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Risk |
Description |
Risk Impact |
Wide regulatory discretion |
The Minister for Communications has a broad power to impose and vary licence conditions on Telstra. For example, the requirement to operate separate retail, wholesale and network business units (operational separation) places an additional burden on Telstra with many restrictions imposed on the way it runs its business. In addition, Telstra is subject to retail price controls and is obliged to make certain uneconomic services available in rural and remote areas, without receiving what in Telstra’s opinion is a fair contribution to its costs from its competitors. |
The real risk with operational separation, in Telstra’s opinion, lies in the power of the Minister to determine the way Telstra conducts its business by directing it to vary its operational separation plan, subject to the aims and objects of the legislation which are very broad. These regulatory discretions could in Telstra’s opinion be used with a significant adverse effect on Telstra |
And on page 50 under Major heading ‘Additional information’ and sub-heading ‘Commonwealth as shareholder and regulator’, it states:
The Commonwealth also has responsibility for regulation. The telecommunications regulatory regime is intended to promote the long-term interests of telecommunications consumers, including through promoting competitive telecommunications markets and encouraging economically efficient investment in infrastructure. The telecommunications regime supports industry self-regulation and is intended to minimise the financial and administrative burdens on the telecommunications industry.
Since the market was fully opened to competition in 1997, consumers have benefited through a wider range of services and significant reductions in prices.
The Commonwealth considers that the telecommunications industry is currently in transition to full competition and that appropriately targeted regulation is in place to facilitate this outcome. Overall, the regulatory legislation is settled. However, the Commonwealth has announced that it will review the telecommunications competition regulatory regime in 2009.[44]
As is evident, in each of the Telstra share sale documents, regulatory risk was disclosed. However, none mentioned the risk of structural separation expressly. In any case, insofar as small individual shareholders are concerned, it is perhaps of academic interest only to lawyers whether disclosure was adequate. For institutional shareholders, it is another matter and it ought to be expected that they make themselves aware of the matters in the issue documents and the implications of them. As has been recorded elsewhere in this digest, the debate about the structural separation of Telstra can be traced back, at least, to 1993 with the publication of the Hilmer Report and it has arisen in debate regularly since then. It is not a new idea and it cannot have been beyond the consideration of institutional investors and their analysts.
This graph records the Telstra share price over the last 12 months:
On the day before this Bill was introduced (14 September 2009), Telstra’s share price closed at $3.25. On the day the Bill was introduced, it closed at $3.11. The day after that it closed at $3.24. Since then, it has dropped to $3.11 around the middle of October 2009 and in early November has returned to around the price on the day before introduction. That being the case, the introduction of the Bill has not materially affected the share price.
Nor has it changed materially from the 7 April 2009 on which day the Government announced that it would build a national broadband network and released a discussion paper in which it canvassed the kinds of reforms made by this Bill. There was, however, a decline in the price in the month before that day.
It is difficult, if not impossible, to isolate the causes of movements in share prices and no attempt is made to do so here. The point made here is only that the share price did not materially change with either the introduction of the Bill or the release of the discussion paper in which the Bill’s reforms were canvassed.
It is therefore not clear how the argument can be sustained that the measures in this Bill are depriving Telstra shareholders of value.
In assessing the effect that any movements in Telstra share price has on shareholders it is instructive to look at the distribution of share ownership. The following table from the Telstra’s most recent annual report sets out the position at 28 August 2009.[45]
As can be seen of Telstra’s 1.4 million shareholders almost 50 percent own fewer than 1000 shares with about 67 percent owning fewer than 2000. One inference that may be drawn from this is that this is probably the group that has a high proportion of unsophisticated ‘mum and dad’ shareholders who may have not appreciated the risks attendant in owning shares and whose interests may need consideration. However, the holdings of this same group are relatively small and so, even if the share price had declined as a result of the measures in this Bill, the effect on the value of the holdings of this group would not be such as to amount to the loss of a ‘nest egg’ as has been claimed.
In any case, fewer than 10 percent of the Australian population directly own Telstra shares. The argument that their interests should be accommodated in telecommunications policy amounts to a claim that they should continue to benefit from the monopoly profits that are said to be earned by Telstra at the expense of users of telecommunications services who provide those monopoly profits through higher usage charges.
An argument is made by some that a much larger number of Australians indirectly hold Telstra shares through superannuation funds and other funds, for instance, and that everyone is affected by Telstra’s share price. This may or may not be factually correct but, even if it is true, some people will have large holdings and some little or none. This ought to require the proponents of this argument to make the case that people should take the benefits of Telstra’s market position unequally according to their wealth rather than more equally through the benefits that a more competitive telecommunications market ought to bring. This case has not been made.
Arguments have been made that the attempt to structurally separate Telstra increases ‘sovereign risk’. For instance, in its submission to the Senate inquiry into this Bill, the Australian Shareholders Association said:
The ASA is concerned not just about the value destroying nature of the proposals for Telstra shareholders but also about the implications for investment generally. International investors in particular will consider Australia to have a much higher level of sovereign risk if this Bill is passed and the Government allowed to impose its will on a private company.[46]
The Australian Foundation Investment Company made similar observations:
Governments of both persuasions have invested a lot of time and effort in assuring investors, both domestic and international, that Australia is a safe and stable place to invest with little sovereign risk. If the Parliament passes this legislation we think Australia’s investment standing could be significantly diminished. Investors, particularly international investors, will perceive substantially heightened sovereign risk if the Australian Government can act arbitrarily in this way.[47]
Whether this properly describes sovereign risk is immaterial. Given that governments make laws that affect private property interests all the time, the thrust of the arguments seems to be that this Bill represents an arbitrary and unforeseeable modification of private property rights of Telstra shareholders.
This argument is superficially attractive but does not bear close examination. This legislation is neither arbitrary nor unforeseeable. Separation, whether structural or something less, has been squarely in the competition policy sphere in Australia for at least fifteen years. It was recommended by the Hilmer Report in 1993 and addressed in the intergovernmental Competition Principles Agreement of 1995 and then effected in the electricity, ports, rail, airports and gas sectors. Furthermore, it has been raised in several —maybe all—inquiries concerning telecommunications since at least 1996.[48] The possibility that Telstra might be separated is not one that could not be foreseen by sophisticated investors.
Furthermore, the separation of Telstra is not arbitrary. Separation is a regulatory response to a particular problem that is reasonably easy to identify. The Hilmer Report signalled that structural separation ought to be considered for vertically integrated owners of essential bottleneck facilities. If this Bill is to signal anything to potential foreign investors about the likelihood of this happening to other companies, the criteria are even narrower: This Bill signals that this Government will consider structural separation of companies that (a) control bottleneck infrastructure that is an essential input in downstream markets, and (b) are vertically integrated and (c) are subject to an access regime that has not worked as intended according to the near unanimous views of access seekers and the regulator. The criteria could be narrowed further but even the identification of companies falling within this class would be straightforward for any sophisticated foreign investor.
The time at which this Bill is passed (assuming it is) could have marked consequences on the way that Telstra’s separation is effected and possibly on the fate of the other amendments proposed in this Bill. This is likely why, at the time of writing, there is a considerable level of debate about whether a vote should be delayed until next year or in the two week sitting period ending 26 November 2009.
The Government and Telstra are reportedly negotiating privately over Telstra’s involvement in the NBN. These negotiations include the possibility that Telstra will transfer network assets to the NBN Company or that it will migrate its customers over to the NBN Company over time. Both of these possibilities are mentioned in the Explanatory Memorandum to the Bill and both would amount to a kind of structural separation.[49] Importantly, if a vote on the Bill does not take place until next year, this leaves open the possibility that a commercial agreement of this kind will be arrived at prior to the commencement of the Bill.
The effect would be that the part of the Bill dealing with the separation of Telstra will become largely redundant and that part, at least, will no longer need to be brought before Parliament. The other parts of Bill would still stand. Whether the Government is minded to continue with them is another matter. That is to say, Telstra’s opposition to the other measures in the Bill—the changes to the anti-competitive conduct regime in Part XIB of the Trade Practices Act, the increased powers of the regulator under the access regime in Part XIC of the Trade Practices Act, the tightening of the universal service obligation and the customer service guarantee—might play out in the negotiations with the Government over structural separation.
If, on the other hand, the Bill is passed this year, it is likely to precede the conclusion of negotiations which will then take place within the framework of the Bill. That is, Telstra will have to offer either a structural or functional separation undertaking. Although the framework currently presented in the Bill has shortcomings, it does, at least, offer some minimum standards for whichever of the two models of separation is chosen whereas a privately negotiated agreement might deviate materially from the principles underpinning the separation models in the Bill.
For instance, under the Bill, the ACCC has a formal role in assessing undertakings which it would not necessarily have in a privately negotiated agreement; there is a greater degree of transparency in the case of undertakings under the Bill than there would be if the agreement were reached outside of the Bill (although in the case of structural separation under the Bill, there is presently limited transparency) and the enforcement remedies for breaches of undertakings made under the Bill are stronger than for a commercially negotiated agreement. For functional separation undertakings, the Bill sets out principles with which the undertaking must be consistent. For structural separation, the minimum standards of separation are spelled out in proposed section 577A of the Bill. For both models of separation, the Minister may make instruments that must be published on the Department’s website.
Furthermore, if the Bill is passed this year, the remaining parts of the Bill will not be at risk of falling, a risk to which they may be exposed if Part 1 of the Bill became redundant under the first scenario.
This is at least one reason why the timing of the vote on this Bill is important.
This Bill has been introduced at a time when the Government has commenced work on a new national broadband network. However, the Bill does not mention the NBN and structural separation need not be justified on the basis of it. In fact, the separation of Telstra has been part of the political and policy debate about Telstra since 1996 when the Coalition government came to power with the policy of privatising Telstra. This digest has therefore generally not dealt with the NBN.
Following the Hilmer Report’s recommendations about the need to consider structural reforms of formerly publicly owned monopolies, such reforms were implemented in other sectors like the electricity, gas, rail, ports and airport sectors. Telecommunications stands out as an exception to this trend. Instead, the regulation of telecommunications has relied primarily on an access regime that many, including the regulator, regard as deficient.[50]
The length and complexity of Part 1 the Bill mask the simplicity of its intent which is to bring about the Government’s preferred outcome: the structural separation of Telstra.[51] For at least one reason, however, the Bill does not directly impose structural separation. To do so would risk a time consuming challenge to the constitutionality of the Bill on the basis that such legislation might amount to a compulsory acquisition of property otherwise than on just terms.[52]
Rather, the Bill is framed in such a way as to provide Telstra with several incentives to voluntarily structurally separate; a voluntary structural separation being unlikely to offend the Constitutional prohibition on compulsory acquisition of property other than on just terms.
Only structural separation can remove the incentive faced by Telstra’s network/wholesale business to favour its own retail operations over those of its retail competitors. Functional separation merely mimics some of the characteristics of a structurally separated business but can never alter the overriding incentive that Telstra has to act in the interests of the company as a whole.
The Government was fortunate to be faced with a situation in which Telstra’s share price had collapsed following Telstra’s exclusion, earlier this year, from a tender to build a fibre to the node network.[53] This circumstance, which was followed by the departure of the CEO and Chair, removed a considerable amount of the political risk in taking a firmer regulatory hand to Telstra. As events have unfolded, there have been loud complaints from shareholders but the Telstra share price has not materially changed from the time this Bill was introduced.
Whether structural separation is implemented successfully will depend to a large degree on the attitude of Telstra itself—particularly whether the Telstra Board considers this accords with its fiduciary and legal obligations. In many ways, the Bill attempts to make that assessment easier by making the structural separation option the most attractive option it can take.
There has been considerable pressure by the Government for this Bill to be considered and voted upon in the week ending 30 October 2009. There is nothing in the Bill itself that requires this. However, it is known that the Government, through the National Broadband Network Company is negotiating with Telstra for Telstra to sell or otherwise make available some or all of its network assets to the NBN Company.[54] An agreement of this kind could satisfy the requirements of structural separation and, if this Bill had not passed by that time, render the whole of Part 1 of this Bill unnecessary. The parts dealing with consumer protection, access regulation and anti-competitive conduct stand alone and could be considered later if there were no other constraints on the Government in allowing that to occur.
Part 2 of the Bill makes amendments to the access regime in Part XIC of the Trade Practices Act.
Earlier in this digest, reference was made to the observation in the Hilmer Report that there are two ways of dealing with bottleneck services or facilities; structural separation or ‘more intrusive regulatory controls to guard against cross-subsidisation and, where a vertical relationship is involved, the potential misuse of control over access to the natural monopoly element’.[55] As noted, Australia took the latter approach and, in 1997, introduced a set of rules to enable access to be given to certain services that have bottleneck characteristics (Part XIC of the Trade Practices Act) and to deal with anti-competitive conduct (Part XIB of the Trade Practices Act). At the time that was not an unusual approach in telecommunications markets around the world.
In order to provide retail services to customers, Telstra’s competitors need access to certain wholesale services that are provided over Telstra’s network. Because Telstra is vertically integrated and operates in the same retail markets as those competitors, it usually has little incentive to provide access to those services on acceptable terms. The regulatory response under Part XIC has been to create legislated rights concerning access to certain services. Under Part XIC, access seekers are able to try to negotiate access and, failing that, have their disputes arbitrated by the ACCC. This is known as the ‘negotiate-arbitrate’ model.
Under Part XIC, a wholesale service falls into the regulatory net by being ‘declared’ by the ACCC.[56] Declaration of a service obliges the service provider to supply the service on terms to be negotiated.[57]
If access is supplied, the wholesale service provider must comply with the ‘standard access obligations’ (SAOs).[58] The SAOs require the service provider to permit interconnection of facilities to enable the supply of retail service and to ensure access seekers receive equivalent technical and operational quality and timing of interconnection to that which Telstra provides itself.[59]
The ACCC may exempt service providers from some or all of the standard access obligations including for services that are yet to be provided.[60] These exemptions can be for existing declared services (ordinary exemptions) or for services that are not yet declared or even in operation (anticipatory exemptions).
If negotiation is not productive, there are two possible ways that the terms and conditions of access can be arrived at. A wholesale service provider may give the ACCC an undertaking setting out the terms and conditions on which it is prepared to provide access.[61] These undertakings can be for existing declared services (ordinary undertakings) or services that are not yet declared or even in operation (special undertakings). The ACCC must approve an undertaking before it becomes effective.
If there is no undertaking in place and the parties cannot reach agreement about access, either party may ask the ACCC to arbitrate the dispute. The ACCC—arbitrated terms and conditions are binding, but only on the parties to that dispute and only in relation to that particular dispute.
When arbitrating a dispute, the ACCC must have regard to the ‘pricing principles’ and, for a limited range of services, the ‘model terms and conditions’ that it is required to make.[62] Neither the pricing principles nor the model terms are binding on parties that are not in arbitration and, even in an arbitration, are merely matters to which the ACCC ‘must have regard’.[63]
The existing regime ostensibly reflects an attempt to strike a balance between the rights of access providers and access seekers and assumes that they both have a willingness to negotiate in good faith to arrive at commercial agreements about access.
However, the number of disputes that have been notified to the ACCC since 1997 (157 according to the Explanatory Memorandum[64]) shows that the legislature had either a naïvety about the incentives faced by access providers (notably Telstra) to obstruct access or, as Alan Fels, the former Chairman of the ACCC, recently alleged, a deliberate disregard for them. (He says that access regulation was deliberately kept weak in order to maximise the Telstra share price as the Commonwealth sold down its share to the public from 1996 to 2006.[65])
It has been observed that ‘Telstra loathes the access rules. That is hardly surprising: if the access rules did not exist, Telstra could charge its customers much more to use the network.’[66] For this reason and because the complexity of the negotiate–arbitrate model in Part XIC provides considerable scope for obstruction and delay (‘gaming’) by access providers, Part XIC has not worked as it was meant to. For instance, access providers like Telstra can conduct negotiations so as to lead almost inevitably to time-consuming arbitrations by the Commission; can give undertakings to delay the arbitration of disputes, withdraw them and then lodge substantially the same undertaking later, at each point causing further delay; can seek review of all decisions of the ACCC in the Australian Competition Tribunal and take appeals on matters of law to the Federal Court.
As a result it has been observed that ‘the negotiate–arbitrate model was disastrously unfit for purpose… Its manifest flaws were a major reason why competition in fixed line telecommunications remained so weak’.[67]
The changes made by the Bill address two main problems with the current access regime. First, the ACCC has the power to determine conditions of access arises only when it is arbitrating a dispute. The outcome of those arbitrations affects only the parties to that dispute and are not of general application. Secondly, the current regime is complex and offers many opportunities to obstruct or delay access including appealing administrative decisions to the Australian Competition Tribunal. The Bill deals with these problems in the following ways:
The Bill abolishes the negotiate–arbitrate model and gives the ACCC the power to set terms and conditions for declared services for a period of three to five years. Parties can still, however, negotiate their own agreements but there will be no need for time consuming arbitrations as, in the absence of agreement, the terms and conditions of access will be those determined by the ACCC.
Item 116 of the Bill repeals existing Division 4 of Part XIC of the Trade Practices Act and inserts proposed Division 4. Within that new Division, proposed section 152BC gives the ACCC the power to make ‘access determinations’. These are up-front determinations about the conditions of access—including the price of access—to declared services for a three to five year period. Proposed sections 152BC, 152BCA, 152BCB, 152BCC and 152BCD deal with the content of access determinations.
In order to bring some flexibility into the operation of access determination, the ACCC is given two devices: First, it can include in an access determination a provision that is specified to be a ‘fixed principles provision’ (proposed subsection 152BCD(1)). Such a provision deals with the same matters that may be dealt with in an access determination but can operate beyond the term of the access determination (proposed subsection 152BCD(2)). The Explanatory Memorandum gives, as an example of a fixed principle, a provision dealing with the manner of calculating depreciation for the purpose of setting access prices.[68]
Secondly, to deal quickly with issues as and when they arise, the ACCC can make ‘binding rules of conduct’ (proposed section 152BD). These binding rules operate in addition to, or as a variation of, an access determination. Because they are to be used to deal quickly with issues, they have a shorter life than access determinations (up to 12 months under proposed section 153BDC) and the ACCC is not required to hold a public inquiry prior to making them as is the case with access determinations. The Explanatory Memorandum gives as an example of this kind of rule one concerning exchange access or service migration processes.[69]
Proposed section 152BCG allows the ACCC to make an interim access determination. Proposed sections 152BCH to 152BCM deal with the processes for making an access undertaking which mainly involve requirements to hold a public inquiry. Proposed section 152BCN deals with the revocation and variation of access determinations.
In addition to being enforceable by the ACCC, access determinations and binding rules of conduct can be enforced in the Federal Court by an access seeker, a carrier or a carriage services provider (proposed sections 152BCQ and 152BDH).
Access seekers and providers can still negotiate different terms from those set out in an access determination. If there is a conflict between an agreement and an access determination, the determination is of no effect to the extent of the inconsistency (proposed section 152BCC).
Access providers will no longer be able to give undertakings for active declared services (ordinary undertakings) but will still be able to give undertakings for services that are either not yet in operation or not yet declared (special access undertakings). (Item 117 of the Bill repeals sections 152BS–152CB of the Trade Practices Act which provide for ordinary access undertakings.) This evidently reflects the misuse of ordinary access undertakings to delay and obstruct the operation of the access regime.
The ACCC will no longer be able to grant exemptions from the standard access obligations for active declared services (ordinary exemptions) but will continue to be able to give exemptions for services that are either not yet in operation or not yet declared (anticipatory exemptions). (Items 93 and 100 repeal sections 152AS and 152AT of the Trade Practices Act respectively which currently deal with anticipatory exemptions.)
Currently, certain decisions of the ACCC are subject to merits review in the Australian Competition Tribunal (the Tribunal). Access providers—notably Telstra—commonly appeal decisions to the Tribunal. It is alleged that Telstra appeals decisions in order to delay and obstruct the access regime, although the inference of bad faith that is often drawn may be exaggerated given that the Telstra Board’s legal and fiduciary duties may require that it does so.[70] Whatever the reason, the effect is that access is delayed and uncertainty created for access seekers.
This Bill abolishes merits review for certain decisions of the ACCC but does not take away any rights to judicial review under the Administrative Decisions (Judicial Review) Act 1977.
The ACCC currently can make decisions about whether or not to give ordinary and anticipatory exemptions from the standard access obligations. This Bill takes away the power of the ACCC to give ordinary exemptions and, in relation to anticipatory exemptions, takes away the right to merits review. (Item 108 of the Bill repeals sections 152AV, 152AW and 152AX which deal with appeals concerning exemptions.)
Also, the ACCC currently can make decisions about whether to accept or reject an ordinary access undertaking (that is, one in relation to existing declared services) or a special access undertaking (that is, one in relation to a service that is not yet in operation or declared). This Bill takes away the right of a person to give an ordinary access undertaking and, in relation to a decision about a special access undertaking, takes away the right to merits review. (Item 128 repeals sections 152CE, 152CF, 152CG and 152CGA, which relate to these decisions.)
Part XIB of the Trade Practices Act prohibits a service provider with a substantial degree of market power from engaging in conduct which has either the effect or purpose of substantially lessening competition. This is known as the ‘competition rule’.
Proceedings may be initiated in the Federal Court to enforce the competition rule. However, proceedings can be initiated only if the alleged anti-competitive conduct in relation to which Federal Court action is taken is of a kind that has been specified previously in a Part A competition notice that has been given to the alleged infringer and is still in force. Before the ACCC issues a Part A competition notice, existing subsections 151AKA(9) and (10) of the Trade Practices Act require that it must give the provider concerned a ‘consultation notice’ which describes the alleged anti-competitive conduct in summary form, and must give the provider an opportunity to make submissions.
There is an alternative to this process that involves the issue of a Part B competition notice but this process is not affected by this Bill and is not dealt with here.
The Part A competition notice process can be manipulated in order to draw out the enforcement process with the effect of damaging competitors through anti-competitive conduct. In particular, the requirement to consult—by way of a ‘consultation notice’—presents opportunities for challenge because consultation typically carries with it rights to procedural fairness, the elements of which, in practice, are difficult to define and therefore easy to contest.
The Bill removes the requirement for the ACCC to undertake consultation before issuing a Part A competition notice. (Item 159 repeals subsection 151AKA(10) which currently requires that the ACCC consult before issuing a Part A notice.) This will deny the affected person the opportunity to delay the ACCC’s enforcement activities on procedural grounds. The ACCC will still need to prove the substantive claims of anti-competitive conduct in the Federal Court.
The Bill also removes the requirement imposed on the ACCC at common law to provide procedural fairness when issuing a competition notice. (Item 159 repeals subsection 151AKA(9) which currently requires procedural fairness.) There is a precedent for the denial of procedural fairness in existing subsection 152CPA(3) which was inserted in 2005.[71] In any case, procedural fairness is afforded at other stages in the enforcement process. First, the Part A competition notice must set out the specific allegations of anti–competitive conduct. Secondly, the ACCC can revoke the competition notice if it was issued in error. Thirdly, enforcement must be in the Federal Court where the allegations of anti-competitive conduct must be proved.
Part XIB is also amended to make clear that Part XIB applies to content services and not just carriage services.[72] Those who hold rights to content—particularly exclusive rights—can foreclose competition in both markets for content and in other markets. Part XIB is capable of dealing with such situations provided it clearly applies to content services. This is the reason for this minor, but important, amendment.
The Universal Service Obligation (USO) has the objective of ensuring basic voice telephony and payphone services are reasonably accessible to all people on an equitable basis. The current primary USO provider is Telstra. Because the USO is provided at a loss (the amount of which is contested), Telstra is compensated out of the USO fund.[73] The Fund is made up of compulsory contributions by licensed carriers based on their ‘eligible revenue’. Only carriers with eligible revenue above a prescribed minimum need contribute.
Compliance with USO requirement is a carrier licence condition for Telstra. Upon breach the Federal Court has the power to impose a civil penalty up to $10 000 000 for each breach.[74] However, the current requirements are imprecise and difficult to enforce because the obligation on the universal service provider is to take all reasonable steps to fulfil the relevant obligations.[75] Whether something is reasonable or not is largely up to Telstra to decide which creates scope for avoidance.[76]
This part of the Bill introduces more certainty into the USO obligations. This will improve the prospects for enforcement either by Federal Court action or by the issue of infringement notices, a new measure introduced by Part 7 of this Bill. Infringement notices may be issued for amounts of up to $1 980 000.[77]
This part of the Bill amends the Telecommunications (Consumer Protection and Service Standards) Act (the Consumer Protection Act) to include new requirements for the universal service provider to supply, on request from a customer, a standard telephone services with characteristics and to performance standards determined by the Minister via legislative instrument (proposed section 12EB which is inserted by item 175). The Explanatory Memorandum says that it is intended that performance standards will include maximum periods of time for new connections and fault rectification and reliability standards.[78] There are also new provisions providing minimum performance benchmarks that the universal service provider must meet in fulfilling its responsibilities (proposed section 12EC).
The Bill also provides the Minister with the power to specify, by a legislative instrument, rules and performance standards to which a primary universal service provider must adhere in relation to the supply, installation, maintenance and location of payphones (proposed sections 12ED and 12EE). In addition, there will be new rules in relation to public consultation and notification of proposals to remove payphones (proposed sections 12EF, 12EG and 12EH). The Australian Communications and Media Authority (ACMA) will have new powers to direct the universal service provider not to remove payphones (proposed section 12EI). People adversely affected by a proposed payphone removal will be able to request that the ACMA consider issuing directions to the universal service provider. In considering whether to issue such a direction, the ACMA will have regard to both the consultation and notification requirements as well as the rules about the location of payphones (proposed section 12EI).
The other important measure introduced is to prevent the universal service provider from attempting to satisfy the USO obligation by the provision of a mobile or a voice over internet protocol (VOIP) service unless, amongst other things, the customer has given informed written consent to such action (proposed section 6A which is inserted by item 164).
The Customer Service Guarantee (CSG) requires telephone companies to provide connections and fault rectification within the times set out in the rules. A failure to meet these performance service standards leads to the provider being required to make a payment to the customer for each working day that a connection or fault rectification is delayed.[79] Providers are currently subject to no other penalties for failing to meet the CSG standards.[80]
The ACMA reports that the performance of providers, as measured against the CSG requirements, has been declining. One measure of this has been the increase in payments to customers which suggest that the current rates of compensation do not provide sufficient incentive for providers to fix problems in a timely fashion.[81]
Item 182 in Part 5 of the Bill amends the Consumer Protection Act to provide for the Minister to establish minimum CSG performance benchmarks (proposed sections 117B and 117E). Unlike performance standards which are concerned with setting standards for service for each individual, performance benchmarks are likely to be of general application. Hypothetically, for instance, a benchmark may require that a service provider rectify faults on time in, say, 95% of cases over a 12 month period.
A breach of the CSG standards—that is, those existing standards concerning times for connection and repair—will remain subject to compensation payments to affected customers and continue to be not subject civil penalties. However, a failure to meet the newly established minimum CSG performance benchmarks will be subject to civil penalties. As for the USO, these may be dealt with by the issue of infringement notices under a new scheme introduced by Part 7 of this Bill.
The Bill also provides for the Minister to establish new CSG timeframes for connections and repair that will apply to wholesale providers to assist retail providers of CSG services to meet CSG service quality standards (proposed section 117D). This will deal with a situation in which, by way of example, Optus is the retail provider of the phone service but Telstra is the wholesale provider of that service. In such a case, the primary obligation may rest on Optus, but the satisfaction of it may depend on Telstra.
The Bill also deals with the practice that has developed of providers deeming that CSG rights have been waived by, for instance, the inclusion of a term in the standard customer agreement. Under this Bill, a customer’s express agreement will be required before a provider may treat them has having waived their CSG rights. In addition, there is a new requirement that a customer’s waiver of the CSG must include a statement that summarises the consequences of the customer waiving the CSG (proposed subsections 120(5) and (6)).
To ensure consumers have the safety net of always being able to purchase a CSG service, the Bill makes explicit that the CSG cannot be waived for a telephone service that is supplied in fulfilment of the Universal Service Obligation (proposed subsection 120(7)).
Priority assistance services provide better phone connections and fault repairs for customers who have in their residence a person with a life threatening medical condition.
Item 191 of Part 6 of this Bill introduces proposed Part 6 into schedule 2 of the Telecommunications Act which sets out the ‘service provider rules’.
New Part 6 requires service providers to either offer a priority assistance service in accordance with an industry code (the ‘Priority Assistance for Life Threatening Medical Conditions’ Code made by the Communications Alliance)[82] or to inform customers of the names of providers from whom they can purchase such a service if they require it. Telstra will remain bound by clause 19 of its current carrier licence conditions to provide a priority assistance service.[83]
New Part 31B is inserted into the Telecommunications Act by item 195 of Part 7 of the Bill to allow ACMA to deal with breaches of civil penalty provisions by issuing infringement notices rather than by initiating Federal Court action as is presently required. A civil penalty provision is a one that can be enforced by civil—rather than criminal—proceedings.
Infringement notices are a means of dealing with breaches quickly. A person receiving an infringement notice can pay the penalty specified or elect to have the matter dealt with in the Federal Court.
The penalty amount specified in an infringement notice given to a corporation cannot exceed 60 penalty units or $6 600 (proposed subsection 572G) but the Minister may determine different amounts for different contraventions up to a maximum of 18 000 penalty units (currently $1 980 000). This is less than the civil penalties that can be payable if a matter proceeds in the Federal Court where penalties of up to $10 000 000 are possible.[84]
The rest of this new part is concerned with technical matters such as the content of infringement notices (proposed section 572F), the avoidance of double counting where a single contravention amounts to breaches of more than two provisions (proposed section 572E); the effect of the withdrawal of infringement notices (proposed section 572H); and the appointment of ‘authorised infringement officers’ (proposed section 572L).
Part 8 of the Bill makes clarifying amendments to the definition of ‘civil penalty provision’ in the Telecommunications Act. Currently, the definition lists all the provisions that are civil penalty provisions. However, since all of those provisions are, in their terms, also declared to be civil penalty provisions, the new definition simply refers to that fact. That is, the new definition of ‘civil penalty provision’ is any provision that is declared to be one (proposed section 7).
Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2460.
[1]. Trade Practices Act 1974, Radiocommunications Act 1992, Telecommunications Act 1997 and Telecommunications (Consumer Protection and Service Standard) Act 1999. Minor consequential changes are made to the National Transmission Network Sale Act 1998.
[2]. J Chowns, Telecommunications Legislation Amendment (National Broadband Network Measures-Network Information) Bill 2009, Bills digest, no. 22, 2009–10, Parliamentary Library, Canberra, 2009, viewed 10 November 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillsdgs%2FCSLU6%22
[3]. F Hilmer, M Raynor, G Taperell, National Competition Policy: Report by the Independent Committee of Inquiry, AGPS, Canberra, August 1993, viewed 4 November 2009, http://ncp.ncc.gov.au/docs/Hilmer-001.pdf
[4]. National Competition Council, The Competition Principles Agreement; the Conduct Code Agreement; the Agreement to Implement the National Competition Policy and Related Reforms, Compendium of Competition Policy Agreements, AGPS, Canberra, June 1998, viewed 4 November 2009, http://ncp.ncc.gov.au/docs/PIAg-001.pdf
[5]. An outline of the development of Australia’s National Competition Policy is given in a publication by the Parliamentary Library; J Kain, I Kuruppu, R Billing, Australia's National Competition Policy: Its Evolution and Operation, E–Brief, Department of Parliamentary Library, Canberra, June 2001 (updated 3 June 2003), viewed 24 October 2009, http://www.aph.gov.au/library/intguide/econ/ncp_ebrief.htm
[6]. A common definition of a natural monopoly is a situation in which one supplier of a service can satisfy the foreseeable demand in the market at a lower cost than two or more suppliers.
[7]. Hilmer, pp. xxx – xxxi.
[8]. Competition Principles Agreement, Clause 4(3)(c), 11 April 1995.
[9]. Hilmer, p. 215.
[10]. Hilmer, p. 221.
[11]. In 1991, the Australian and Overseas Telecommunications Corporation (AOTC) was incorporated and in February 1992 all the property and rights of the Australian Telecommunications Corporation and the Overseas Telecommunications Corporation (concerned with domestic and overseas telecommunications respectively) were merged in it. The AOTC later became Telstra. See Telstra Corporation Limited v The Commonwealth [2008] HCA 7, paragraphs 14-16, viewed 3 November 2009, http://www.austlii.edu.au/au/cases/cth/HCA/2008/7.html
[12]. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition And Consumer Issues) Bill 2005, p. 2, viewed 3 November 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fs480%22
[13]. Hilmer p. 219.
[14]. Under section 236 of the Corporations Act 2001, a person (including a shareholder) may bring proceedings on behalf of a company against another party, including the board or a board member, to protect the interests of the company.
[15]. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2005, p. 2.
[16]. Hilmer, p. 219.
[17]. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2009, p. 44.
[18]. Hilmer, p. 241.
[19]. Hilmer, p. 220.
[20].
ACMA & ACCC, Communications Infrastructure and Services Availability in
Australia 2008, ACMA, Canberra, 2008, p. 11, viewed 3 November 2009,
http://www.acma.gov.au/webwr/_assets/main/lib310785/comms_infrastucture_and_svce_availability_in_aust_08.pdf
[21] There are several ways that Telstra is prevented from using the designated spectrum: proposed section 577J prohibits the ACMA from allocating it to Telstra; proposed section 577K prevents another licensee from authorising Telstra to use it; proposed clause 84 of Schedule 1 prohibits Telstra from being in a position to exercise control of it and proposed clause 85 of Schedule 2 prohibits Telstra from supplying a carriage service under a licence.
[22]. S Conroy (Minister for Broadband, Communications and the Digital Economy), Conroy sets digital TV switchover timetable, media release, 19 October 2008, viewed 28 October 2009, http://www.minister.dbcde.gov.au/media/media_releases/2008/077
[23]. All of the provisions that prevent Telstra from being allocated or using the designated spectrum (proposed section 577J; proposed section 577K; proposed clause 84 of Schedule 1 and proposed clause 85 of Schedule 2) include provisions that have the effect of exempting Telstra from requirement to give a Foxtel undertaking and/or an HFC undertaking if the Minister is satisfied that the structural separation undertaking sufficiently deals with competition concerns.
[24]. Telstra must give the Minister a draft functional separation undertaking within 90 days of the coming into force of the Minister’s first functional separation requirements determination which the Minister must ensure comes into force within 90 days of commencement of this Part (which is the day after Royal Assent). The Minister could cause the determination to come into force on any day between the commencement day and 90 days later (that is, between 1 day and 91 days after Royal Assent). In turn, Telstra has 90 days starting from but not including any day from day 1 to day 91 to give the Minister an undertaking. Therefore the minimum time it will have is 91 days and the maximum time will be 182 days.
[25]. Section 61 of the Telecommunications Act 1997 provides that Schedule 1 sets out the carrier licence conditions. Section 68 provides that a carrier must comply with the carrier licence conditions and that this is a civil penalty provision.
[26]. Part 7 of the Bill deals with infringement notices.
[27]. Department of Broadband, Communications and the Digital Economy, National Broadband Network: Regulatory Reform for 21st Century Broadband, DBCDE, Canberra, April 2009, viewed 27 October 2009, http://www.dbcde.gov.au/broadband/national_broadband_network/regulatory_reform_for_21st_century_broadband
[28]. Details of the inquiry, including the submission and final report are at http://www.aph.gov.au/senate/committee/eca_ctte/tlaccs/index.htm
[29]. Australian Competition and Consumer Commission, Submission to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network: Regulatory Reform for 21st Century Broadband, June 2009, p. 9, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0016/115405/Optus-Main.pdf
[30]. Optus, Submission to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network; Regulatory Reform for 21st Century Broadband, June 2009, p.3, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0016/115405/Optus-Main.pdf
[31]. CTN, Submission to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network: Regulatory Reform for 21st Century Broadband, June 2009, p.3, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0019/118090/Consumers_Telecommunications_Network_CTN.pdf
[32]. Competitive Carriers Coalition, Submission to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network: Regulatory Reform for 21st Century Broadband, June 2009, p.5, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0004/115384/Competitive_Carriers_Coalition_CCC_-Main_.pdf
[33]. Membership of CCC taken from its website, viewed 4 November 2009, http://www.ccc.asn.au/members.htm
[34]. Unwired Australia Pty Ltd, Submission in response to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network: Regulatory Reform for 21st Century Broadband, June 2009, p. 2, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0003/115347/Unwired.pdf
[35]. ATUG, Submission in response to the Department of Broadband, Communications and the Digital Economy, Discussion paper: National Broadband Network: Regulatory Reform to 21st Century Broadband, June 2009, p. 14, viewed 2 November 2009, http://www.dbcde.gov.au/__data/assets/pdf_file/0007/115369/Australian_Telecommunications_Users_Group_ATUG.pdf
[36]. Bill Scales, Head of Corporate and Human Relations, Telstra, Evidence to Senate Communications, Information Technology and the Arts References Committee, Inquiry into performance of Australian telecommunications regime, Senate Hansard, 4 May 2005, p. 80, viewed 2 November 2009, http://www.aph.gov.au/hansard/senate/commttee/S8287.pdf
[37]. Telstra, Submission to Senate Standing Committee on Environment, Communications and the Arts, Inquiry into Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009, p. 1, viewed 26 October 2009, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=2414530d-9708-4ee5-b0c3-55927ed7de04
[38]. Telstra, Submission to Senate Standing Committee on Environment, Communications and the Arts, Inquiry into Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009, p. 1.
[39]. Telstra, Telstra share offer document, 1997, p. 34, viewed 25 October 2009 http://www.telstra.com.au/abouttelstra/investor/docs/t1_financial_information.pdf
[40]. Telstra, Telstra share offer document 1999, p. 17, viewed 25 October 2009 http://www.telstra.com.au/abouttelstra/investor/docs/t2_share_offer.pdf
[41]. Telstra share offer 1999, p. 20.
[42]. Telstra, Telstra 3 Share offer, 2006, p. 11, viewed 25 October 2009, http://www.telstra.com.au/abouttelstra/investor/docs/tls489_t3prospectus.pdf
[43]. Telstra 3 share offer, p. 42.
[44]. Telstra 3 share offer, p. 50.
[45]. Telstra, Making a difference: annual report 2009, p. 47, viewed 16 November 2009, http://www.telstra.com.au/abouttelstra/investor/docs/tls696_2009annualreport.pdf
[46]. Australian Shareholders Association, Submission to Senate Environment, Communications and the Arts Committee, Inquiry into Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009, p. 3, viewed 24 October 2009, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=9d035194-242d-4586-a637-db308685eb15
[47]. Australian Foundation Investment Company, Submission to Senate Environment, Communications and the Arts Committee, Inquiry into Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009, p. 3, viewed 24 October 2009, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=75caf03d-e1c8-4a8d-94e6-5d7dfd6bb492
[48] See for instance, Senate Environment, Communications, Information Technology and the Arts, Consideration of Telstra (Dilution of Public ownership) Bill 1996, Senate Hansard, para. 3.34, viewed 3 November 2009, http://www.aph.gov.au/Senate/Committee/ecita_ctte/completed_inquiries/1996-99/telstra/report/c03a.htm#structural
[49]. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2009, p. 1.
[50]. E Willet, ACCC Commissioner, Speech to Broadband Australia 2009 Conference, Sydney, 11 June 2009, p. 5.
[51]. S Conroy (Minister for Broadband, Communications and the Digital Economy), speech to CommsDay Summit, 14 October 2009, viewed, 25 October 2009, http://www.minister.dbcde.gov.au/media/speeches/2009/068/
[52]. Subsection 51 (xxxi) of the Commonwealth of Australia Constitution Act provides that the Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to…the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.
[53]. M O’Sullivan, ‘ACCC case fuels fears of Telstra split’, Sydney Morning Herald, 20 March 2009, p. 19, viewed 16 November 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FOR2T6%22
[54]. D Crowe, ‘Labor faces $25bn fight over Telstra network value’, Australian Financial Review, 27 October, 2009, p. 1, viewed 16 November 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FNF1V6%22
[55]. Hilmer p. 219.
[56]. Division 2 of Part XIC of the Trade Practices Act 1974.
[57]. Section 152AY of the Trade Practices Act 1974.
[58]. Division 3 of Part XIC of the Trade Practices Act 1974.
[59]. Section 152AR of the Trade Practices Act 1974.
[60]. Sections 152AS, 152ASA, 152AT and 152ATA of the Trade Practices Act 1974.
[61]. Division 5 of Part XIC, of the Trade Practices Act 1974.
[62]. Sections 152AQA and 152AQB of the Trade Practices Act 1974.
[63]. Subsections 152AQA(6) and 152AQB(9) of the Trade Practices Act 1974.
[64]. Explanatory Memorandum, Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2009, p. 46.
[65]. A Kohler, ‘Interview with Alan Fels’, ABC Inside Business, transcript, Australian Broadcasting Corporation, (ABC), 4 October 2009, viewed 3 November 2009, http://www.abc.net.au/insidebusiness/content/2009/s2704250.htm
[66]. P Fletcher, Wired Brown Land? Telstra’s Battle for Broadband, UNSW Press Ltd, Sydney, 2009, p. 12.
[67]. P Fletcher, p. 52.
[68]. Explanatory Memorandum, p. 48.
[69]. Explanatory Memorandum, p. 48.
[70]. Explanatory Memorandum, p. 46
[71]. Inserted by schedule 12 of the Telecommunications Legislation Amendment (Competition and Consumer Issues) Act 2005, http://www.comlaw.gov.au/ComLaw/Legislation/Act1.nsf/0/EF7D9BB244FFE2F6CA25713A001E26C8/$file/119-2005.pdf
[72]. Section 7 of the Telecommunications Act 1997 defines the term ‘carriage service’ as a service for carrying communications by means of guided and/or unguided electromagnetic energy.
[73]. S Bartholomeusz, ‘Universal service obligation review may offer solution to regulation impass’, The Age, 28 June 2007, p. 10, viewed 16 November 2009, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FMWHN6%22
[74]. Section 61 and Part 1 of Schedule 1 of the Telecommunications Act 1997 makes compliance with the Telecommunications (Consumer Protection and Service Standards) Act 1999 a carrier licence condition. Breach of a carrier licence is subject to a civil penalty (section 68 of the Telecommunications Act 1997). Part 31 of the Telecommunications Act 1997 provides that civil penalties up to $10 000 000 may be imposed by the Federal Court.
[75]. Subsection 12C(1) of the Telecommunications (Consumer Protection and Service Standards) Act 1999.
[76]. Explanatory Memorandum, p. 67.
[77]. Under the new provisions in Part 7 of the Bill dealing with infringement notices, the maximum penalty that may be imposed using this mechanism is 18 000 penalty units. A ‘penalty unit’ is defined in section 4AA of the Commonwealth Crimes Act 1914 as being equivalent to $110.
[78]. Explanatory Memorandum, p. 5.
[79]. The amounts that are payable to customers for breaches of the CSG are set out on the website of the Telecommunications Industry Ombudsman, viewed 18 November 2009, http://www.tio.com.au/FAQ/csg.htm
[80]. This is because section 123 of the Consumer Protection Act has the effect that the requirement on a service provider to comply with the Act (breach of which would otherwise be subject to a civil penalty) does not include a requirement to comply with a service standard like this.
[81]. Explanatory Memorandum, p. 68.
[82]. Communications Alliance, Industry Code; Priority Assistance for Life Threatening Medical Conditions,2007, viewed 27 October 2009, http://www.commsalliance.com.au/__data/assets/pdf_file/0011/1343/C609_2007.pdf
[83]. Explanatory Memorandum, p. 6.
[84]. Section 570 of the Telecommunications Act 1997.
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