The Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 introduces a package of legislative changes aimed at:
- Telstra’s vertical and horizontal integration;
- streamlining the access and anti-competitive conduct regimes; and
- strengthening consumer safeguard measures such as the Universal Service Obligation (USO), the Customer Service Guarantee (CSG) and priority assistance.
A key feature is the way in which the Bill seeks to encourage Telstra to voluntarily commit to structural separation, by preventing Telstra from controlling spectrum in specified bands and restricting its ability to acquire spectrum for advanced mobile/wireless broadband services unless the ACCC has accepted voluntary undertakings from Telstra that Telstra will:
- structurally separate its fixed line business;
- divests its hybrid fibre coaxial cable network; and
- divests its interests in Foxtel.
It is assumed that if Telstra gives such an undertaking, those assets will form part of the National Broadband Network (NBN). The effect of structural separation of Telstra would therefore be to establish the NBN as the monopoly provider of those services. Whether Telstra gives such an undertaking or not, the streamlined access and anti-competitive conduct regimes, which give the ACCC a new power to determine the terms and conditions of access up front, will apply.
A brief summary of some of the key elements of the Bill is set out below.
Telstra’s Vertical and Horizontal Integration
The Bill does not mandate structural separation of Telstra, but does:
- impose restrictions on Telstra's ability to acquire spectrum for advanced mobile/wireless broadband services unless Telstra agrees to structurally separate its fixed line business (and divest of certain other assets) voluntarily; and
- require functional separation.
Restrictions on Telstra's ability to acquire spectrum for advanced mobile/wireless broadband services
Proposed amendments to the Radiocommunications Act 1992 and the new Part 10 of Schedule 1 to the Telecommunications Act 1997 (Telco Act) will impose a new licence condition on Telstra to prevent Telstra from controlling spectrum within specified bands unless the ACCC has accepted voluntary undertakings from Telstra that Telstra will:
- structurally separates its fixed line business;
- divests its hybrid fibre coaxial cable network; and
- divests its interests in Foxtel.
We note in particular the following:
- The specified bands of spectrum are frequencies between 520Mhz up to 820Mhz (currently within the broadcasting services bands) and frequencies between 2.5Ghz to 2.69Ghz (the IMT-2000 extension band), and any further spectrum designated by the Minister (section 577H). That is, the Bill does not propose to restrict Telstra from retaining or seeking to obtain spectrum that is currently allocated to mobile carriers (unless the Minister otherwise determines), but would prevent Telstra from seeking to acquire additional spectrum which is earmarked for advanced wireless broadband services.
- The criteria to be taken into account by the ACCC in considering whether to accept or reject an undertaking from Telstra are not set out in the Bill, but may be determined by the Minister (section 577A). There is no express requirement in the Bill for the ACCC to engage in any form of public consultation in respect of a voluntary undertaking submitted by Telstra.
- It is clear from the Explanatory Memorandum that structural separation may, but does not need to, involve the creation of a new company by Telstra and the transfer of its fixed-line assets to that new company. Alternatively it may involve Telstra progressively migrating its fixed-line traffic to the NBN over an agreed period of time and under set regulatory arrangements, and sell or cease to use its fixed-line assets on an agreed basis.
- The date for the undertaking to come into effect must be 1 July 2018 or another date specified by the Minister. Therefore, the Bill appears to anticipate a fairly long lead time before Telstra would be required to implement the obligations in any accepted undertaking.
- In respect of Foxtel and the HFC Network, the Bill provides scope for the Minister to remove those requirements if the Minister is satisfied that Telstra’s structural separation undertaking is sufficient to address concerns about the degree of Telstra’s power in telecommunications markets.
If Telstra does not elect to structurally separate, the restrictions proposed in the Bill would be likely to significantly advantage other mobile carriers to obtain access to spectrum for advanced mobile/wireless broadband services.
Functional Separation
If Telstra does not voluntarily implement structural separation, the Bill requires the functional separation of Telstra.
The proposed functional separation framework will be implemented through legislative amendment to Part 9 of Schedule 1 to the Telco Act with more detailed requirements to be set out in a determination to be made by the Minister. Therefore, further significant detail in respect of the functional separation regime is yet to come.
Telstra will be required to submit undertakings to the Minister concerning the implementation of functional separation, and ongoing commitments to functional separation. These undertakings will be contained in a draft Functional Separation Undertaking (FSU). Those undertakings must be directed at achieving key principles and objectives of functional separation and must include specific matters set out by the Minister in a requirements determination.
The Minister will consider the draft FSU submitted by Telstra, hold a public review and consult the ACCC. The Minister will then approve, vary or replace the draft FSU. It then becomes a final FSU.
Unlike the existing operational separation regime, Telstra will be required to comply with the final FSU with compliance being a carrier licence condition.
Telstra will be required to establish an oversight and equivalence board to monitor and support Telstra’s compliance with the final FSU and report to Telstra’s Board and the ACCC about that compliance. The Explanatory Memorandum also indicates that there will also be provisions for the establishment of a new independent telecommunications adjudicator, to provide a practical way to enable access providers and access seekers to resolve non-price equivalence and service level issues. However little detail is provided in the Bill in respect of the proposed new adjudicator.
More detailed requirements of the functional separation undertaking to be addressed by Telstra will be set out in a written determination to be made by the Minister within 90 days of the commencement of the legislation.
The functional separation obligations on Telstra would cease in the event that Telstra submits an enforceable undertaking acceptable to the ACCC to structurally separate.
Streamlining the access and anti-competitive conduct regimes
The Government has proposed significant changes to the access regime contained in Part XIC of the Trade Practices Act, in order to lead to greater certainty, fewer disputes and more timely and efficient outcomes. The new regime is intended to be more broadly consistent with the access regimes that operate in other key infrastructure industries in Australia, such as gas and electricity, and the role of the telecommunications regulator and other international jurisdictions.
New ACCC powers
The Bill abolishes the negotiate-arbitrate model, under which the terms and conditions of access to declared services were determined by negotiation between the service provider and access seeker, or by ACCC arbitration if the parties were unable to reach agreement.
In its place, the ACCC is given the ability to make upfront determinations on price and non-price terms of access as follows:
- the ACCC may determine upfront price and non-price terms and conditions to apply in general for a 3 to 5 year period;
- the Access Determination would apply to all access providers and access seekers of the declared service;
- the ACCC will have the power to determine fixed principles to apply for a stated period which may extend beyond the duration of the Access Determination;
- the ACCC will have the power to make binding rules of conduct for the supply of declared services which would apply either in addition to or as a variation of an Access Determination (such rules could address particular issues as they arise);
- there will no longer be ordinary exemptions from access obligations and no ordinary access undertakings;
- the ACCC will have the power to request a party that lodges a special access undertaking to vary the undertaking without having to lodge a new undertaking; and
- merits review would not be available for ACCC decisions under Part XIC.
Access Determinations
The ACCC may make a written determination relating to access to a declared service.
The terms and conditions that are specified in an Access Determination must include terms and conditions relating to price or a method of ascertaining price, which provides the ACCC with flexibility in how it addresses pricing issues. An Access Determination may also provide for the ACCC to perform functions or exercise powers over a period of time.
In making an Access Determination, the ACCC must take into account the following matters:
- whether the determination will promote the long-term interests of end users;
- the legitimate business interests of a carrier or carriage service provider;
- the interests of all persons who have rights to use the declared service;
- the direct costs of providing access to the declared service;
- the value to a person of extensions or enhancement of capability whose cost is borne by someone else;
- the operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or a facility; and
- the economically efficient operation of a carriage service, a telecommunications network or a facility.
The ACCC may also take into account the characteristics, the costs associated with, the revenues associated with, and the demand for, other eligible services supplied or capable of being supplied by a carrier or carriage service provider.
There are specified restrictions on access determinations, and provision for the payment of fair compensation if an access determination deprives a person of a pre-determination right.
An Access Determination may include a fixed principles provision. The determination must provide that a specified date is the nominal termination date for the fixed principles provision and that date may be later than the expiry date for the determination itself. The fixed principles provision may also carry over into replacement Access Determinations if the nominal termination date has not expired. For example, a fixed principles provision as to how depreciation is treated could carry over into the next Access Determination.
The ACCC must not make an Access Determination unless it has held a public inquiry about a proposal to make the determination and has prepared a report about the inquiry and the report was published during the 180 day period ending when the determination was made.
A carrier licence held by a carrier is subject to a condition that the carrier must comply with any Access Determinations that are applicable to the carrier. A carriage service provider must comply with any Access Determinations that are applicable to the provider.
An access seeker, carrier or carriage service provider may enforce compliance with an Access Determination by making an application to the Federal Court of Australia.
Binding rules of conduct
The ACCC may make written rules relating to access to a declared service which may:
- specify the terms and conditions on which a carrier or carriage service provider is to comply with any or all of the standard access obligations applicable to it;
- specify any other terms and conditions of an access seeker's access to the declared service;
- require a carrier or carriage service provider to comply with any or all of the standard access obligations applicable to it in a manner specified in the rules;
- require a carrier or carriage service provider to extend or enhance the capability of a facility by means of which the declared service is supplied;
- impose other requirements on a carrier or carriage service provider in relation to access to the declared service;
- specify the terms and conditions on which a carrier or carriage service provider is to comply with any or all of those other requirements;
- require access seekers to accept, and pay for, access to the declared service;
- provide that any or all of the obligations referred to in section 152AR are not applicable to a carrier or carriage service provider either conditionally or subject to conditions or limitations specified in the rules; and
- restrict or limit the application to a carrier or carriage service provider of any or all of the obligations referred to in section 152AR.
Binding rules of conduct may be of general application or they may be limited to particular carriers or classes of carriers or particular access seekers or classes of access seekers.
The ACCC is not required to observe any requirements of procedural fairness in relation to the making of binding rules of conduct.
A carrier licence held by a carrier is subject to a condition that the carrier must comply with any binding rules of conduct that are applicable to the carrier.
An access seeker, carrier or carriage service provider may enforce compliance with an Access Determination by making an application to the Federal Court of Australia.
Ability of access provider to set or influence access terms and conditions
The access provider has only a limited ability to set or influence the terms and conditions of access to declared services under the new regime.
The new regime recognises that access providers and access seekers may agree on the terms and conditions of access. If the parties enter into an access agreement and register that agreement with the ACCC, the access agreement prevails over any ACCC determination or rule of conduct to the extent of any inconsistency.
The new regime removes the access provider's ability to lodge a standard access undertaking with the ACCC (that is, an undertaking as to the terms and conditions of access to a declared service). The new regime retains the special access undertaking provisions, under which an access provider can lodge a special access undertaking in connection with the provision of a service that is not an active declared service. However, the ACCC is given the power to refuse to consider a special access undertaking if the access provider has previously lodged a similar special access undertaking that has been rejected by the ACCC.
The access provider does not have a right to request that the ACCC make a binding rule of conduct or an access determination, or to put a proposal to the ACCC for its consideration. This is quite different to the gas and electricity access regimes in Australia. While both those regimes provide for upfront determination of price and other terms and conditions of access by the regulator, the service provider puts forward their proposed pricing and access terms and conditions, which the regulator then assesses against specified criteria.
By contrast, under the new regime, the ACCC has the power to make an access determination or binding conduct rule of its own initiative. The access provider may participate in the public inquiry process. The ACCC is able to draw upon existing information and prior submissions of parties in making access determinations.
Merits review of decisions under Part XIC will no longer be available. Judicial appeal processes will still be available however for parties wishing to appeal a point of law.
Anti-competitive conduct
Part XIB prohibits telecommunications carriers and carriage service providers from engaging in anti‑competitive conduct. While the anti-competitive conduct that is prohibited under Part XIB is similar to that which is prohibited by Part IV of the TPA, Part XIB makes provision for the issue of competition notices by the ACCC if it believes the service provider is engaging in anti‑competitive conduct in the telecommunications markets in breach of the competition rule.
These provisions are intended to achieve a timely resolution of allegations of anti-competitive conduct. However, the effectiveness of the Part A Competition Notice procedure has been questioned, because of the obligation for the ACCC to engage in a consultation process and the scope for legal challenge on procedural fairness grounds. The reforms address these concerns by removing the consultation requirement.
The Government also proposes to clarify that Part XIB applies to content services, in order to increase regulatory certainty and reduce the risk of protracted legal disputes on this issue. The Explanatory Memorandum notes that advances in technology have increased the capacity for carriers and CSPs to provide content of services. It notes that the offering of bundled packages (often involving the supply of voice, internet and television) is common place and that bundled packages involving the supply of content services by carriers and carriage service providers may have anti-competitive consequences, if a provider's market power can be levered to gain advantage in the market for another service.
The Explanatory Memorandum gives as an example a vertically integrated carrier acquiring premium content on an exclusive basis could be a source of significant market power which could be used to stifle investment in new telecommunications infrastructure. In those instances, if the ACCC believes the relevant conduct breaches the competition rule, the Explanatory Memorandum states the ACCC must be able to take enforcement action without doubts over the application of Part XIB to content services.
Strengthening existing consumer protection regulations
The Bill strengthens existing legislative requirements in respect of the Universal Service Obligation, the Customer Service Guarantee and Priority Assistance. There are also measures to improve the effectiveness of the regulating body, the Australian Communications and Media Authority (ACMA), through enhanced regulatory powers.
Universal Service Obligation
Part 4 of Schedule 1 to the Bill amends the Consumer Protection Act to include new requirements for the universal service provider (Telstra) to supply, on request, standard telephone services with characteristics and to performance standards determined by the Minister. The Explanatory Memorandum indicates that it is intended that performance standards will include maximum periods of time for new connections and fault rectification and reliability standards. There are also new provisions providing minimum performance benchmarks that the universal service provider must meet in fulfilling its responsibilities.
The Bill also provides the Minister with the power to specify, by written determination, rules and performance standards to which a primary universal service provider must adhere in relation to the supply, installation, maintenance and location of payphones. In addition, there will be new requirements in relation to public consultation and notification of proposals to remove payphones and ACMA will have new powers to direct the universal service provider not to remove payphones.
Customer Service Guarantee
The CSG requires telephone companies to meet minimum performance standards or provide customers with financial compensation when these standards are not met.
Part 5 of Schedule 1 to the Bill amends the Consumer Protection Act to provide for the Minister to establish minimum CSG performance benchmarks. While failure by a service provider to meet a CSG standard is not subject to a civil penalty under the Telco Act, failure to meet the minimum CSG new performance benchmarks will be.
In addition, the Bill 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 meet CSG service quality standards.
The Bill seeks to limit the ability of service providers to require customers to waive their CSG rights by providing that:
- a customer’s waiver must be express;
- a customer waiver of the CSG must include a statement that summarises the consequences of the customer waiving the CSG;
- a waiver must not be set out in the standard form of agreement formulated by a carriage service provider for the purpose of section 479 of the Telco Act;
- the CSG cannot be waived for a telephone service that is supplied in fulfilment of the Universal Service Obligation.
Priority Assistance
Part 6 of the Bill introduces a new service provider rule in Schedule 2 of the Telco Act requiring service providers to either offer a priority assistance service in accordance with the Communications Alliance code on priority assistance or to inform any prospective customers of a standard telephone service of providers from whom they can purchase such a service if they require it.
Telstra will remain bound by its current carrier licence condition requiring it to have priority assistance services.
Enforcement
Part 7 of Schedule 1 to the Bill inserts a new Part 31B into the Telco Act which provides expanded powers for ACMA to issue infringement notices.