Alert

Who does this affect?

International and domestic telecommunications investors.

What do you need to do?

Assess the impact of the Bill.

Author
Sam Porter  
Solicitor

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Neil Carabine  
Partner
T +61 3 9643 4085

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Kristin Leece  
Partner
T +61 2 9296 2077

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Sydney
Luke Waterson  

Melbourne
Renae Lattey  

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On 15 September 2009, the Federal Government released the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 (the Bill), which proposes important changes to Australian telecommunications regulation. The Bill will be the subject of considerable debate over several months and may require the support of all independents in the Senate.

The Bill proposes measures to:

• address Telstra’s vertical and horizontal integration, in particular to support the building and viability of the National Broadband Network (NBN), by imposing critical limits on Telstra’s wireless spectrum holdings unless Telstra agrees to a significant degree of separation

• reform the access and anti-competitive conduct regimes, and

• strengthen consumer safeguard protections.

The Bill follows the Government’s April 2009 discussion paper on regulatory reform which was released in conjunction with the Government’s announcement that it would establish a wholesale, open access National Broadband Network.

Addressing Telstra’s vertical and horizontal integration

Mandatory functional separation

The Bill tightens Telstra’s existing operational separation requirements, requiring Telstra to:

• operate its network/wholesale business unit at arm’s length from Telstra’s retail business units

• supply regulated services (generally, those services declared under Part XIC of the Trade Practices Act) to Telstra’s wholesale customers and retail business units on an “equivalence” basis

• establish an Oversight and Equivalence Board for monitoring Telstra’s compliance with equivalence requirements and submitting regular reports to the ACCC

• accept an independent telecommunications adjudicator to resolve access disputes, and

• meet such other requirements as are specified by the Minister.

To achieve functional separation, Telstra will be required to submit a draft functional separation undertaking to meet the Minister’s specifications within 6 months of the Bill becoming law. Within 6 months of receiving the undertaking, the Minister must publicly consult and approve the undertakings, either as submitted or with amendments determined by the Minister.

Voluntary structural separation

Telstra can end mandatory functional separation by submitting and having the ACCC accept a voluntary structural separation undertaking. By this undertaking, from 1 July 2018 (or an earlier or later date specified by the Minister) Telstra would be prevented from supplying fixed-line telecommunications services to retail customers using a Telstra-controlled telecommunications network or a network controlled by a company in which Telstra holds more than 15% (which may include NBN Co).

Effectively, such an undertaking would require an ownership separation of Telstra’s fixed networks from its fixed line retail business.

For example, Telstra could agree to acquire fixed line services from NBN Co for on-supply to its retail customers (provided Telstra holds no more than 15% of NBN Co). Such an outcome could be critical to the economic viability of the NBN.

The ACCC will decide whether to accept the structural separation undertaking based on criteria specified by the Minister and such other matters as the ACCC considers relevant. Once accepted by the ACCC, Telstra cannot withdraw the undertaking.

Spectrum bar

Telstra will be prevented from acquiring critical LTE and 4G spectrum until it submits, and the ACCC accepts, a voluntary structural separation undertaking and the following 2 undertakings:

The Minister has the ability to remove the spectrum bar even if the HFC and Pay TV undertakings have not been offered and accepted if he is satisfied that a structural separation undertaking accepted by the ACCC is sufficient to address concerns about Telstra’s market power.

The designated spectrum bands from which Telstra would be barred are:

In effect, the spectrum bar would constrain Telstra from offering LTE/4G services. In addition, Telstra’s 850 MHz spectrum licences used for its Next G™ network expire in 2013 but may be subject to renewal.

Reforms to the access and anti-competitive conduct regimes

Changes to the telecommunications access regime

The Bill will abolish the current negotiate-arbitrate model of resolving access disputes. The ACCC will instead have power to make:

• “access determinations” to set up-front price and non-price terms for regulated services following industry consultation, and

• “fixed principles” that remain in force independently of an access determination.

Under the transitional provisions of the Bill, the ACCC will be required to make access determinations for existing declared services (eg the unconditioned local loop service and transmission services) and must start the process within 12 months of the Bill commencing.

Access determinations will effectively set industry benchmark terms and conditions for regulated services, but industry participants will have flexibility to negotiate access agreements whose terms prevail. Access agreements must be lodged with the ACCC, which will give the ACCC greater visibility into the market.

To address urgent access issues and disputes, the ACCC will be able to issue binding rules of conduct to access providers. Access providers will also lose the ability to apply for undertakings in relation to, or exemptions from, access obligations for existing declared services. Access providers may still apply for exemptions for new, undeclared services.

Changes to telecommunications competition regulation

To address “urgent” competition issues, the ACCC will be able to issue competition notices to carriers and carriage service providers, without prior consultation.

Strengthening the consumer safeguard framework

There are a number of changes to the consumer safeguard framework.

Universal service obligation

At present, the primary universal service provider (USP) (currently Telstra) must supply fixed-line “standard telephone services” as the provider of last resort. The Bill will give the USP greater flexibility to meet its obligations, allowing the USP to provide mobile or VOIP services in certain circumstances.

The Bill will also limit the USP’s ability to decommission payphones, with the Australian Communications and Media Authority (ACMA) obtaining power to direct the USP not to remove a payphone in some cases.

Consumer Service Guarantee

The Bill gives the Minister power to introduce new minimum performance benchmarks for wholesale and retail telecommunications suppliers to meet in supplying or repairing services. For example, the Minister will be able to set timeframes for connection, quality and repair of services by telecommunications suppliers. Failure to comply with the benchmarks could result in civil penalties or ACMA infringement notices.

ACMA infringement notices

ACMA will obtain power to issue infringement notices (on-the-spot fines) for breaches of telecommunications legislation of up to $6,600 and, in serious cases, $1,980,000.