2.1
While all submitters expressed their broad support for the bills' objectives, the committee received mixed views in relation to the manner in which the bills should be implemented. Inquiry participants were supportive of the superfast network rules and did not raise concerns in relation to this aspect of the bill. Submitters also noted their general support for the statutory infrastructure provider (SIP) regime.
2.2
This chapter will outline the key issues raised by inquiry participants. These issues primarily relate to the regional broadband scheme (RBS) and the associated levy. The chapter will begin by outlining the support for the bills before discussing these key issues. The chapter will conclude by outlining the committee view and recommendation.
Support for the bills
2.3
A number of submitters emphasised the need for the bills to be passed as a matter of priority. For example, the Australian Communications Consumer Action Network (ACCAN) stated that the bills 'should be passed with the utmost priority' expressing particular support for the SIP obligations on the basis that it guarantees access to the NBN and other networks. At the hearing, Ms Teresa Corbin, Chief Executive Officer of ACCAN elaborated on this point:
One of the goals of the Regional, Rural and Remote Communications Coalition [of which ACCAN is a member] is the guaranteed legislative right to access voice telephony and broadband services, so this particular inquiry is of great importance…
The statutory infrastructure provider obligations set out in the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 are fundamental to the achievement of this goal. We have been urging members of the federal parliament to expedite the passage of this legislation since it was first introduced into the House of Representatives in 2017, and we continue to do so today. We believe that implementing this reform is essential in ensuring that all Australians have access to broadband services capable of reaching download speeds of at least 25 megabits per second and five megabits per second upload speeds irrespective of where people live in Australia.
2.4
ACCAN commented that funding of telecommunications infrastructure in regional and rural areas to be an ongoing issue and therefore supported a model that provided long‑term and sustainable funding to support non‑commercial regional NBN services. ACCAN stated that it 'does not believe that network operators should be able to avoid contributing to the provision of non-commercial regional services and that efforts should be made to ensure that no industry participants can shirk their obligations to the community.'
2.5
The Regional, Rural and Remote Communications Coalition (RRRCC) also acknowledged that on-going funding of telecommunications services in regional, rural and remote areas was an enduring problem. It therefore supported 'the development of long-term and sustainable mechanisms that provide an ongoing revenue base to support non-commercial regional NBN services'.
2.6
Other submitters also highlighted the importance of ensuring reliable broadband services to people living in rural, regional and remote areas. For example NSW Farmers stated:
Access to improved telecommunications services in rural, regional and remote Australia is also imperative to facilitate economic growth across the agricultural industry through innovation in production, improved market access and enhanced consumer connectivity.
There is enormous latent demand for data in rural, regional and remote Australia, especially on farm enterprises. It is critical that farmers overcome the digital divide that currently exists between rural and urban Australia.
2.7
The Isolated Children's Parents' Association (ICPA), stressed the importance of superfast broadband for distance education students living in rural and remote Australia, explaining:
Most would be in the 0.7% of the population that have no access to any mobile network and the majority would also be in the 3% of the population that will rely on satellite to access the internet. Our member families also attend small rural schools that are dependent on internet for schoolwork, research, teacher assistance/mentoring, specific needs sessions as well as landlines for contact for teacher support, emergencies and general administration tasks of a school. There are quite a few rural small schools which are not in mobile coverage areas and struggle with receiving adequate internet service.
2.8
The ICPA commented that the bills would provide 'an effective funding arrangement towards the long-term costs of regional Australia's nbn satellite and fixed wireless services through contributions sourced from the nbn and networks comparable to the nbn.' The ICPA also expressed support for the SIP regime provided it does not reduce the quality of service given its importance for distance education and online learning.
Universal Service Obligation
2.9
The Universal Service Obligation (USO) was established in the 1990s to ensure the availability, accessibility and affordability of a telephony service for all Australians, regardless of where they reside or work. The USO is only one of several subsidised telecommunications programs. As noted in chapter 1, the new Universal Service Guarantee (USG) will deliver voice services through the USO and broadband services based on the NBN.
2.10
A number of submitters noted their concern with the USO. Internet Australia argued that instead of introducing the RBS which operates in parallel with the USO, the USO should be modified to apply to broadband data infrastructure. Internet Australia explained that currently, the USO provider (Telstra) can access funding to build infrastructure to provide telecommunications services in non-commercially viable regional and remote areas. Licenced carriers contribute to the funding through a levy (the Telecommunications Industry Levy), which is an amount determined each year by the Australian Communications and Media Authority (ACMA). Internet Australia noted that the RBS is similar to the USO arrangements, and the new SIP regime is almost identical to the existing Primary Universal Services Provider regime. Internet Australia concluded that to introduce the RBS 'seems unnecessarily complex, confusing and duplicative' and recommended that the two schemes be merged 'so that there is only one scheme for collecting funds from industry to use for regional and remote infrastructure, not two separate regimes.' Dr Paul Brooks, Chair of Internet Australia stated:
Our preference is to have only one set of schemes for funding broadband in the bush, rather than two, and to choose the best ideas and the best parts of the other structure, from this currently proposed RBS system and the USO system, which has been successful for so long in providing underlying infrastructure in the form of phone lines to the bush.
2.11
Vocus Group (Vocus) contended that the USO should be reformed or removed prior to the introduction of the RBS, on the basis that there are inherent flaws in both subsidies, which would be cemented by the bills rather than corrected.
2.12
Vodafone similarly noted that the ‘USO arrangements are both costly and outdated’ and called for the subsidies to be updated. Vodafone explained that the USO is not the only subsidy scheme in place for the provision of regional telecommunications services. Moreover, that the current subsidy scheme is complex and that the RBS levies would only add to this complexity and financial burden on industry and consumers.
2.13
ACCAN commented that lessons should be learnt from the USO arrangements, including, 'accountability of service performance – prompt connection and fault repair times, and service reliability measures to minimise drop outs and service interruptions.'
2.14
Optus provided a different view, stating that the purpose of the RBS has been likened to the purpose of the USO, which they argue is not correct. Optus explained that the RBS has a much more targeted purpose than the USO, which is to fund regional telecommunications infrastructure. Optus commented that to extend the purpose of the RBS would have the effect of restricting competition, which would be contrary to the intentions of Government in proposing these reforms. Mr Luke van Hooft, Director of Economic Regulation within Optus stated:
Optus notes that some submissions to this committee link the RBS levy with the universal service obligation and associated levy. This gives the RBS an intent that it was never designed to have and is not designed to deliver. The RBS levy has no role to play in the funding of universal service obligations. This is not to say that broader reform of the USO arrangements is not warranted—indeed, we have long encouraged further such reform—but this is not the legislation through which changes to the legacy USO funding should be considered.
2.15
Mr van Hooft went on to state:
[T]here is already a Universal Service Obligation which applies to mobile. For example, we pay over $50 million a year to the USO, largely because of our mobile revenues. Again, just on the policy, the RBS was never designed to be the broader universal service. There is a universal service. There is a new Universal Service Guarantee, which is being worked on by the department as I understand it. We're happy to engage in reforms needed around a USG to enable better spending efficiency of our $50 million liability each year. But that is not the RBS. It is important, in our minds, that the two are not conflated together.
Costing for the Regional Broadband Scheme levy
2.16
Some submitters noted that the costing on which the RBS levy is based is out of date and that new costings should be completed. Vocus also argued that the RBS charge base has substantially changed over time without any public analysis of the financial consequences and that the market has changed since the charge base was decided. It was noted that the RBS costings were modelled in 2015 when NBN's fixed wireless network had fewer than 50 000 users and the NBN Co had not launched its first satellite. Vocus noted the substantial changes that have occurred during the subsequent five years which means that 'the assumptions which underpinned the 2015 costings are out-of-date.'
2.17
Ms Cecelia Burgman, Head of Government Relations at Telstra also expressed the view that there would be benefit in updating the calculation of the charge to take into account current costings and other data.
2.18
In contrast, when directly asked whether the modelling should be updated, Mr Martin Stockley, Chief Construction Officer of OptiComm indicated that he did not believe that it would result in a material difference to the levy.
2.19
Mr Andrew Madsen, Assistant Secretary at the then Department of Communications and the Arts (the department), advised that as 'the modelling was conducted over a 30-year period, any fluctuations in potential costs from one year to the next will be smoothed out over that long period of time'. Mr Madsen went on to state that the modelling was 'robust' and the bill allows the Australian Competition and Consumer Commission (ACCC) to update the modelling once the scheme is in place:
We believe that the modelling as it stands is robust and is an appropriate basis for the charge as it is in the bill. The bill then provides that the ACCC is able to collect current data from industry—both the current premises connected and served and current costing data from NBN. The ACCC has powers to require that information, so it can collect it accurately. The ACCC is then well placed to update the modelling once the scheme is in place. That would provide a basis for considering whether the charge needs to be adjusted.
2.20
In answers to questions on notice, the department reiterated its view that the 'modelling continues to provide a robust basis for the RBS charge' and that a comparison of the model's estimates for the 2020 financial year 'indicates that the expected number of premises connected to non-NBN networks remains very close to what was forecast in the model'.
Broadening the levy across the industry
2.21
A number of submitters noted that the best funding model for the RBS levy would be direct funding from the Commonwealth budget, which was recommended by the ACCC. However, in acknowledging that this was not available, some inquiry participants expressed the view that the RBS levy is too narrowly targeted and should be shared more broadly across the telecommunications industry.
2.22
OptiComm noted that currently, 95 per cent of the funding services to regional and remote Australia will be paid by NBN Co through its internal cross‑subsidy. This would leave NBN Co receiving a 5 per cent contribution towards the cost of providing regional telecommunications services. Moreover, these services are paid by a handful of companies, which OptiComm argued, will not provide the level of sustainable funding that will be required. Rather than the proposed 'narrow tax', OptiComm suggested that the levy should be collected from the broad base of the telecommunications industry, which, according to a report by the Bureau of Communications Research, would result in NBN Co only paying about 13 per cent of the required amount. This would also have a flow-on result to those providing the service and the end user who would effectively be paying these taxes.
2.23
At the hearing, Mr Paul Cross, Chief Executive Officer of OptiComm elaborated further:
Rather than prevent NBN Co's revenue leakage, the narrow tax will encourage NBN bypass services, helping wireless and mobile broadband operators to compete against the NBN and other fixed line networks by ensuring that wireless and mobile operators have lower costs through not contributing to the RBS and therefore their fair share of regional Australia. NBN bypass services that are already in existence will increase with the current rollout of 5G mobile networks. Optus is already offering a 5G home broadband plan for $70 a month with unlimited data and guaranteed speeds of at least 50 megabits per second. This is clearly aimed at taking away NBN Co's market share.
Under a broad tax levied across all telecommunications industry participants, the cost of funding the NBN in regional Australia would be reduced from [$7.10 to a manageable] 97c per service per month. NBN Co would then be contributing 13 per cent of total costs rather than the 95 per cent as currently proposed. In dollar terms, broadening of the tax base would result in NBN Co contributing $1.3 billion as opposed to $9.3 billion of the total $9.8 billion cost.
2.24
TPG supported this view and explained that the reason why these broader range of services have not been included to pay the RBS levy was because of the assumption that wireless would not provide a real substitute for the NBN. However, TPG argued that this is proving to be an incorrect assumption with the growth of 4G and 5G wireless services.
2.25
This view was reiterated by Mr Cross who stated:
Often we see shared services, but I think that what we're concerned about is more that the cost to roll out in the regional areas of 5G-type networks or wireless based networks would be significantly cheaper than the fixed line networks. So there's an incentive there for that to happen.
2.26
Dr Brooks considered that a funding scheme similar to the USO, where the funding is based on a percentage of eligible revenue, to be the best model. Dr Brooks explained that this would provide a broader funding base as well as not suppress competition:
That would take away all these arguments about whether business services and enterprise services should or shouldn't be included, whether broadband lines should or shouldn't be included and whether mobile networks should or shouldn't be included, because it includes everything. That would then provide a much broader funding base for regional and rural development and reduce the amount per line that non-NBN networks would have to pay, because the total pool of funds would be coming from a much broader base, and it wouldn't be so anticompetitive in squashing, effectively, the opportunity for non-NBN networks to pop up and provide better services.
2.27
Responding to concerns that NBN Co may, in the future, lose some of its market share to 5G technology, Mr Madsen stated that this scenario was unlikely given that fixed line services are not directly substitutable for 5G services. Mr Madsen advised that a more likely scenario would be NBN Co losing market share to another fixed line operator, which has been anticipated by the scheme. Mr Madsen stated:
I think your question goes to the basis of the charge and this issue of whether mobile services and fixed line services are substitutable. As we've mentioned and some of the earlier witnesses have mentioned, we don't believe that, over the whole market, fixed line services are substitutable for mobile services. That's backed up by the amount of data that's currently transmitted over fixed line, which was mentioned earlier, and it's backed up by NBN's continuing take-up rates, in the 73 to 75 per cent range.
2.28
Mr Madsen explained that if this situation were to change and 5G did become substitutable for fixed line, then the policy review (which is required to be undertaken within four years of the scheme commencing) would consider whether the levy base should be expanded to include mobile services.
2.29
Mr van Hooft shared the department’s view that 5G would not necessarily compete with NBN Co, stating:
NBN's business case does assume a level of wireless-only households—the 15 to 20 per cent, if I remember correctly. I think that number has been relatively stable. Obviously, with the rollout of 5G, people would upgrade from 4G to 5G, but I don't think the technology itself necessarily means there's going to be an expansion of wireless-only households.
2.30
Mr Madsen concluded that:
…there are various debates about different aspects of [the RBS levy], but, from the department's perspective, we believe that the form of the scheme that's in the current bills represents the best approach and takes into account the views that have been raised in those consultation processes. It doesn't always accept them, but in some cases we think we've made modifications to address some issues that have been raised and, overall, we think it represents the best policy and best position in the long term.
Inclusion of enterprise networks
2.31
Some telecommunication carriers noted their support for the RBS charge to be applied to residential high-speed broadband networks but expressed concern with the levy being applied to enterprise networks.
2.32
According to Optus, the RBS charge represents a new levy on enterprise and government providers, which raises competitive and neutrality issues. Optus explained that the residential services delivered over high-speed broadband networks are protected services, where the potential for ‘cherry-picking’ could place NBN Co’s internal cross subsidy at risk. In contrast, enterprise networks are contestable services in competitive markets and there was no expectation that NBN Co would receive any internal cross-subsidy from these services. Ms Burgman similarly commented that:
…the way the legislation has been drafted has broadened the scope of the RBS to a general industry tax which will see the levy applied to all superfast fixed line broadband networks, regardless of whether they are creating any revenue leakage away from NBN Co. This is contrary to the policy intent. To address this concern, we remain firmly of the view that the RBS legislation should be amended so it does not apply to fibre networks and serving enterprise customers.
2.33
Optus also noted that NBN Co will not be required to pay the RBS levy for enterprise connections, which will be levied on all other non-NBN enterprise networks. Accordingly, Optus contended that the RBS levy over enterprise networks would place NBN Co at an advantage over other operators and damage existing competition in the market. Moreover, that having NBN Co enter the enterprise market would unlikely provide any benefit to the end‑user. This is because there is already strong competition in the enterprise market with a number of choices available to businesses.
2.34
Telstra shared these concerns, also commenting that the enterprise market is complex and dynamic, an issue that does not exist in the residential market. Mr Ivan Cook, Regulatory Principal at Telstra explained:
It's because of the difference between the way customers in the enterprise and government space are. Customers in those spaces are businesses or organisations. They can be large or small, they can expand or contract and they can occupy premises that are distributed or adjacent to each other. All of those are variables we don't see in the residential market. As I said before, you generally have one premises with one customer and one service, with one line providing that service. In the enterprise space it's not just complex; it's also dynamic. It changes over time.
2.35
Furthermore, Telstra expressed the view that carriers will be unable to accurately report on the number of premises in the enterprise sector due to the complexity of the enterprise market and the lack of a definition of the term 'premises'. Telstra advised that carriers often have limited or no visibility of the number of premises served by their infrastructure and that:
…it is not possible for every length of privately-owned in-building cabling and the legal circumstances of every individual "premises" connected by that cabling to be somehow robustly recorded in real time and made publicly available.
2.36
It was acknowledged by Optus and Telstra that further guidance about the application of the RBS has been provided in the explanatory memorandum, but that the guidance is incomplete because only a few outcomes have been suggested for a large number of different scenarios. Mr Cook added:
It is a term that's used in the industry, but the customer, the organisation, would need to understand what the definition of 'premises' is. Is it based on a particular set of leasing-arrangement facts or something else?
2.37
In answers to questions on notice, Telstra reiterated that this ‘would be an unreasonable and unenforceable requirement which would add significant administrative burden for all participants (customers and carriers) without delivering the necessary clarity of information’.
2.38
Telstra considered the best solution would be to have the RBS levy apply only to the residential market and not to the enterprise market. Telstra argued that applying the charge to only the residential market would not necessarily result in the expected funds being under-recovered because it estimated that the enterprise market only accounted for 2.5 per cent of the total RBS take. Furthermore, if there was concern that the funds would be under-recovered, Telstra suggested that the RBS cap could be reset.
2.39
Failing this option to exclude the enterprise market from the RBS charge, Telstra proposed that the levy should be based on 'services' rather than premises, a view shared by Optus and Opticomm. Telstra noted that a services-based levy could result in Telstra being liable to pay a higher total amount but that this was preferable to the risks associated with the uncertainty of a premises-based levy.
2.40
However, in the event that the bills are passed without any substantial change, Telstra stated that it did not consider the current commencement date of 1 July 2020 to be a feasible date to implement the necessary changes to its IT systems. Telstra suggested that a commencement date of 1 July 2021 to provide sufficient time 'for these changes to be made in a robust and reliable way, as befits an exercise in tax compliance'.
2.41
The department advised that in light of the policy intent of the RBS, it would not be equitable for the charge to only apply to residential and small business services. The department provided the following explanation:
The policy intent of the RBS is to establish a transparent and more effective arrangement to fund NBN Co’s non-commercial services through contributions sourced from owners of high‐speed fixedline broadband access networks (i.e. the NBN and NBN-comparable networks). The Government’s Statement of Expectations to NBN Co explains that the network should connect to every premises in Australia, which includes all business premises. NBN Co’s Corporate Plan demonstrates the company’s intent to connect all residential and business premises, and this is also recognised in the SIP obligations.
Inclusion of business services (including NBN Co’s business services) allows the cost of fixed wireless and satellite services to be shared proportionally across all NBN-comparable providers, and the inclusion of these additional services enables the monthly charge amount to be reduced.
2.42
In relation to calculating the levy based on the number of services rather than premises, Mr Madsen explained that this had originally been considered when the exposure draft of the bills were initially introduced in 2017, but that feedback from industry was that this this was an uncertain mechanism to calculate the levy. As a consequence, the approach of calculating the levy was amended to premises.
2.43
The department noted that the concept of 'premises' has been used since the introduction of the Telecommunications Act 1997 and has 'stood the test of time'. Furthermore, that carriers may need to collect more information regardless of the approach taken:
As part of implementation of the RBS, carriers may need to collect more information in order to determine the amount they will need to contribute towards the RBS. This is not unusual where new regulatory requirements are being implemented, and is likely to be required whether premises, or an alternative approach, is used, because any version of the charge would rely on the concept of a ‘local access line’.
2.44
Mr Madsen went on to note that most carriers have informed the department that they will be able to use existing records to comply with the scheme:
The feedback we have is that most of the carriers have accurate records. This is largely an issue to do with services provided to businesses, so these are high-value services that carriers supply, often to enterprise and business customers. They're most commonly a fibre line that goes into those premises. So, in most cases, carriers have quite accurate records of where those lines are, which they need to maintain for billing purposes and for service and maintenance purposes for their networks. The feedback we've had from the majority of carriers is that they can utilise those records to adequately comply with the scheme.
2.45
NBN Co similarly considered the model proposed by the bills to be sound:
The RBS mandates a premises-based charging model which NBN Co believes is workable and able to be implemented because NBN Co has based its location data on a series of unique identifiers by premises.
An early review of the RBS by the Australian Competition and Consumer Commission will also help to ensure that the scope of contributing companies is appropriate, and accounts for the most recent developments in the rapidly evolving broadband industry.
2.46
Responding to concerns that the RBS levy would provide NBN Co a commercial advantage in the enterprise market, the department stated that it did not agree with this contention because NBN Co 'still faces the cost of maintaining its satellite and fixed wireless networks, and it will continue to contribute 95 per cent of the cost of the levy'. Mr Madsen stated:
At the moment other carriers are not contributing towards the cost of fixed wireless and satellite services, so they're actually at a competitive advantage to NBN. Our position is that the introduction of the levy creates a level playing field; they're all contributing equally towards covering those costs.
2.47
On the broader issue of the appropriateness of whether NBN Co should be entering the enterprise market, Mr Madsen provided the following justification:
I note that there have been a few developments on that front this week. NBN released a discussion paper on Monday proposing arrangements to reduce overbuilding of existing fibre, and it put out a media release today indicating that it will no longer engage in contracts for construction of fibre directly with end users. The company is responding to some of the discussion about its activities in the enterprise market to provide more certainty and more transparency about those operations.
Transparency
2.48
The committee also heard evidence on the transparency of NBN Co's management of the RBS levy. The department detailed the transparency arrangements with respect to the RBS levy, explaining how the levy would be assessed, collected, and provided to NBN Co:
ACMA will assess who is eligible to contribute to the RBS and those carriers will be required to contribute to the levy.
The levy will be collected by ACMA and will be paid into a special account, which is set up by the bills. The special account is part of the federal budget and therefore must be reported on as part of the budget process.
An estimate is provided to NBN Co of what its eligibility will be, which is likely to be the total value of the special account.
NBN would submit an offset certificate, which is against their liability for the payments that they are likely to receive. This will mean that NBN Co will not need to transfer the base component of the levy to the government in order to have it handed back to NBN Co. However, NBN Co is still required to pay the administrative cost component of the levy, like every other carrier.
The department has authority to draw on that special account to pay the levies to NBN Co.
2.49
Mr Madsen explained that the flow of funds into the special account would be transparent. Additionally, the department is required to publicly report on the operation of the scheme in its annual report. This would include the details of the funds that have been allocated to NBN Co and the department's assessment of how NBN Co has used those funds. Moreover, as a government business enterprise, NBN Co must also publish an annual report that is audited by the Australian National Audit Office and must comply with accounting standards.
2.50
The levy will be provided to NBN Co either under a contract or through a grant, which will set out the purpose for which the levy is to be used.
2.51
The department confirmed that the bills provide some flexibility for the department to pay revenues to other providers of fixed wireless and satellite networks, which would operate in the same way as set out above. However, it noted that this scenario was unlikely given that fixed wireless and satellite networks in regional areas are 'inherently uncommercial markets'.
2.52
In relation to how NBN Co will specifically account for the expenditure and operating costs for providing fixed wireless and satellite services to regional Australia, Mr Gavin Williams, Chief Development Officer, Regional and Remote, at NBN Co, advised:
… there are a range of shared costs which we have to take estimates on, so when we get down to the cost line. Some of those are more directly attributable because, for example, there could be some services with service delivery partners that only operate on the fixed wireless and satellite networks, but then you get into how much you allocate across fixed wireless and satellite. Then there are some other shared costs that we have to take into account on an allocation kind of basis.
2.53
The department was asked whether NBN Co is required to pay back historical losses. A scenario was put to the department concerning a potential surplus and what requirements are placed on NBN Co in relation to the use of the surplus. In response to this questions, Mr Madsen provided the following explanation:
The funding is required to go towards the cost of operating and maintaining NBN's fixed wireless and satellite networks. But I suppose in your situation you might have one year where there is a surplus but you might have other years where there is a substantial deficit. NBN may effectively, on a year-to-year basis, be out of pocket significantly in the years where there's a deficit and have one good year where there's a surplus. So NBN, in managing its costs and planning for upgrading the network, needs to smooth that out over time. So it will know it has a reasonable revenue stream coming in from the [RBS], and it can factor that into how it covers those costs.
2.54
Mr Madsen also noted that having a levy that will not significantly change over the medium term would provide certainty for NBN Co, as well as certainty for carriers.
Removal of cross-subsidy
2.55
The explanatory memorandum to the RBS Bill notes that NBN Co currently funds the net costs of providing broadband services to regional Australia through an internal cross subsidy from its fixed-line networks, which is not sustainable. Internet Australia noted that the funds collected from other carriers will be provided to NBN Co as the SIP and that the cross-subsidy should be reduced to ensure that it is not 'double-dipped':
As NBN Co will be receiving funds to offset the current cross-subsidy for regional services out of the revenue received from urban services, and non‑NBN network operators will be providing extra funding for this purpose, the wholesale charge for urban services should be reduced by the amount of the reduced cross-subsidy to ensure the cross-subsidy is not 'double‑dipped' from the pockets of retail providers, which will then be passed on to the Australian public. If NBN’s wholesale charges in urban areas do not reduce as an outcome of this program, then all Australians will still be paying for the existing cross-subsidy.
2.56
However, NBN Co noted that the RBS does not cover the full cost of cross‑subsidy and explained that the cross-subsidy is an integral aspect of the NBN model:
While the social and community benefits are substantial, NBN Co’s overall investment in regional and remote Australia does not produce a financial return. Most Fixed Wireless and Satellite connections in rural and regional [areas] operate at an overall loss and are subsidised by the operation of services in metropolitan areas. This cross-subsidy is an integral part of the nbn model and provides an ongoing funding source for the provision, maintenance and upgrade of services in regional Australia. Alternatives to this cross-subsidy model have been attempted in the past with little success. In contrast to previous models, NBN Co is currently providing access to broadband for hundreds of thousands of homes and businesses that previously had little or no access.
2.57
Mr Madsen also explained that if NBN Co were to lose market share, it could be forced to increase its prices in order to maintain a sufficient amount for its cross-subsidy. However, Mr Madsen stated that 'the introduction of the [RBS] would reduce pressure for NBN to increase its prices over time'.
Committee view
2.58
During this inquiry, the committee has heard varied views, particularly in relation to the RBS. However, a common view expressed by all inquiry participants is support for the overarching purpose of the bills. That is, to improve the provision of superfast broadband to Australia and to establish a transparent and equitable funding mechanism for NBN Co's fixed wireless and satellite networks in regional Australia, while also creating competitive opportunities for other network operators.
2.59
The committee acknowledges the concerns expressed by some submitters, that the RBS levy should be expanded to include a broader base so that the funding of telecommunication services to regional Australia can be shared more widely across the industry. In contrast, other submitters argued for the effective narrowing of the funding base to exclude enterprise networks on the basis that it raises competitive and neutrality issues. Some submitters also argued that it would be preferable for the RBS levy to be charged by services, rather than by premises.
2.60
The department has been aware of these concerns and have made appropriate adjustments to the bills and the corresponding explanatory memoranda in response. The committee further notes that these bills include amendments that were proposed by the Opposition in the 45th Parliament, as well as amendments proposed by the Government. Having given due consideration to the different views and perspectives, the committee agrees with the department's conclusion, that the bills represent an appropriate policy response in the long term.
2.61
The committee notes the concerns of some submitters, that the RBS levy could encourage the uptake of NBN bypass services such as 5G. The department advised that it does not consider fixed line services to be directly substitutable for mobile services. However, in the event of a material change to the NBN uptake rates, the committee agrees that the statutory review could consider expanding the levy base to include mobile services.
2.62
The issue of including enterprise networks was also considered. However, the department advised that including enterprise services was consistent with the both the Government’s Statement of Expectations and NBN Co’s Corporate Plan. With regards to concerns that the RBS levy would be charged on the number of premises, the department advised that the exposure draft of the 2017 bills had calculated the levy based on the number of services rather than premises. However, feedback from industry was that this was an uncertain mechanism to calculate the levy. Accordingly, the current bills, like the 2017 bills, reflect industry feedback. Regarding Telstra's concern in relation to the bills' commencement date, the committee notes that the telecommunications industry has been aware of the proposals in the bills since 2017. The committee therefore, is of the view that the industry has been provided with sufficient notice. Moreover, the department advised that most carriers have stated that they will be able to comply with the premises requirements of the RBS.
2.63
With respect to issues relating to transparency in the way NBN Co manage the funds collected from the levy, the committee is alert to the concerns of some submitters in relation to the potential impact to competition. The committee acknowledges the advice provided by the department that the proposed transparency measures include the assessment and collection of the RBS levy by ACMA, the establishment of the special account, and the various reporting mechanisms. The committee agrees that these measures provide some assurances, but is of the view that additional transparency measures, with respect to the management of the RBS levy, should be implemented.
2.64
The committee expresses some concern that the proposed reporting mechanisms may not provide sufficient details of how the off-set arrangements operate, specifically in the context of enterprise networks. Accordingly, the committee recommends the implementation of additional transparency measures, developed in consultation with NBN Co and relevant stakeholders, to enable carriers, and indeed the public, to easily determine that the off-set arrangements are being managed effectively.
2.65
The committee recommends the implementation of additional transparency measures, which provide details of NBN Co's off-set arrangements and the effective management of these arrangements.
2.66
Having regard to the issues raised by submitters and the advice provided by the department, the committee is of the view that overall, the bills achieve the right balance between ensuring a transparent and equitable funding model to enable NBN Co to improve the provision of superfast broadband network, particularly to regional Australia, while also encouraging commercial opportunities for network operators. Subject to consideration of recommendation 1, the committee recommends that the bills be passed.
2.67
After due consideration to recommendation 1, the committee recommends that the bills be passed.
Senator the Hon David Fawcett
Chair