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Technology, Media & Telecommunications

Focus: Telecommunications reform clears next hurdle – but not out of the woods

28 October 2009

In brief: A Senate committee report, has recommended that the government's proposed Bill on telecommunications industry changes be passed without delay to help reduce regulatory uncertainty in the industry. Partner Ian McGill (view CV) and Lawyers Valeska Bloch and Chris Govey summarise the committee's conclusions.

How does it affect you?

  • There remains political uncertainty about whether the Bill will be debated and passed in the Senate on 28 October.
  • The Senate Committee report (by majority) supports the Bill but foreshadows some reconsideration of the Bill's provisions, including providing that, in certain circumstances, upfront access determinations prevail over previously agreed access agreements and that the negotiate-arbitrate model in the facilities access regime in Schedule 1 of the Telecommunications Act 1997 (Cth) also be replaced.
  • The Senate Committee noted some concerns raised in submissions, but did not recommend any change to the Bill's provisions removing merits review of certain Australian Competition and Consumer Commission (ACCC) decisions under Part XIC of the Trade Practices Act (Cth).

Background to committee inquiry

On 15 September 2009, the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009 (the Bill) was read for the first time in the House of Representatives (see Focus: Significant reform of telecommunications laws for our analysis). The Senate referred the Bill to the Senate Legislation Committee on the Environment, Communications and the Arts (the committee) on 17 September.

The committee is comprised of six committee members and four participating members. Three of the committee members are Government senators, two are Liberal Party senators and one is an Australian Greens senator.

The committee began an inquiry into the Bill and asked for submissions to be made by interested parties by 7 October 2009. They received 119 numbered submissions and 224 form letters regarding the Bill. The committee also held public hearings in Melbourne and Canberra on 13 and 14 October 2009. On 26 October 2009, the committee tabled its report on the Bill (the report) in the Senate.

On 22 October 2009, the Bill was passed by the House of Representatives. The Senate is expected to debate the Bill on 28 October 2009.

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Summary of Report recommendations

The Government's section of the report reflects the Government's views and recommends that the Bill be passed without delay, to reduce regulatory uncertainty in the industry. The Government has emphasised that, as the regulatory regime will operate independently of the national broadband network (NBN), the results of the Implementation Study into the NBN are not relevant to the Bill's passage.

The Coalition senators recommend that the Bill not be further considered until the Government's NBN Implementation Study (scheduled for February 2010) is completed and the Government's response to that study is tabled in Parliament. Alternatively, if the Bill is not delayed, the Coalition senators recommend that the Bill be amended to address their concerns.

The Australian Greens senator, Scott Ludlam, foreshadows that the Australian Greens will support the Bill's passage, subject to it being amended to enhance protection of Telstra's workforce and end-users of telecommunications services, and to encourage diversity of market participants.

A National Party senator, Fiona Nash, provides additional comments supporting the Bill, particularly the benefits the Senator considers will be delivered by the Bill to regional Australia.

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Separation of Telstra

The proposal

The Bill proposes that Telstra must functionally separate unless it submits a voluntary undertaking to structurally separate. In addition, Telstra will be prevented from acquiring specified bands of spectrum while it:

  • remains vertically integrated; and
  • exercises control of a hybrid fibre-coaxial (HFC) network; and
  • exercises control over a subscription television broadcasting licence.

The Minister may, however, exempt Telstra from the prohibitions on exercising control of an HFC network or exercising control over a subscription television broadcasting licence if Telstra submits an acceptable undertaking to the ACCC to structurally separate.

The committee's view on the separation of Telstra

The committee 'accepts the view of the Government and most industry stakeholders that the separation of Telstra will bring long term benefits'.

Contrary to the position put forward by Telstra and several of Telstra's institutional shareholders, the committee also states that 'the three Telstra sale prospectuses were clear enough about the potential of regulatory changes in the telecommunication sector that might affect Telstra's competitive position' and that 'the committee does not believe that sufficient evidence has been presented that these regulatory reforms will be detrimental to Telstra's share price'.

Senator Nash supports the view that the Telstra sale prospectuses were sufficiently clear about the potential of regulatory changes and that 'stronger separation is the only way forward'.

The Coalition senators note that the proposals in the Bill to either impose functional separation and prevent Telstra from accessing specified spectrum, or to structurally separate and still risk forced divestment of the HFC cable or FOXTEL 'should be a matter for the shareholders' and that the Minister should not be given such discretion. They also raise their concern that the Bill's nature sets a precedent and 'raises sovereign risk questions about the Australian investment climate'.

While Senator Ludlam supports the structural amendments proposed by the Bill, he notes that the Australian Greens believe that, in making these amendments, 'it is essential to protect the rights and entitlements of Telstra's workforce to ensure no one is worse off after the adjustments to Telstra's structure'.

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Amendments to Part XIB of the TPA

The proposal

The Bill proposes to amend the provisions of the Trade Practices Act 1974 (the TPA) that regulate anti-competitive conduct in telecommunications markets:

  • to clarify that a telecommunications market includes a market in which content services are supplied or acquired;1 and
  • to remove the requirement that the ACCC provide procedural fairness when issuing a Part A competition notice under Part XIB of the TPA.2
The committee's view on amending Part XIB of the TPA

The committee does not specifically comment on these aspects of the Bill other than to refer to submissions by interested parties.

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Amendments to Part XIC of the TPA

The proposal

The Bill proposes to amend the provisions of the TPA that regulate access to declared telecommunications services:

  • to repeal the existing negotiate-arbitrate model of providing access to declared services and grant the ACCC the power to set up front terms and conditions of access, including as to price;3 and
  • not to permit merits review of the ACCC's decisions under the new access regime.4
The committee's view on whether to replace the negotiate-arbitrate model

The committee 'accepts the strong evidence of the need to reform the negotiate-arbitrate model, and notes that most submitters supported the [B]ill's proposals.'

The committee also believes that certain issues raised by submitters may have merit;5 in particular, the committee considers that there may be merit in submitters' suggestions that:

  • there be circumstances in which the ACCC's upfront access determinations prevail over previously agreed access agreements; and
  • the negotiate-arbitrate model in the facilities access regime in Schedule 1 of the Telecommunications Act also be replaced.

The Department of Broadband, Communications and the Digital Economy has said that it will consider these proposals further.

Senator Ludlam makes an additional comment that the Australian Greens will seek to amend the Bill such that the terms and conditions of an upfront access determination will prevail over the terms and conditions of an earlier access agreement.

Senator Nash agrees that the negotiate-arbitrate model has not been effective in dealing with access to declared services. Senator Nash considers that the Bill is 'a welcome step forward' in this regard.

The committee's view on whether to permit merits review of ACCC decisions

The Bill proposes not to permit merits review of the ACCC's decisions under the new access regime.6 The ACCC's decisions will still be liable to judicial review by the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 (Cth).7 Currently, the ACCC's decisions to accept or reject access undertakings and exemptions are subject to merits review by the Australian Competition Tribunal.8 Merits review of the ACCC's determination in an access arbitration was also available to parties affected by the ACCC's decision until the enactment of the Telecommunications Competition Act 2002 (Cth).

The committee recommends that the Bill, which does not provide for merits review of ACCC decisions, be passed. The report's main section does not comment specifically on the desirability or otherwise of merits review, except to refer to submissions by Telstra, Vodafone Hutchison Australia and FOXTEL.

The Coalition senators note their concern about the level of discretion that the Bill proposes to grant the ACCC, the 'total removal of merits review in relation to regulatory decisions under part XIC' and the 'Government's proposal to waive procedural fairness requirements' in certain circumstances. The Coalition senators strongly agree with FOXTEL that abolishing procedural fairness is contrary to well established principles of good public policy and administrative law designed to protect against arbitrary decision making.

Senator Ludlam is concerned about the very wide discretions granted to the ACCC and the preclusion of procedural fairness and merits review in relation to certain ACCC decisions. He recommended that the Bill be amended to include a review mechanism to examine whether the access regime is functioning appropriately after three years.

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Consumer safeguards

The proposal

The Bill proposes to retain the current scope of the existing consumer safeguard arrangements but strengthen regulation in the transition to the NBN.

The committee's view on changes to consumer safeguards

The report notes that 'there was general support for the enhancement of consumer safeguards in the bill' and, as a result, the report concentrates on issues relating to proposed structural changes to Telstra and on the proposed TPA reforms.

The Coalition senators note their concern that the NBN will necessitate a review of the USO regime and that it therefore 'makes more sense to await the Implementation Study, which if completed on schedule, will not delay the 1 July 2010 commencement of these measures, to ensure that the USO does reflect the operating environment created by any NBN roll-out'.

Senator Ludlam indicates that the Greens will propose amendments to 'broaden the definition of 'Standard Telephone Service' to cover the much larger array of telecommunications services which now exist' and 'make compensation payments liable under the Customer Service Guarantee automatic rather than relying on customers to apply.'

Senator Nash agrees with the committee that the safeguards will prove 'efficient mechanisms, particularly for regional areas'.

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Next steps

On 13 May 2009, the Opposition passed a motion preventing consideration of any NBN-related Bills (including the Telecommunications Legislation Amendment (National Broadband Measures) Bill 2009) (see our analysis of this Bill in Focus: New legislation compelling infrastructure information until the ACCC's formal report on the NBN proposals to the NBN Panel of Experts and the final report provided to the Government from the NBN Panel of Experts on submission to the cancelled NBN Mark 1 RFP had been tabled.

On 26 October, the Government tabled these documents and indicated that it will seek to move a motion requesting that the Senate allow consideration and debate of these Bills. Assuming this occurs, the Senate is expected to debate the Bill on 28 October 2009. The Government contends that delay in the passage of the Bill is likely to increase uncertainty generally within the industry, as well as in the context of negotiations regarding the NBN.

If you have any questions about this or any other Communications, Technology and Media issue, please contact one of the below people.

Footnotes
  1. Item 158 of Part 3 of Schedule 1 to the Bill; see also s151AF of the TPA.
  2. See s151AKA of the TPA.
  3. Item 116 of Part 2 of Schedule 1 to the Bill.
  4. See item 108 of Part 2 of Schedule 1 to the Bill, and ss152AV, 152AW and 152AX of the TPA, regarding the ACCC's decisions relating to ordinary and anticipatory individual exemptions; see item 128 of Part 2 of Schedule 1 to the Bill, and ss152CE, 152CF, 152CG, and 152CGA of the TPA, regarding a decision of the ACCC to accept or reject an undertaking or a variation to an undertaking.
  5. See, for example, the submissions of Pipe Networks, the Competitive Carriers Coalition, Macquarie Telecom and iiNet.
  6. See item 108 of Part 2 of Schedule 1 to the Bill, and ss152AV, 152AW and 152AX of the TPA, regarding the ACCC's decisions relating to ordinary and anticipatory individual exemptions; see item 128 of Part 2 of Schedule 1 to the Bill, and ss152CE, 152CF, 152CG, and 152CGA of the TPA, regarding a decision of the ACCC to accept or reject an undertaking or a variation to an undertaking.
  7. Explanatory Memorandum to the Bill, p 137.
  8. Sections 152AV and 152CE of the TPA.

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