Telecommunications Laws Amendment (Universal Service Cap) Bill 1999
Background
The Universal Service Obligation
1.1
The Universal Service Obligation (USO) is a core
regulatory obligation of the telecommunications industry, which has the aim of
ensuring that all persons in Australia have access to a minimum level of telecommunications services in
cases where the market would not be likely to otherwise supply those services.[1]
1.2
Section 138 of the Telecommunications Act
1997 states that the object of the Universal Service Obligation is to
ensure that:
- all people in Australia, wherever they reside or carry on business,
should have reasonable access, on an equitable basis, to:
- standard telephone services; and
- payphones; and
- prescribed carriage services;[2]
1.3
The Section also states that the USO ‘should be
fulfilled as efficiently and economically as practicable’; that ‘the losses
that result from supplying loss making services in the course of fulfilling the
USO should be shared among carriers’; and that the information according to
which those losses (and the respective carriers’ shares of the losses) are
determined, should be open to scrutiny by the carriers and the public ‘to the
greatest extent possible without undue damage being caused by the disclosure of
confidential commercial information’.[3]
1.4
The Telecommunications Act 1997 gives the
Minister power to designate a ‘universal service provider’ who has primary
responsibility for the delivery of the USO. The Minister also has the power to
declare a specified carrier as a ‘regional service provider’ (Section 150).
Telstra is the current universal service provider.
1.5
Sections 155 and 156 of the Act also allow the
Minister to declare two or more carriers as universal service providers, or
regional service providers, and for their responsibilities for delivery of the
USO to be accordingly limited. On 6 April 1999 the Minister for Communications, Information Technology and the
Arts, Senator Richard Alston, invited
carriers to make expressions of interest in a competitive tender for the
delivery of the USO, and announced the release of a public discussion paper on
the process.[4]
The outcome of this process (of which many details are still the subject of
public consultation) may have implications for the future cost of the USO.
1.6
Division 4 of the Telecommunications Act 1997
also obligates the declared universal service provider(s) to supply the
Minister with a draft ‘universal service plan’ outlining how they intend to
fulfil the USO in their area of responsibility. The Minister may refuse to
approve the plan and direct the carrier to submit a modified draft plan if
necessary. When the plan is approved the carrier is obligated to ‘take all
reasonable steps to ensure that the plan is complied with.’ However the Act
does not provide for penalties, and its language creates some leeway in
judgements about whether the USO plan has been adequately fulfilled.[5]
1.7
On 1 December 1998 the Minister asked the ACA
to conduct a review of Telstra’s universal service plan, with an initial
reporting date of 31 March 1999.
The review has been completed, and is currently under Ministerial
consideration. It has not yet been made public. The ACA was required to report
on ‘the extent to which Telstra’s USP is satisfactory and areas where the
government should consider requesting Telstra to improve its USP.’ Particular
attention was to be given to the supply of interim services using satellite
phones; arrangements for people with disabilities; payphone services; and
connection and fault repair times, particularly in remote communities.[6] The outcome of this review
could also affect the future cost of the USO.
How the USO is funded and calculated
1.8
The USO has its origins in the Community Service
Obligations specified in the Australian Telecommunications Corporation Act
1989, and was formally created under the Telecommunications Act 1991.
During the period of this legislation an industry cross subsidy arrangement was
calculated and Optus and Vodafone were the only other carriers required to
contribute to the USO cost. The 1991 Act required Telstra to submit a claim for
its net universal cost (NUSC) each year according to a formula of ‘avoidable
costs minus revenue foregone’ developed by the Bureau of Transport and
Communications Economics (BTCE) in 1988. Avoidable costs is the amount by which
Telstra’s operating and capital costs (including the opportunity cost of
capital) exceed the costs it would have incurred had it not supplied
loss-making services. This amount is reduced by the revenue received from
loss-making areas to achieve the final NUSC.[7]
1.9
In order to resolve differences over Telstra’s
claim for 1993-94, the NUSC was agreed by negotiation between the carriers to
be $230 million for that year, and indexed by the CPI after that. By 1996-97
the NUSC had risen to $251.56 million and was divided among the carriers
according to market share (defined as each carrier’s minutes of total timed
traffic). That year Vodafone paid $2.13 million, Optus $23.07 million and
Telstra $225.49 million.[8]
1.10
The Telecommunications Act 1997 retained the
formula of avoidable cost minus revenue foregone to calculate the NUSC, but
used carriers’ ‘eligible revenues’ rather than timed traffic to calculate
market shares. (Eligible revenue is precisely defined in a regulation, but is
broadly based on a carrier’s telecommunications revenues less deductions such
as interconnect charges paid to other carriers for access to their networks).
The 1997 Act also enhanced the USO scheme by more precisely defining the
services contained in the USO; adding the National Relay Service to the USO and
aligning the USO with the requirements of the Disability Discrimination Act;
requiring the USO provider to submit a USO plan for approval; and providing
greater flexibility to add services to the USO.[9]
1.11
After disputes between the carriers emerged
after Telstra’s 1993-94 NUSC claim, steps were taken to develop a more
acceptable costing model than that developed by the BTCE in 1988. A consultant
delivered a report to the ACA’s predecessor AUSTEL in 1995, and in 1996 Bellcore
International was engaged to build a fully documented and operational costing
model on the basis of its recommendations. The ACA approved version 1.3.1 of
the Bellcore model on 26 October 1998 and is using this model to assess
Telstra’s 1997-98 claim. Telstra, Optus and Vodafone have all approved the
Bellcore model.[10]
Telstra’s claim
1.12
Using the Bellcore model, Telstra submitted a
claim to the ACA for a NUSC of $1.828 billion for 1997-98, in comparison with
the previous year’s cost of $252 million. The ACA stated the claim was some
seven times higher than that for previous financial years and has surprised
many industry participants. However they cautioned that:
A direct comparison between these numbers may be unfair and fail
to take into account the different circumstances. The NUSC number for 1992/3 of
approximately $149 million was based on a costing model that was shown by a
consultant to contain assumptions which were out of date or inappropriate.[11]
1.13
The ACA further explained that because of a lack
of agreement between the carriers on the 1993/94 figure it was agreed, pending
the development of an alternative costing model, that it should be $230
million. The NUSC for subsequent years has simply been based on that figure
plus increases in the CPI.[12]
Thus is it clear that the Bellcore model was likely to result in a different
NUSC than has been the case since 1993/4.
1.14
In explaining the need to impose a cap on the
NUSC, the Government has stated that the magnitude of Telstra’s claim ‘created
potential for significant uncertainty in the telecommunications industry’:
If the claim were upheld, the sevenfold increase in levy
contributions would be likely to severely damage all of Telstra’s competitors
to the detriment of continued competition in the industry; and
Even if the claim were to be reduced considerably on assessment,
the uncertainty about potential liabilities created by the claim during the
assessment period had the potential to cause serious destabilisation in the
telecommunications industry and deter investment.[13]
The Bill
1.15
The Telecommunications Laws Amendment (Universal
Service Cap) Bill 1999 was referred to the Senate Environment, Communications,
Information Technology and the Arts Legislation Committee on 31 March 1999 by
the Selection of Bills Committee (Report No 5 of 1999). The Committee was
required to report to the Senate by 30 April 1999.
1.16
This bill amends the Telecommunications Act
1997 and the Telecommunications (Consumer Protection and Service
Standards) Act 1999 with the aim of imposing a cap on the net universal
service cost (NUSC) for the 1997-8, 1998-99 and 1999-2000 financial years.
1.17
In the absence of agreement between the carriers
about a cap on the universal service cost for the 1997-98 financial year, the
Bill will cap the NUSC at $253.32 million, which is the agreed 1996-7 figure
plus CPI. If the cap is required in the following years, the cap will remain at
an equivalent amount increased by the level of the CPI.
1.18
The Government has stated that the cap is an
interim solution only, to create time for it to conduct a ‘measured and orderly
review of future USO funding arrangements’. The Government expects to carry out
the review during 1999 and enact any changes to the USO funding arrangements
before the commencement of the 2000-2001 financial year.
1.19
The Bill also gives the Minister a power to
determine different amounts for the 1998-99 and 1999-2000 years (by a
disallowable instrument) ‘in case any policy refinements arising from the
intended review can sensibly be implemented in relation to either of those
financial years or to reflect any changed circumstances.’[14]
Issues arising from the Bill
Overview
1.20
The need for the measures proposed in the Bill
has been raised firstly, by Telstra’s far higher claim for the NUSC than in
previous years, and secondly, by the likelihood of an inevitable change in the
NUSC as the new Bellcore model was adopted as the basis for the assessment and
calculation of the NUSC. The Committee agrees with the Government when it
suggests the size of Telstra’s claim has produced a great deal of uncertainty
within the industry which needs to be addressed; however the adoption of the
Bellcore model would have been likely to produce a different figure from
previous years, and obviously raises important medium and long-term issues for
the funding and viability of the USO.
1.21
The Bellcore model was intended to be the basis
for long-term industry agreement of the NUSC and industry contributions to it;
however it appears that if the ACA’s determination is greater than previous
years, the Government would disregard this Bellcore derived figure and move to
protect the industry through the cap:
Even if [Telstra’s] claim were to be reduced considerably on
assessment, the uncertainty about potential liabilities created by the claim
during the assessment period has [s] the potential to cause serious
destabilisation in the telecommunications industry and deter investment.[15]
1.22
The explanatory memorandum to the Bill defines
the Government’s policy priorities in this area as:
- to preserve the service and affordability guarantees of the
universal service regime;
- to preserve the viability, financial stability and
competitiveness of the industry and encourage continued investment; and
- to provide certainty to the industry so that it can plan for its
USO levy obligations.[16]
1.23
Submissions to this Inquiry identified the
following issues arising from the Bill:
- Is the amount of the cap specified in the Bill both reflective of
the true NUSC and/or adequately compensate the universal service provider for
the cost of the USO? Could the Bill, in the event of a discrepancy between the
assessed NUSC and the cap, create further financial liabilities for the
Commonwealth?
- Should the amount of the cap specified by the Bill be changed, or
should the Bill implement alternative options suggested in the explanatory
memorandum or submissions?
- Does the Bill create a precedent for sidelining the ACA as an
independent arbiter of the NUSC, or in degrading the independence and authority
of the ACA?
- Does the Bill, and the process of review for which it aims to
provide certainty, create scope for reconciling the government objectives of
ensuring the adequate delivery of the USO and the financial stability of
Telstra’s competitors?
Support for the Bill
1.24
In their submissions to the Committee, Cable and
Wireless Optus, Vodafone, AAPT and the industry representative ATUG gave strong
support to the Bill.
1.25
Vodafone, citing the preliminary studies of the
ACA’s consultants, argued that Telstra’s claim contained ‘gross statistical,
technical and financial deficiencies’ and welcomed the cap ‘as facilitating
instead a focus on how USO arrangements overall can be improved.’[17] C&W Optus suggested that
the cap would be ‘consistent with industry estimates of the most efficient cost
of delivering USO services’, enable carriers ‘to seek out alternative, more
efficient technologies to deliver the USO’ and help ‘ensure that appropriate
arrangements are put in place to competitively supply the USO and make sure
where competitive provision is not feasible, Telstra’s USO cost claim is fully
rigorous and transparent.’[18]
1.26
AAPT emphasised the importance of certainty to
its business strategy:
AAPT’s success as a competitor is heavily dependent on its
ability to offer competitive prices in the markets in which it competes, such
as national long distance (and in the near future, local) voice and data
services ... we must, to remain competitive, price our services based on very low
margins. At the same time, our forecasts and our ability to meet them, are
subject to an intense degree of sharemarket scrutiny. Market perceptions of
AAPT’s performance and prospects are critical to our future success,
particularly at this stage of AAPT’s growth and given the newness of our public
listing.[19]
1.27
Perhaps reflecting the very hostile relations
between Telstra and its competitors, AAPT also claimed that:
We believe that Telstra’s claim constitutes an attempt to
require AAPT and other carriers to choose between offering competitive prices
and making confident financial forecasts. Because AAPT must do both to succeed,
Telstra’s claim therefore represents an attempt to constrain our aggressive
pricing strategies and fundamentally undermine investor confidence in AAPT’s
stock.[20]
1.28
AAPT was also aware of the ACA’s recent media
release suggesting its NUSC assessment could be in the order of $425 million to
$600 million. AAPT suggested that the uncertainty about the final figure, and
its likelihood of still being between two and three times previous NUSC
figures, ‘reinforces the need for a capped amount’.[21]
1.29
ATUG stated that a significant element of the
concern felt by the industry at Telstra’s claim was because ‘the data that was
used to develop the claim was kept secret. Further, even the basis of the data
and the economic principles were not disclosed.’[22]
1.30
The ACA said that its examination of Telstra’s
claim had been extended because of:
A need to clarify aspects of the NUSC model and to seek further
information from Telstra on its basis for deriving the data supporting its
claim. There is also a requirement to ensure that the areas Telstra has claimed
as net cost areas are in accordance with the areas declared by the ACA in its
Telecommunications (Net Cost Areas) Declaration No 1 of 1997.[23]
1.31
Thus there would appear to be some grounds for
industry confusion and concern about the NUSC, given Telstra’s reluctance to
release information about how it arrived at its figure. The Committee believes
greater transparency on Telstra’s part would help in the longer term to promote
industry agreement and co-operation regarding the size of the NUSC and their
respective liabilities.
The Government’s concerns
1.32
In support of the Bill, the Government has
argued that Telstra’s 1997-98 USO claim has ‘produced an unacceptable level of
industry uncertainty and has the potential to affect the stability of the
entire industry and deter investment.’ They state that even though Telstra
would be expected to contribute between 85-90 per cent of the assessed NUSC,
‘other industry participants would face payments several times those expected
for this year.’ Comparing projected liabilities under the proposed cap and
Telstra’s claim of $1.8 billion, industry contributions would rise as follows:
- Cable and Wireless Optus from $32 million to $218 million;
- Vodafone from $4 million to $31 million;
- AAPT from $2.5 million to $ 18 million; and
- Other industry players, primarily small start-up carriers, from
$1 million to $8 million.[24]
1.33
While the Government acknowledges that the ACA’s
final assessed figure for the NUSC is likely to be much less than Telstra’s
claim, it argues that it ‘may still be significantly larger than $250 million’
and that, in such an event, ‘the stability of the telecommunications industry
may be affected’ and ‘it will also be necessary for carriers to raise
unexpectedly large amounts of funds within 28 days of the ACA providing them
with its assessment.’[25]
Review of arrangements for funding the USO
1.34
In view of these medium term uncertainties, the
Minister has asked the ACA to supply, with its NUSC assessment, advice as to
the implications for competition of its assessment and its view on the most
appropriate means of calculating the cost of fulfilling the USO. With that
information available the Minister will initiate a review of arrangements for
funding the USO scheme set out in Division 6 of Part 7 of the
Telecommunications Act 1997. That review will consider:
- The most appropriate means of calculating the cost of fulfilling
the USO;
- Estimates of the cost of fulfilling the USO and future trends;
- Evidence from the public or industry about the effect of the
existing arrangements (including any interim solution chosen) on the industry
and public benefit;
- If the ACA’s assessment is considerably greater than the
previously agreed costs of $250 million, options for the future USO funding
arrangements taking into account the objects of the Act (ensuring USO costs are
shared, promoting the long-term interests of end-users and ensuring an
efficient and competitive industry);
- The long-term sustainability of arrangements for funding the
delivery of the USO;
- The possibility that other carriers might fulfil the USO in
future; and
- The procedures of the USO funding regime, including claims,
assessment and billing processes.[26]
1.35
The Government will give significant priority to
the review but suggest it is unlikely to be finalised before the end of 1999
and that any Government decisions requiring legislation would not be enacted
until early 2000 – hence the proposal to extend the cap (with provision for
Ministerial variation) to cover the 1998-99 and 1999-2000 financial years.[27]
Opposition to the Bill
1.36
In its submission Telstra opposed the imposition
of a legislated cap in the NUSC, but welcomed the Government’s announcement of
a comprehensive review of USO funding. It argued that the review should be based
around the following principles:
- USO cost funding and recovery should be competitively neutral;
- All industry participants should share equitably in the cost of
USO provision;
- The actual costs of the USO should be taken into account when
determining the USO cost, rather than forward looking costs; and
- The assessment of USO costs should be market based, such as
through competitive tendering.[28]
1.37
Telstra expressed concern that the use of a Cap
would inhibit moves to market-based incentives for USO delivery and that:
It overrides established policy principles under which Telstra
as the national USO provider, has made investments in regional Australia.
Rather than minimise industry instability, Telstra believes that the Cap Bill
will in fact lead to even greater uncertainty for investors in the
telecommunications industry, as to how the costs for past and future
infrastructure investments will be treated.
The effect of the Cap Bill is to establish a transfer of value
from Telstra shareholders to other carriers, and to impose on Telstra
customers, costs not incurred on the customers of other carriers. The Bill
expressly limits the contribution of other carriers operating in Australia,
whilst leaving Telstra’s liabilities open ended to continue meeting the
obligation to supply and fund the USO.[29]
1.38
Telstra argued that the shortfall between the
actual costs of the USO incurred by Telstra and the capped levy contributions
from other carriers would have to funded from Telstra cashflows and retained
earnings, and warned that:
Telstra is concerned that the Cap bill would deny Telstra an
accrued entitlement to payment in respect of the losses incurred in the supply
of the USO during the 1997/98 year, which could give rise to an entitlement for
Telstra to a payment by the Commonwealth under the constitutional safety net
provision in Section 591 of the Telecommunications Act 1997.[30]
1.39
The Government has acknowledged that there is a
possibility that Telstra could bring proceedings against the Commonwealth to
recover funds from such an ‘acquisition of property’ (as set out in Clause
51(xxxi) of the Constitution). While it feels confident the legislation will
not in fact amount to an acquisition of property, the Government has stated
that in such an event its liabilities would be a maximum of $240.5 million, and
less if the ACA determination is lower than Telstra’s NUSC claim.[31] However the option the
legislation implements expressly rules out such a liability and provides for no
budgetary appropriation should Telstra successfully sue the Commonwealth for
the shortfall.
1.40
Telstra argued that ‘the outcome of the ACA’s
assessment should be used as the basis for compensation for the USO cost claim
for the 1997-8 year, rather than an arbitrary legislated cap.’[32]
1.41
The Communications, Electrical and Plumbing
Union (CEPU) supported Telstra’s position here, arguing that ‘the actual NUSC
for the year 1997-98 ... should first be determined by the ACA and then any
funding difficulties should be addressed.’ The CEPU also suggested that:
A persistent undercompensation of a universal service provider
for the net costs it incurs will put pressure on long term service quality and
availability. In a competitive market, it is not realistic to expect a USO
provider simply to absorb some or all of the costs (over and above its
appropriate contribution) no matter what its level of profitability.[33]
1.42
They further suggest that:
It is easy to take the pragmatic view, as is the case in the
Second Reading Speech, that Telstra has broad shoulders and that, even if it
has been undercompensated for the USO to date, the impacts on its bottom line
have scarcely been devastating. What this view ignores ... is the poor level of
service in rural and regional areas which has resulted from Telstra’s
cost-cutting in recent years. Telstra has indeed been able to absorb any unpaid
USO costs without evident detriment to its financial performance. It is not
possible, however, to take such a sanguine view about the implications for
service quality. Someone, after all, must ultimately pay these costs and the
logic of partial privatisation suggests it will not, in future, be
shareholders.[34]
USO regulation dilemmas
1.43
The Consumers’ Telecommunications Network (CTN),
in its submission, captured some of the dilemmas facing the Government with the
Bill and the subsequent review of USO funding. Firstly it stated that:
Australian residential consumers value the provision of
universal service highly and would be dismayed if cost-containment measures
were found in practice to result in a lack of available funds to provide a
service of acceptable equivalent quality for all Australians, particularly
those in low income households, those in regional and remote areas, and people
with disabilities. Therefore we would not wish a cap to be set too low.[35]
1.44
On the other hand, CTN recognised that:
Telecommunications affordability is vital to participation in
the Australian economy and community and there is a need to ensure that the
price of access is affordable. To the extent that the cost of universal service
provision is passed onto the consumer as an element of the costs of all
services, we would welcome sensible control measures which ensured that the
universal service is provided in an efficient manner. Therefore we believe it
is appropriate for Government to exercise oversight and control of universal
service costs in the public interest.[36]
1.45
The Western Australian Government also
recognised this dilemma, arguing that there was a need to implement the USO ‘in
a manner that both ensures the obligation is met and is equitable to industry.’
They opposed the adoption of the option proposed in the Bill (a cap for the
years 1997-8, 1998-9 and 1999-2000) because:
It would appear morally suspect to load the incumbent carrier
with additional cost merely to protect the profitability of new entrants.
Option 4 could be justified as a method of forcing Telstra to choose technical
solutions more appropriate to remote area service delivery, but Telstra public
statements indicate it would not respond in this way.[37]
1.46
The WA Government’s preference, as an interim
measure, was for an alternative option canvassed in the explanatory memorandum,
Option 3, which provided for a legislated Cap but that the Commonwealth would
fund the shortfall between it and the ACA’s NUSC determination. In contrast to
the explanatory memorandum, the WA Government proposed that, rather than an
increase in this figure of Cap plus CPI, the formula be ‘escalated at CPI plus
X% [they suggested 5-10%] to move the figure towards the real cost as quickly
as possible and reduce the Commonwealth’s financial exposure. Under no
circumstances should the interim arrangement extend beyond 1999/2000’.[38]
1.47
The Government has stated that this option was
not preferred because ‘budget supplementation would represent a major change in
policy for USO funding arrangements’, could ‘limit the Government’s flexibility
to respond to the outcomes of the planned review of USO funding arrangements’,
and would involve the promise of monies ‘for which no provision has been made
in this year’s budget, nor planned for next year’s budget’.[39]
1.48
The submissions by CTN, Telstra, the CEPU and
the WA Government all emphasise the importance of making sure that the USO is
fully funded, along with the need to align industry contributions to the real
net universal service cost as soon as is feasible. While supporting the Bill in
its present form, the Committee believes that such views should be given
serious consideration by the Government when making decisions about the
exercise of Ministerial discretion as to the cap amounts imposed in later
years, and should inform the review of USO funding arrangements. These issues
are given greater salience by the ACA’s recent comments about the possible
amount of its NUSC determination.
What is the cost of the USO?
1.49
On 21 April 1999 the ACA issued a statement
announcing the release of two preliminary studies on elements of the NUSC which
had been commissioned from consultants. These studies, prepared by Allen
Consulting and Gibson Quai and Ovum, made recommendations about significant input
values to be used by the ACA in the assessment of Telstra’s claim.[40] Dr Roslyn Kelleher, Executive
Manager of the ACA’s consumer affairs group, stated that the ACA’s preliminary
analysis, using the recommended input values, indicated a possible NUSC of $600
million. If the recommendations contained in Allen Consulting’s “Year 1 cost
problem” report were also adopted, the amount could be as low as $425 million.
However she cautioned that:
These figures will vary in the ACA’s final assessment. This is
because the findings of the consultants still need to be rigorously tested and
assessed and a number of aspects of Telstra’s NUSC claim must be assessed,
including ensuring that all the data in Telstra’s claim accords with the
appropriate costing methodologies and legislative requirements.[41]
1.50
These tentative estimates indicate the eventual
NUSC could be significantly lower than Telstra’s claim, but could also be
significantly higher than the amount specified in the Bill for the cap. Telstra
has stated it opposes the Bill but will accept the outcome of the ACA’s
assessment as the basis for compensation of the NUSC in the 1997-98 financial
year.[42]
Thus the amount of the NUSC cap specified in the Bill may well short-change
Telstra for the costs of supplying the USO and in turn put further pressure on
its ability to supply services to loss making areas. It may also arguably
expose the Commonwealth to ongoing financial liabilities to compensate Telstra
for the shortfall in industry contributions.
1.51
The explanatory memorandum suggests that the
Government intends to fix the cap, at the very least for 1997-98, at $253.32
million regardless of the ACA’s eventual NUSC determination. Thus it seems
likely that Telstra will be deprived of a part of the industry contribution to
the NUSC (as determined by the ACA). The Ministerial discretion to vary the
amount of the cap however allows the Government some flexibility in this area.[43]
Conclusion
1.52
The Committee was persuaded by the arguments put
forward by the Department of Communications, Information Technology and the
Arts, and by Telstra’s competitors, that this legislation is required to
provide investment certainty to the Australian telecommunications industry
while a more comprehensive review of USO funding arrangements is carried out.
1.53
This does not imply that the Committee has
dismissed the arguments of those concerned about or opposed to the Bill. They
raise a number of issues that the Committee feels the Government could consider
as it conducts the review of USO funding arrangements and considers the
exercise of Ministerial discretion the legislation provides.
1.54
The choice of Option 4, which does not provide
for Commonwealth funding of a possible shortfall produced by the Cap, may still
not protect the Commonwealth from liability. Possible legal action by Telstra
to recover this amount may in turn require the Commonwealth to compensate the
universal service provider for the 1997-98 shortfalls, if not those of the
remaining years covered by the legislation. Alternatively the legislation
provides the Minister with discretion to vary the cap, while the WA
Government’s suggestion that the cap be raised to quickly match the true NUSC
could be a way of limiting the Commonwealth’s liability and limiting the tenure
of the discrepancy.
1.55
It is an important matter of public interest
that a credible and accepted costing model for the USO, and an agreed structure
for industry contributions to the NUSC, be finalised as soon as possible. When
this is in place, the principle that the universal services provider(s) should
be properly compensated for the NUSC can be reconciled with the other
significant goals of competition and industry viability. Likewise the
regulatory and funding arrangements for the USO can move closer to the ideal of
broad industry agreement and cooperation, and assuage concerns about the ACA’s
independence. It will also help to isolate the USO from ongoing industry
dispute over the terms of interconnection and trade practices.
1.56
In expressing its support for the Bill, the
Committee notes that there is virtually unanimous support for the planned
review of the USO funding arrangements and that all players and affected groups
will be able to provide input to it. The size of Telstra’s claim (three times
the ACA’s possible determination, and many times the amounts for previous
years) and the uncertainty surrounding the results of the new Bellcore costing
model, justifies an interim measure to provide certainty through the process of
the USO funding review.
1.57
Another factor sowing confusion has been
Telstra’s reluctance to reveal (to not only the industry, but also the ACA) the
financial assumptions upon which it based its claim. Likewise the vulnerability
of other carriers to significant financial damage, should their NUSC
contributions suddenly escalate beyond their capacity to absorb them and remain
competitive, is further justification for the measure. For these reasons the
Committee recommends the passage of the Telecommunications Laws Amendment
(Universal Service Cap) Bill 1999 in its current form.
Recommendation
The Committee recommends that the Telecommunications
Laws Amendment (Universal Service Cap) Bill 1999 proceed.
Senator Alan Eggleston
Chair
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