Posted 18/11/2021 by Rod Bogaards
The Telstra Corporation and Other Legislation Amendment Bill 2021 (the Bill) amends a range of primary and subordinate legislation to ensure significant and fundamental consumer and competition regulatory safeguards and obligations currently applying to Telstra Corporation Limited, will also apply to the entities that comprise the Telstra Group, following its proposed restructure.
Background
On 12 November 2020 Telstra, Australia’s largest full-service telecommunications company, announced a proposed legal restructure of its business into three separate legal entities, to be held under a parent company to be called Telstra Group Limited (Telstra Group).
According to the Explanatory Memorandum (p. 2) the three Telstra entities will be:
- Telstra Limited (ServeCo)—will focus on how to best create and innovate products and services to operate Telstra’s current retail business. It will own the base stations and other network units in Telstra’s network, as well as its data centres, existing spectrum assets and some non-shareable towers. Most of Telstra’s employees will be employed by ServeCo.
- Telstra InfraCo Limited (InfraCo Fixed)—created as a standalone infrastructure business unit within Telstra, this entity will be the current Telstra entity (known as ‘Telstra Corporation Limited’). It will own and operate the NBN service business, Telstra’s physical infrastructure assets including ducts, fibre, data centres, subsea cables, rural and remote copper, exchange buildings, and the poles that underpin the fixed telco network.
- Amplitel (Amplitel)—as the largest mobile tower infrastructure provider in Australia, it will own and operate most of Telstra’s mobile tower assets. Telstra sold a non-controlling 49 per cent of its stake in Amplitel holdings to a consortium of government and superannuation interests. A unit trust will also be established to operate all of the towers owned by Amplitel and the remaining towers owned by Telstra.
Figure 1 gives a simplified illustration of the key entities.
Following implementation of the restructure, Telstra (p. 3) also intends to establish its international business, Telstra International, under a separate subsidiary sitting directly beneath Telstra Group Limited. The international assets will be held by Telstra InfraCo Limited (InfraCo) but they are intended to be transferred to the new international subsidiary over time, subject to relevant approvals.
According to Telstra (p. 2), these changes are being made to enable the company to better realise the value of its infrastructure assets, take advantage of potential monetisation opportunities and create additional value for its shareholders. Telstra suggests the proposed restructure will deliver the best outcomes for the Telstra Group as a whole.
There has also been media speculation that Telstra is positioning itself to purchase NBN Co, the owner of the wholesale broadband and telephony network, following some further restructuring.
Telstra (p. 1) suggests the impact of the restructure on the community will be limited:
The restructure is an internal legal re-organisation and will not impact on the products, plans or services we offer to our customers, our ability and commitment to meet our existing regulatory and security obligations, or our infrastructure investments, including our commitments to our regional Australian customers.
Under the proposed legal structure, Telstra (p. 4) indicates that eligible shareholders will own shares in the new holding company Telstra Group Limited on a like-for-like basis, so that their ownership level will not change.
The restructure is expected to be completed by the end of June 2022, subject to obtaining shareholder and court approval (p.2).
Figure 1
Source: Telstra, Submission to Senate Environment and Communications Legislation Committee, Inquiry into the Telstra Corporation and Other Legislation Amendment Bill 2021, 1 November 2021, p. 3.
The Bill represents the Government’s legislative response to Telstra’s proposed legal restructure, seeking to ensure that all of Telstra’s regulatory obligations remain effective in the restructured group.
According to the Explanatory Memorandum (p. 2):
[W]ithout legislative and regulatory change, a range of key obligations that currently apply to Telstra would become ineffective or cease to apply to the successor entities. These obligations cover core parts of Telstra’s regulatory arrangements (including the restrictions on foreign ownership and the Universal Service Obligation (USO)), other consumer safeguards (including emergency call services and priority assistance) and the requirement for Telstra to provide other carriers with access to its transmission towers.
Key provisions
Amendments to various telecommunications legislation to ensure key consumer safeguards are protected
The Bill proposes amendments to a range of primary and subsidiary legislation (see Explanatory Memorandum, p. 6) to provide certainty that important consumer safeguards will continue to be delivered following the corporate restructure.
Notable consumer safeguards to be retained include the Universal Service Obligation (USO) for the provision of standard telephone services and payphones and Telstra’s obligations in relation to emergency call services, directory assistance, operator assistance and priority assistance. The Network Reliability Framework will also be retained.
The Bill makes Telstra Limited (ServeCo), Telstra’s proposed retail service delivery company, the default primary universal service provider (see Schedule 2, Part 1, item 105 of the Bill, p. 62). The Bill also creates new powers for the Minister to determine that two or more different carriers or carriage service providers can be primary universal service providers, if required (see Schedule 2, Part 1, item 102 of the Bill, pp. 61–62).
The Bill places obligations on designated Telstra successor companies that are parties to the Telstra USO Performance Agreement (TUSOPA) to notify the Commonwealth of contracts relating to those key safeguards, or involving transfers of assets that were used in connection with meeting obligations under the TUSOPA. It also creates powers for the Commonwealth to be provided copies of these contracts (see Schedule 2, Part 1, item 108A of the Bill, pp. 63–67)
The Bill also creates powers for the Minister to direct Telstra Limited (ServeCo), a designated Telstra successor company or a related body corporate, to do or not do an act or thing where there are actual or likely failures to comply with the TUSOPA (see Schedule 3, item 2 of the Bill, pp. 79–81).
New Part 34B of the Telecommunications Act 1997—Access to supplementary facilities and telecommunications transmission towers
The Bill seeks to ensure that the current tower access framework that applies to Telstra under Schedule 1 of the Telecommunications Act 1997 continues to apply after the proposed restructure.
The access framework exists to provide access to bottleneck infrastructure on competitive terms. The framework operates by requiring carriers to provide other carriers access to their supplementary facilities and telecommunications transmission towers, and establishes a role for the Australian Competition and Consumer Commission (ACCC) to arbitrate disputes.
According to the Explanatory Memorandum (pp. 4–5), the inclusion of this new part is to prevent carriers from moving tower assets and supplementary facilities into related body corporates that are not required to be licensed carriers, hence avoiding the Schedule 1 carrier access regime.
The Department of Infrastructure, Transport, Regional Development and Communications (DITRDC) (p. 4), states that the Government’s intent is for this new part to apply to all carriers; not just Telstra. This is because the Bill seeks to address a loophole in the existing framework, such that if any carrier were to establish a subsidiary and for example, move tower assets into that subsidiary, the existing access regime would no longer apply to those towers. This would be contrary to the Government’s policy intention.
The proposed Part 34B has been the subject of criticism by BAI Communications group—its wholly owned subsidiary, BAI Communications Networks Pty Limited, recently acquired a carrier licence for reasons unrelated to the focus of proposed Part 34B. This means that BAI’s facilities and towers will be contrarily subject to the access regime.
The Bill ensures the access framework continues to apply by providing that if a group of companies includes a carrier, a company (other than a carrier) that is in the group must provide carriers with access to facilities and provide carriers with access to telecommunications transmission towers, where that non-carrier company holds facilities or telecommunications transmissions towers (see Schedule 4, item 1 of the Bill, pp. 82–94).
To facilitate this, the Bill (see Schedule 4, Telecommunications Act 1997, proposed section 581W, pp. 82–83) establishes the concept of a ‘carrier company group’, which is defined as a group of related companies, of which at least one is a carrier for the purposes of the Telecommunications Act 1997. For the purposes of the new facilities access regime, a company is initially defined as being in a group with a carrier if the carrier can cast more than 15 per cent of votes at a general meeting, or controls more than 15 per cent of its shares, or vice versa (referred as the ‘control threshold’). However, according to the DITRDC (p. 4), the Government expects that there will be debate on whether the 15 per cent control threshold should be raised or lowered.
As a consequence, this element of the facilities access framework will not be operational for the first six months following the commencement of the Act. During this time the ACCC will undertake a review of the control threshold and report to the Minister, who has 60 days in which to consider the report and determine an alternative control level. Thus, there is a process in place to consider the appropriate control level if there are industry concerns about the setting of the control threshold at 15 per cent.
Provisions to allow Telstra’s successor and/or related entities to be bound by the Definitive Agreements with NBN Co Limited
Telstra and NBN Co Limited (NBN Co) are party to several Definitive Agreements (‘the agreements’ or ‘current agreements’) under which Telstra committed, among other things, to supply access to its infrastructure to NBN Co over an extended period. Ongoing access to that infrastructure is essential to the operation of the national broadband network for the duration of the agreements, irrespective of changes in infrastructure asset ownership within the Telstra Group.
The agreements have the benefit of a statutory authorisation for competition law purposes, such that the conduct of the parties to the agreements does not contravene the Competition and Consumer Act 2010 because it is expressly authorised by law.
To ensure NBN Co’s access to Telstra’s infrastructure following the proposed corporate restructure, the Bill includes provisions to allow Telstra successor and/or related entities to be bound by the agreements in the same way that Telstra was prior to its restructure. That is, the Bill contains a new authorisation provision which would authorise Telstra, NBN Co and their related entities to enter into, and give effect to, agreements that have the sole purpose of ensuring that existing rights and obligations under the current agreements between Telstra and NBN Co are extended to relevant members of the Telstra Group.
The new authorisation is contained in proposed section 577BA(10C) to the Telecommunications Act 1997, and will come into effect the day after the Bill receives Royal Assent (see Schedule 1, Part 1, item 2 of the Bill, pp. 5–6).
The new authorisation process has been the subject of criticism by Telstra because of the narrowness of the sole purpose test contained within the new process.
Provisions to ‘re-point’ Telstra’s Structural Separation Undertaking and Final Migration Plan
According to the Explanatory Memorandum (p. 3), the Bill creates a concept in the Telecommunications Act 1997 to re-point Telstra-specific obligations that would otherwise cease to apply to new Telstra entities (referred to as a ‘Telstra successor company’ and ‘designated Telstra successor company’).
As a consequence, Telstra’s obligations and prohibitions under its Structural Separation Undertaking (SSU) and Final Migration Plan (MP) have been re-pointed to apply to both of InfraCo Limited (InfraCo Fixed) and Telstra Limited (ServeCo) initially. However the Minister may, by legislative instrument, re-direct the obligations and prohibitions in the SSU and Final MP at any other designated Telstra entity (see Schedule 2, Part 1, items 41 and 59 of the Bill).
The Bill also provides for a directions power for the Minister to direct designated Telstra successor companies to take specified actions to facilitate another designated Telstra successor company fulfilling its obligations under the agreements, if the Minister is satisfied that the relevant company has failed, is failing or is likely to fail to do so (see Schedule 2, Part 1, items 41 and 59 of the Bill).
Telstra has concerns with a lack of clarity in the legislation regarding the requirement for compliance with an obligation by InfraCo Limited (InfraCo Fixed) and Telstra Limited (ServeCo).