/or is not published. This poses a significant challenge to the development of a more appropriate means of measuring the impact of price discounting.

Mobile Phone Charges

The OECD specifies a basket for mobile phone charges which includes one third of the installation charge, rental for one year and 852 calls. The charges for selected countries in US$ PPP nominal values and their OECD ranking are detailed in Figure 6.27.

As was the case with international charges, the figures in this table are in nominal terms. While this makes comparison between years difficult, it is still possible to consider how each country’s ranking has moved.

Australia has retained its overall ranking of 8th, suggesting that it has relatively low mobile phone charges compared with other countries.

Again, the effect of price discounts have been excluded.

1990 1994

Country Charge OECD Ranking Charge OECD Ranking

Sweden (Telia) 1,147 9 858 6

Canada (Bell) 1,431 11 1,008 7

Australia (Telstra) 1,104 8 1,019 8

UK (Vodafone) 2,031 18 1,307 15

UK (Cellnet) 2,039 19 1,357 16

New Zealand (TCNZ) 1,450 12 1,397 17

Spain 1,710 15 1,445 18

Germany (DBP) 2,358 21 1,489 19

USA (Nynex) N/A 1,760 21

Japan (NTT Mobile) 1,914 17 1,860 22

France 2,316 20 1,938 23

OECD AVERAGE 1,681 1,231 i Z :

Source : OECD, AUSTEL N/A - figures not available

Figure 6.27: Basket o f mobile telephone charges in 1989 and 1993, e x p re sse d in USS PPP nominal values

6 0 %

4 0 %

2 0%

- 2 0 %

- 4 0 %

- 6 0 %

- 8 0 %

- 1 0 0 7=

H Conection Π R ental il Call

Source : AUSTEL

Figure 6.28: Percentage change in m obile ph one charges 1988-1993

The large movements in Canada’s recent mobile phone charges include the removal of the connection charge and an increase in the monthly rental. The increase in the Swedish rental

charge is from a very low base. These changes are apparent in Figure 6.28.

Concluding R em arks

Most of the above comparisons were made using the OECD’s tariff comparison model, which calculates average charges on a PPP basis for a

defined basket of services. A significant problem in using this approach is that it applies a common usage profile to each country’s tariff,

and this profile is unlikely to be completely representative for all of the countries in the comparison. Consequently, the OECD results have been supplemented with details on

the percentage change for particular services in different countries. The findings from both approaches indicates that while prices generally

have declined in Australia, fixed

network calling prices have not fallen by as much as has occurred in some other countries. However, Australia’s price reductions for mobile services

have held ranking with those of comparative countries .

A further, albeit minor, problem with the OECD approach is that it does not include the impact of discount arrangements which are becoming

prevalent in many countries. The impact of such discounts was illustrated through two examples of different usage profiles. This

suggested that the discounts would not significantly alter the conclusions.

In addition, as most of the above comparisons focus on the incumbent carriers’ prices, the full effects of price competition are not captured in this

study.

For more information on how competition has affected prices in Australia in 1993-94, see Chapter 3-

S. HOW DO AUSTRALIAN CARRIERS’ PROFIT FIGURES COMPARE WITH THOSE OF OVERSEAS TELECOMMUNICATIONS COMPANIES?

Optus and Vodafone are still in the start-up phase of their business so it is of little value to evaluate their profit or loss figures. The discussion below therefore focuses only on Telstra’s results.

A number of normalisation adjustments were made in arriving at the figures in the following graphs.

Profit results for all companies have been calculated before interest, tax, extraordinary and abnormal items. Telstra staff consulted on the data

have indicated that they agree with the broad nature of adjustments made.

Operating P ro fit a s a Percentage O f Revenue

Figures 6.29 and 6.30 show Telstra’s ratio of operating profit before interest, tax, extraordinary and abnormal items (OPBITEA) and compares the latest ratio with those of other carriers included in this study.

4,000

3.500

3,000

2,500

Source: Telstra annual reports. Note that 1992 figures are estimates based on Telstra's reconstructed 1992 accounts contained in their 1993 annual report.

Figure 6.29: Telstra’s OPBITEA and OPBITEA as a % o f revenue f o r 1992-94

« Π *

Source: annual company reports

Figure 6.30: OPBITEA as a p ercen tage o f revenue f o r selected international telecom m unications com panies

Telstra's profitability is higher than that of many major overseas telecommunications companies. However, care should be taken not to

rely on simplistic explanations of Telstra’s positioning on the graph, because a variety of factors need to be taken into account when comparing

profit figures. These include (but are not limited to) the local regulatory and competitive environment, corporate taxation rates and the company’s

investment programme, debt/equity mix, dividend programme, risk profile and recent efficiency gains.

A range of other measures such as OPBITEA/total assets, return on equity and OPBITEA/employee were also used in assessing Telstra’s profit

performance. Although these ratios also suggest that Telstra is earning good profits, they are less reliable indicators because of different accounting treatments for valuing

assets and different outsourcing practices.

Concluding R em arks

Although Telstra is earning good profits relative to major overseas telecommunications companies, any assessment of the reasonableness of its

profitability would need to be considered in light of the regulatory, competitive and financial factors

which vary between countries and companies.

OPBITEA

6. HOW DO AUSTRALIAN CARRIERS’ EFFICIENCY LEVELS COMPARE WITH THOSE OF OVERSEAS TE LECOMMUNICATIONS

COMPANIES?

It is difficult to make realistic evaluations of Optus and Vodafone's efficiency levels because they are still

in the start-up phase of their business. Accordingly, discussions below focus on Telstra only.

Telstra's performance over time has been evaluated by comparison with the 19 major international telecommunications companies mentioned earlier. The names of these companies are shown in Figure 6 30 of this report.

Telstra does not wish to make public its employee numbers, and so any ratios which include this total have not been disclosed in this report. The measures described below are indicative only, because it is difficult to properly account for different services provided and different operating environments.

A dm inistration an d O verhead Expenses

AUSTEL has reviewed Telstra’s detailed quarterly accounts and compared them with similarly-detailed

publicly available figures for American telecommunications companies.

While there is evidence to suggest that Telstra’s total administration and overhead expenses are high compared with the American companies, it is not possible to make an unqualified statement in this regard. This is because it is necessary to have access to detailed operating statistics and accounting principles for both Telstra and the American companies in order to make extensive normalisation adjustments so that efficiency levels can be accurately compared. This information is not currently available to AUSTEL.

Operating E xpen ses p e r Main Line

There is also evidence to suggest that Telstra’s operating expenses per main line are higher than the American telecommunications companies. AUSTEL is aware of the type of

normalisation adjustments Telstra makes when it evaluates its own performance in this area.

Main Lines P er Em ployee

Telstra’s ratio of main lines per employee at 1992 is in the bottom quartile of the benchmark group listed in Figure 6.30. Telstra’s ranking over the period from 1989 to 1992 has

improved 2 positions.

Revenue p e r Em ployee

Telstra’s ratio of revenue per employee at 1993 is in the bottom

quartile of the benchmark group. Its ranking did not change over the period from 1989 to 1993-

Total Revenue / Total A ssets

Telstra’s ratio of total revenue / total assets at 1993 is in the second-top quartile of the benchmark group. Its ranking fell 3 positions over the

period from 1989 to 1993.

Fall in Em ployee N um bers

Bell Canada, British Telecom and Telecom New Zealand are the international carriers which are comparable to Telstra, given that they

provide a similar range of services and there are not major differences in economic, demographic and regulatory environments. Employment figures provided to AUSTEL by Telstra

indicate that its staff numbers have not fallen by the same extent as for two of these three carriers over the period from 1989 to 1993· (Employee

numbers for these overseas telecommunications companies are publicly available.)

T elstra’s View o f Its Efficiency

Telstra has announced on several occasions that in some aspects of its business it is not yet operating at world’s best practice.

Telstra’s investment programme will involve upgrading of its network and information systems, which should enable it to improve efficiency ratios

in future.

Concluding R em arks

From the information available, it appears that in some aspects of its business, Telstra is operating below world’s best practice. Telstra is

conscious of gaps in performance and has publicly expressed a commitment to improve its relative efficiency levels over the next few years.

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No. 12 .of 1995 ORDERED TO BE PRINTED

ISSN 0727-418