Bills Digest No. 185  1999-2000Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No. 1) 2000


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No. 1) 2000

Date Introduced: 10 May 2000

House: House of Representatives

Portfolio: Communications, Information Technology and the Arts

Commencement: The amendments contained in the Schedule commence or will be taken to commence on 1 July 2000.

Purpose

This Bill has two principal objectives:

  • to enable the Minister to determine a universal service provider's net universal service cost (NUSC) for up to three years in advance, and
  • to give carriers tendering for the $150 million allocation to extend access to untimed local calls in remote Australia some certainty about the universal service regime that will apply if they win the tender.

 

Background

The Universal Service Regime

The Telecommunications (Consumer Protection and Service Standards) Act 1999 (the Principal Act) provides for a universal service regime which consists of the universal service obligation (USO) and the digital data service obligation (DDSO). The purpose of the USO 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,(1) payphones and prescribed carriage services.(2) The DDSO is designed to ensure that all Australians have high-speed access to the Internet through a digital data service with a data delivery capacity of 64kbps. Telstra is currently solely responsible for fulfilling the USO and DDSO. The legislation however, does allow the Minister to declare two or more carriers as universal service providers, or regional service providers, with appropriately limited responsibilities.(3)

The Principal Act also states that the USO should be fulfilled as economically as possible and that any losses involved in its provision should be shared among carriers.(4) Telstra submits its estimate for the cost of fulfilling the USO -the Net Universal Service Cost (NUSC) to the Australian Communications Authority for assessment. A levy is imposed on all carriers in proportion to their share of total carrier revenue.

The Cost of the USO(5)

For some time, rival carriers have disputed Telstra's estimate of the NUSC. In 1996/97 the NUSC agreed among carriers was $252 million. In 1997/98 Telstra used methodology prepared by Bellcore International to determine the NUSC. The model was agreed by Telstra, Optus, Vodafone and the Australian Communications Authority. Based on its interpretation of the model, Telstra submitted that its NUSC for 1997-98 was $1.8 billion.(6)

Telstra's claim represented a massive increase in the NUSC. There was concern that if the claim were to stand the levy contributions required of other carriers would cripple competition in the telecommunications industry. Telstra's competitors strongly disputed the calculation. For example, Cable and Wireless Optus claimed that it could provide the USO service for only $178 million by using a combination of wireless and satellite technology.(7) However, it declined to confirm that it would tender for the USO on this basis if given the opportunity.

In October 1998, the Minister issued a press release(8) announcing that the Government would attempt to reach an agreement with all telecommunications carriers to cap the NUSC at $253.32 million for the 1997/98 financial year in order to provide the industry with the necessary degree of certainty. Such an agreement was not forthcoming and in June 1999 the Parliament passed the Telecommunications Laws Amendment (Universal Service Cap) Act 1999. This Act fixed the cost of the NUSC at $253 million for 1997-98 and the two following years (with allowance for inflation). The legislation also gave the Minister the power to determine different amounts for 1998-99 and 1999-2000 if circumstances changed.(9)

The Government acknowledged that the cap was only an interim solution and the Minister requested the ACA to review USO costing and assessment arrangements with particular reference to:

  • the impact of the 1997-98 USO assessment on competition in the industry
  • the most appropriate method for calculating the NUSC in future, and
  • the appropriateness of the NUSC model.

In April 1999 the ACA released the final versions of two consultants reports which recommended using input values that would reduce Telstra's NUSC claim to $600 million.(10)

On 22 October 1999 the ACA released its final assessment of the 1997-98 NUSC at $548 million.(11) This was the amount that would have applied in the absence of the cap. The significant difference between the amount claimed by Telstra and the final assessed amount was mainly due to the ACA's view that the USO would be most efficiently supplied using a mixture of cable, terrestrial radio and satellite technologies. In comparison, Telstra used only cable and one radio solution in its claim.

March 2000 USO Policy Statement

In November 1999 the Minister requested the ACA to provide advice on factors relevant to estimating the NUSC for 1998-99 and 1999-2000. The ACA reported in January 2000(12), and on the 23 March 2000 the Government announced that the NUSC for 1998-99 and 1999-2000 would be increased to around $280 million in line with the advice from the ACA.(13) This increase in the cap does not require any legislation, it can be facilitated by Ministerial determination. While such determinations are disallowable instruments, the Shadow Minister for Communications has indicated that the Opposition is likely to support the measure on the basis that the industry requires certainty.(14)

The Government also announced:

  • the introduction of competition in the delivery of the USO in the form of two regional contestability pilots. Telstra will be required to continue to operate in the pilot markets, but will be compensated for its increased commercial risk. Under the proposal, no consumer will be forced to give up their Telstra service unless they choose to move to a new service provider
  • that the responsibility for paying for the USO is to be extended to include carriers and service providers who earn more than a prescribed amount, and
  • that the NUSC will now be costed in advance for a period of up to three years. The ACA has been asked to begin work on estimating USO costs for the forward years.

This Bill only deals with the last matter in a substantial way. While some amendments facilitate the introduction of multiple national universal service providers or regional universal service providers, additional legislation is required before the contestability pilots can proceed. In his second reading speech, the Minister stated that 'A second, substantive Bill will be introduced at a later date to implement all the elements of the Government's USO reform package announced on 23 March.'(15) This Bill has been introduced separately because the Government wants to ensure that it is passed before July 1 in order to secure a smooth transition from the current capping arrangements for the NUSC to the proposed forward-looking approach.

Extending Untimed Local Call Access

It is estimated that there are 40,000 subscribers in Telstra's 'extended zones' which cover over 80 per cent of the Australian landmass. These customers have no or limited access to untimed calls, essentially because the telecommunications infrastructure in these zones has capacity limitations.(16)

Part 9 of the Telstra Corporation Act 1991 (the Telstra Act) provides for a social bonus resulting from the sale of the second tranche of Telstra in 1999. Section 53 of the Telstra Act provides for the allocation of $150 million to the Untimed Local Call Access Reserve. In a separate statement on March 23, the Government announced that it would call for tenders for a $150 million project to extend untimed local call access.(17) Under the tender, carriers must put forward proposals to install new communications infrastructure. The successful tenderer will become the regional universal service provider for the extended zones.

The Opposition has stated that it supports the program to extend untimed local calls to regional and remote Australia and the proposal to put the program out to tender. It has however been critical of the fact that Telstra had to be partially privatised to fund the program.(18)

Main Provisions

Declaring Universal Service Providers

Item 6 inserts proposed subsection 20(2A) to give the Minister more flexibility in the factors he or she is permitted to take into account when declaring that a carrier is a National Universal Service Provider (USP) or a Regional USP. Proposed subsection 20(2A) states that the Minister is not limited to considering only the person's suitability to fulfil the USO. The amendment will allow the Minister to take into account factors such as the person's ability to provide other services, its operational practices, its technical capabilities or financial standing.(19) The flexibility provided by this proposed subsection may be of particular value in the context of the USO pilots as it may allow the appointment of a carrier to complement the core USO services provided by Telstra.

Perhaps reflecting a concern that competitors will potentially be allowed to 'cherry-pick' which USO services they will provide, Telstra has criticised this provision on the grounds that it gives the Minister a discretion that is 'undesirably wide'. It has recommended an amendment to ensure that the Minister is limited to considering the matters listed in section 9 of the Principal Act as the policy principles underlying the universal service regime.(20) These principles include: that all Australians should have access on reasonable terms to standard telephone services, payphones and digital data services; and that the USO should be fulfilled as efficiently as possible.

Existing subsection 20(4) requires the Minister to exercise his/her powers so that there is only one national universal service provider and that the service areas of regional service providers do not overlap. This subsection is repealed by item 7 to implement the Government's policy to streamline arrangements for the appointment of multiple USPs where appropriate.

Deemed Declarations

Sections 56 and 57 of the Telstra Act permit the Commonwealth to make an agreement with a State or other person granting funds from the untimed local call access reserve. As noted above, this reserve was established with proceeds from the sale of the second tranche of Telstra in 1999. Proposed subsection 20(2B) provides that if an agreement made under section 56 or 57 is expressed to have effect for the purpose of the subsection, then the Minister is deemed to have made a declaration under subsection 20(2) that the person is a regional universal service provider. Commencement dates for the deemed declaration cannot be dates before the agreement was entered into or be prior to the start of the section (proposed subsection 20(2C)).

Declarations made under section 20 are currently disallowable instruments (subsection 20(10)). The amendments made by items 8 and 9 are designed to ensure that a deemed declaration made under proposed subsection 20(2B) will not be a disallowable instrument. Instead, a notice advising that a person concerned has been appointed as a regional USP must be published in the Gazette. This reduction in the level of Parliamentary scrutiny of persons appointed to be USPs is justified in the Explanatory Memorandum on the basis that prospective tenderers for funding to extend untimed local calls access require a guarantee that they will become the regional USP if their bid is successful.(21) The Minister has the capacity under proposed subsection 20(2D) to make a written determination specifying a date as the commencement date. This provision will help facilitate a smooth transition between USPs for a particular service area.

Will Telstra exit from the extended zones?

Existing section 21 of the Principal Act sets out the effect of being declared a USP. The national USP is responsible for fulfilling the USO for the whole of Australia except where a regional universal service provider has been declared for a particular service area.(22)

If a person other than Telstra is the successful tenderer and is subsequently deemed to be declared a regional USP under proposed subsection 20(2B) Telstra's responsibilities as the national USP will be correspondingly reduced to exclude the extended zones.(23)

Item 12 inserts a note to subsection 21(2) which, in general terms, states that if a regional service provider ceases to be the USP for an area and is not replaced, then the national USP will assume responsibility for fulfilling the USO in that area. Nevertheless, Telstra will be permitted to exit from the extended zones if it is not the successful tenderer. This contrasts with the proposed approach in relation to the USO contestability pilots where Telstra will be required to continue to operate in the pilot markets 'as a safety net'.(24)

In its submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee (SECITALC), the Department of Communications, Information Technology and the Arts observed that:

If Telstra is not successful in the Tender, it will have to make a commercial decision whether to continue to serve Extended Zone customers. It is possible that Telstra may continue to offer services in at least parts of the Extended Zones, particularly the more densely settled communities, although equally it may elect to withdraw from the less commercially attractive areas.(25)

Elsewhere, the Department has observed that:

Customers will have no choice but to migrate to the tenderer should Telstra indicate that it wishes to withdraw from all or some of the extended zones.(26)

The Government has indicated that the regional USP will have monopoly access to USO subsidies in the extended zones for three years. Competitors may enter the market but they will not have access to the USO subsidies.(27) These policies are designed to increase the attractiveness of the project to prospective tenderers.

Outgoing USP Information Obligation

Item 19 inserts new section 24A which will require a person who has formerly been a universal service provider to give information to enable a new provider to assume those responsibilities.(28) Information supplied under this section will be protected under Part 13 of the Telecommunications Act 1997. Such information may only be disclosed or used for an authorised purpose.

The requirement to provide information will only apply in the event that a person ceases to be a universal service provider for a particular area (proposed subsection 24A(1)). As noted above, Telstra will cease to be a USP for the extended zones under section 21 if another person is successful in the tender and is deemed to be declared a regional USP under proposed subsection 20(2B).

Under proposed subsection 24A(2), the current provider is required to make the request for information within either six months of becoming the USP for all or some of the area or alternatively, within six months of the former provider ceasing to be the USP for the area. The latter time limit will apply where the current provider was already a USP for a part of or all of the relevant area at the time when the former provider ceased to be a USP.

Proposed subsection 24A(3) defines the type of information that may be required from a former USP. The information must be of a kind that will assist the current provider in doing something that the current provider is or will be required or permitted to do under the universal service regime. A note to the proposed subsection states that examples of the type of information that may be sought include information about service locations and customer contact details.

The Minister may, under proposed subsection 24A(5), make a determination as to whether a particular piece of information or a general category of information is required to be supplied under proposed section 24A. Either House of the Commonwealth Parliament may disallow such a Ministerial determination (proposed subsection 24A(6)).

Telstra has submitted that this provision is drawn too broadly. It points out that the proposed section requires information to be given by a departing USP if it will assist the new regional USP. It argues that it should only have to provide information that is necessary to enable the regional USP to fulfil its obligations. Further, Telstra argues that the new USP should compensate for the former USP for the costs incurred in meeting its request for information.(29)

Carriage Service Providers and the DDSO

At present only carriers can be declared to be digital data service providers. Carriers are entities that own major telecommunications transmission infrastructure (eg cable, satellite and mobile base stations). The Government has come to the view that it is not essential that a digital data service provider own its own infrastructure. This change is based on experience. Telstra does not own its own satellite but fulfils the DDSO by using capacity acquired from PanAmSat.(30) Items 30 and 36 amend section 26A to allow carriage service providers as well as carriers to become digital data service providers. A carriage service provider supplies telecommunication carriage services to the public either through its own infrastructure or through another carrier

Ministerial Determination of USO Costs

Section 57 of the Principal Act provides the basis for calculating the net universal service cost (NUSC) for a particular year.

The amendments proposed by items 68-76 insert an alternative forward-looking system of costing that has the objective of promoting industry certainty. According to the Explanatory Memorandum, the system of Ministerial determination inserted by the Bill is to be the preferred method for determining a USP's NUSC. However, the other costing methods set out in section 57 will be retained in order to facilitate flexibility.(31)

Item 70 inserts proposed subsection 57(1A) which will allow the Minister for Communications to make written determinations specifying the NUSC amount for a specified person or class of persons for a specified year.(32) Alternatively, the Minister may make a determination specifying a method for working out the NUSC for a specified person or class or person for a specified year.

Such Ministerial determinations can cover a period from one to three years. While determinations can have retrospective effect (proposed paragraph 57(1B)(a)) they do not have any effect if the Australian Communications Authority has made an assessment of a person's NUSC for a particular year under section 64 of the Principal Act. (proposed paragraph 57(1B)(b)).

Ministerial determinations made under proposed subsection 57(1A) must be published in the Gazette however they are not disallowable instruments. This approach contrasts with the current practice where Ministerial determinations under subsections 57(14) and 57(15) in relation to NUSC costs for 1999/2000 are disallowable instruments under subsection 57(17). The Explanatory Memorandum states that USPs and the industry require certainty given the sums of money involved and that it is administratively difficult to use the default costing process in subsection 57(2).(33)

In its submission to (SECITALC) Telstra raised concerns that the Minister's discretion to determine the NUSC is 'almost unfettered'. It argues that the provisions give 'no certainty or even comfort to potential or actual USPs that the determined costs will necessarily bear any relationship to their actual costs'. Telstra recommended that the proposed subsection be amended so that the Minister must be satisfied that the figure he or she determines is a reasonable estimate of the figure that would be derived by application of methodology set out in the Principal Act or alternatively some other methodology declared by the Minister under a disallowable instrument. (34)

Telstra Act Grants and NUSC calculations

Section 56 of the Telstra Act allows the Commonwealth to grant financial assistance to a State from the Untimed Local Call Access Reserve. Under section 57 grants may be made to other persons.

Proposed section 61AA which is inserted to the Principal Act by item 78 provides that grants made under sections 56 or 57 of the Telstra Act must not be taken into account:

  • by the ACA in advising the Minister with advice on the amount of the NUSC or the method for determining it under proposed subsection 57(1A);
  • in the application of the default formula in section 57(2)of the Principal Act;
  • by the ACA in determining a method specifying a carriers avoidable costs;
  • by the ACA in determining a method for calculating avoidable costs and revenue forgone or in specifying amount of avoidable costs under subsection 60(1).

The Explanatory Memorandum states that the object of this amendment is to provide prospective tenders with certainty as to the relationship between grants to facilitate access to untimed local calls and the NUSC.(35)

Concluding Comments

Ministerial Determination of the NUSC

It is widely acknowledged in the telecommunications industry that the current arrangements for determining the NUSC on an ex post basis are flawed. The forward-looking approach favoured by the Bill could, in principle, provide the industry with greater certainty and assist in strategic planning. The concerns expressed by Telstra however indicate the benefits of the forward-looking approach could be lost due to doubts about the wide discretion granted to the Minister under the Bill.

In propounding the case in favour of the empowering the Minister to set the NUSC up to three years in advance the Explanatory Memorandum states that 'the ACA has a well developed methodology for estimating NUSCs and its estimates are accepted as being fair and reasonable.'(36) The problem is however that the Bill does not require the Minister to be guided by the work of the ACA. While it is entirely reasonable that the Minister should be able to have regard to matters such as industry commentary on ACA estimates, the fact that the Minister's NUSC determinations will no longer be disallowable may give rise to concerns that the Minister's powers could be misapplied.

It would appear that there are two possible ways to address this issue. Firstly, the Minister's forward-looking determinations could be made disallowable instruments. The possibility of disallowance is likely to moderate the type of determinations made under the proposed subsection even if the Minister retains a broad discretion to decide what matters should be taken into account. Secondly, a list of factors could be inserted into the Act to guide the Minister as to the matters that are legitimate considerations. This may mollify concerns, such as those expressed by Telstra, that the power to make forward-looking determinations could be used capriciously.

Implications for Privatisation

If Telstra is not successful in securing the tender to improve access to untimed local calls it is likely that it will exit from at least some parts of the extended zones. This departure and the resulting outcome may affect attitudes to proposals for the further privatisation of Telstra. For example, if the USO can be successfully provided by a regional USP (albeit with substantial subsidies), the continued majority public ownership of Telstra may come to be seen as less important to delivery of telecommunications services to rural and regional Australia.

Endnotes

  1. Under Part 4 of the Principal Act if a standard telephone service is supplied in a 'standard zone' the USO includes the provision of untimed local calls. This is not the case in Telstra's 'extended zones' in remote Australia.
  2. Section 19 of the Principal Act. No other services have been prescribed as yet.
  3. Sections 25 and 26 of the Principal Act. Areas allotted to national and regional universal service providers cannot overlap - see section 21.
  4. Section 9 of the Principal Act.
  5. This section draws in large part on an Department of the Parliamentary Library Electronic -Brief prepared by Dr Kim Jackson, http://www.aph.gov.au/library/intguide/SP/uso.htm. Readers are encouraged to consult this Brief for more information issues associated with the USO.
  6. Telstra, 'Telephone Subsidies Estimated to cost 1.8 Billion', Media Release 12 October 1998.
    http://www.telstra.com.au/newsroom/release.cfm?ReleaseID=672&Nav=Archive
  7. Nick Miller, 'Optus Claims Rural Rip Off', The West Australian, 18/2/1999, p. 7.
  8. Minister for Communications, the Information Economy and the Arts (Senator Alston), 'The Universal Service Obligation Cost', Media Release, 12 October 1998. http://www.dcita.gov.au/cgi-bin/graphics.pl?path=3293
  9. Only the cap for the 1999/2000 financial is included in the Principal Act. The capping arrangements for 1997-98 and 1998/1999 were inserted into the Telecommunications Act 1997. Under Item 23 of Schedule 4 of the Telecommunications Amendment Act 1999, the USO regime in Telecommunications Act 1997 continues to apply after July 1 1999 in relation to levy matters for a financial year ending on or before June 30 1999.
  10. Australian Communications Authority, 'Release of Net Universal Service Cost Reports', Media Release, 21/99, April 20 1999 http://www.aca.gov.au/media/1999/21-99.htm.
  11. Australian Communications Authority, Net Universal Service Cost Assessment for 1997/98, October 1999 http://www.aca.gov.au/issues/report/NUSC_FAssess1997-98.htm.
  12. Australian Communications Authority, Estimate of the Net Universal Service Costs for
    1998-99 and 1999-2000
    , January 2000 http://www.aca.gov.au/consumer/uso/NUSC_Est1998-2000.htm.
  13. Minister for Communications, the Information Economy and the Arts and the Minister for Transport and Regional Services, 'Government USO decisions break new ground, Media Release, 23 March 2000. http://www.dcita.gov.au/cgi-bin/trap.pl?path=4883
  14. Shadow Minister for Communications (Mr Smith), Transcript of Doorstop, Perth.
  15. Second Reading Speech, Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.1) 2000, 10 May 2000, House of Representatives, Hansard, p. 15341.
  16. Explanatory Memorandum p. 5.
  17. Minister for Communications, the Information Economy and the Arts and the Minister for Transport and Regional Services, 'Call for tenders for $150 million social bonus project', Media Release, 23 March 2000. http://www.dcita.gov.au/cgi-bin/trap.pl?path=4882
  18. Shadow Minister for Communications, Transcript of Doorstop, Perth.
  19. p. 15.
  20. Telstra, Submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee, 29 May 2000, p. 4-5.
  21. Explanatory Memorandum, p. 17.
  22. That is, the responsibilities of the national USP cannot overlap with those of a regional USP.
  23. Telstra's submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee on this matter seems to assume that it would remain responsible, as the national USP, for areas allocated to a regional USP. This view does not seem to take into account the effect of section 21.
  24. Minister for Communications, the Information Technology and the Arts and the Minister for Transport and Regional Services, 'Government USO decisions break new ground, Media Release, 23 March 2000. http://www.dcita.gov.au/cgi-bin/trap.pl?path=4883
  25. DCITA, Submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee, 26 May 2000, p. 10.
  26. DCITA Information Brief 6 - Untimed Local Calls http://www.dcita.gov.au/cgi-bin/trap.pl?path=5033http://www.dcita.gov.au/cgi-bin/trap.pl?path=5033
  27. DCITA Information Brief 7 -Untimed Local Callshttp://www.dcita.gov.au/cgi-bin/trap.pl?path=5033http://www.dcita.gov.au/cgi-bin/trap.pl?path=5034
  28. Item 49 inserts a new section 26F which inserts a similar information requirement in relation to former digital data service providers.
  29. Telstra, Submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee, 29 May 2000, p. 5-6.

    30 DCITA, Submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee, 26 May 2000, pp. 5, 14.

  30. p. 30. Telstra is required to submit a claim to the ACA for the NUSC on the basis of a formula of 'avoidable cost minus revenue foregone'.
  31. A specified year does not include 1999/2000 where the NUSC is determined by capping arrangements in subsection 57(13).
  32. p. 31.
  33. Telstra, Submission to the Senate Environment, Communications, Information Technology and the Arts Legislation Committee, 29 May 2000, p. 7.
  34. p. 32.
  35. p. 8.

Contact Officer and Copyright Details

Mark Tapley
19 June 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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ISSN 1328-8091
© Commonwealth of Australia 2000

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Published by the Department of the Parliamentary Library, 2000.

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