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Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000
Date Introduced: 29 June 2000
House: House of Representatives
Portfolio: Communications, Information Technology and the Arts
Commencement: Schedule 1 will be taken to have commenced on 1 July 2000.
To amend the Telecommunications (Consumer Protection and Service Standards Act) 1999 to:
- improve the operation of the universal service regime and the arrangements for its funding, and
- enable the competitive selection of universal service providers.
Legislative and Policy Context
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, payphones and prescribed carriage services. 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.
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. Telstra submits its estimate for the cost of fulfilling the USO - the Net Universal Service Cost (NUSC) - to the Australian Communications Authority (ACA), which assesses the claim and makes recommendations to the Minister. The NUSC is met through a levy imposed on all carriers in proportion to their share of total carrier revenue. (1)
This Bill is part of a legislative package to implement the Government's decisions announced on 23 March 2000.(2) These decisions included:
- the introduction of competition in the delivery of the USO, which would first take the form of two regional contestability pilots.(3) Telstra would be required to continue to operate in the pilot markets, but would be compensated for its increased commercial risk. This means that no consumer will be forced to give up their Telstra service unless they choose to move to a new service provider
- the responsibility for paying for the USO to be extended to include carriers and service providers who earn more than a prescribed amount
- an increase in the NUSC for 1998-99 and 1999-2000 to around $280 million p.a. (this decision did not require legislation, but was the subject of a Ministerial determination), and
- the USO to be costed in advance for a period of up to three years, with the ACA to begin work immediately on costings for forward years.
On the 10 May 2000 the Government introduced the Telecommunications (Consumer Protection and Service Standards Amendment Bill (No.1) 2000 to enable the Minister to determine a universal service provider's NUSC for up to three years in advance, and to give carriers some certainty about the universal service regime that would apply if they won the tender to extend access to untimed local calls in remote Australia.(4) The Bill was the subject of a report by the Senate Environment, Communications, Information Technology and the Arts Legislation Committee (the ECITA Committee).(5) The Committee did not achieve a consensus on the Bill, with minority reports from both Labor and Democrat Senators. The major areas of contention were:
- the extent of Ministerial discretion permitted under the Bill's provisions
- the compulsory information requirements placed upon outgoing universal service providers (USPs), and
- the nature of Telstra's obligations towards those areas that will be tendered out to other carriers (although this was largely clarified during the hearings).
The Bill was passed, with the House agreeing to Senate amendments relating to the level of Ministerial discretion and the compulsory information requirements.
However, these matters remain relevant to the Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000 as this Bill replaces Part 2 of the Principal Act, which establishes the universal service regime, with a new Part 2. The provisions thus encompass all aspects of the operation and funding of the USO. The Department of Communications, Information Technology and the Arts has stated that the Government will be moving relevant amendments to the Bill to ensure that it is consistent with the Senate's amendments to the Telecommunications (Consumer Protection and Service Standards Act) Amendment Bill (No.1) 2000.(6)
The Bill is accompanied by related revenue legislation, the Telecommunications (Universal Service Levy) Amendment Bill 2000.
Outline of the New Universal Service Regime
What is the USO?
Proposed section 9 states that the USO is the obligation 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, payphones and prescribed carriage services. Under proposed section 9B each of these items is a 'service obligation', although the Minister may also determine service obligations by dividing the USO in another way and specifying how they are to be fulfilled. These determinations are not disallowable instruments.
The Minister may also determine what is necessary to ensure reasonable accessibility to the service obligations (proposed section 9A).
Universal Service Areas and Providers
Each service obligation (ie. standard telephone service, payphones, prescribed carriage services) is to be associated with a particular area (called a universal service area), which is to be determined by the Minister under proposed section 9G. The Minister's broad discretion to determine universal services areas is in this case balanced by the disallowance mechanism in proposed subsection 9G(5). The disallowance power does not apply to determination deemed to have been made by the Minister under proposed section 12E. This provision relates to the program to extend untimed local call access in remote areas (see section on Telstra and services subject to tender below).
Proposed section 12A provides the Minister with a wide discretion in deciding whether a person should be declared to be a primary universal service provider. For each service obligation in each universal service area the Minister is required to determine that a specified carrier or carriage service provider is the 'primary universal service provider' (PUSP) (proposed subsection 12A(3)) although, until the Minister determines otherwise, this will be Telstra (proposed section 12D).
In making a determination about whether a person is a primary universal service provider the Minister must consider the matters prescribed in the regulations and may consider any other matters he or she considers relevant (proposed subsection 12A(4)). This section has its origin in existing section 20 of the Principal Act. To ensure consistency with amendments made by the Senate to the Telecommunications (Consumer Protection and Service Standards) Amendment No.1 Bill 2000, the Government will need to amend this subsection to provide that the Minister is restricted to considering the objects of the Act contained in proposed section 8A.
The prospect of a capricious Ministerial determination is in any event lessened by the fact that PUSP determinations are disallowable (proposed subsection 12A(5)). PUSP determinations deemed to have been made by the Minister under proposed section 12D (Telstra is deemed to be the PUSP) and 12E (carriers appointed to extended local call access in remote Australia.) are not disallowable.
Proposed section 11C provides that the Minister may determine that a service obligation in a universal service area is a 'contestable service obligation'. Such determinations are disallowable instruments under proposed 11C(3). Carriers or carriage service providers can apply to the ACA for approval as 'competing universal service providers' (CUSPs) in respect of such service obligations (proposed section 13A). The ACA must not approve the applicant as a CUSP unless the ACA is satisfied that the applicant is an appropriate person having regard to:
- the applicant's relevant technical competence and experience
- the applicant's commercial competence and financial standing
- any matters determined in writing by the Minister, and
- any other matters the ACA considers relevant.
Further, the applicant must have an approved policy statement and marketing plan or plans (proposed subsection 13B(2)).
These provisions will facilitate the operation of the contestability pilots. CUSPs must take all reasonable steps to fulfil a contestable service obligation and comply with approved policy and marketing plans. Under proposed subsection 13D(3) even if a CUSP intends to cease fulfilling the contestable service obligation the ACA may direct it comply with additional requirements. Presumably, this provision is intended to allow the ACA to require a CUSP to continue providing services to its customers pending the appointment of a new CUSP or the transition of customers to the primary universal service provider.
Policy Statements and Marketing Plans
The Bill requires both PUSPs (proposed section 12F) and CUSPs (proposed section 13F) to produce 'policy statements' and 'standard marketing plans'. The former is a general statement of the policy the provider will apply in supplying equipment, goods or services as a PUSP or CUSP. The latter will set out the plans the provider will apply in supplying and marketing equipment, goods and services in fulfilment of a service obligation for a universal service area. The Minister may, under proposed sections 12G and 13G determine requirements for these documents. The statements and plans must be submitted to the ACA for approval after a period for public consultation (proposed sections 12H-12M, 13H-13L). Proposed section 12N states that Telstra's current Universal Service Plan is taken to fulfil the requirements for these documents.
The ACA must not approve a policy statement unless it is satisfied that the draft adequately deals with the supply of appropriate equipment, goods or services to people with a disability and people with special needs (proposed subsections 12K(2) and 13J(2)). The ACA must also be satisfied under proposed subsection 12K(3) that a PUSP's policy statement sets out appropriate arrangements to be activated if a CUSP ceases to provide a contestable obligation in a relevant area.
PUSPs and CUSPs may also produce 'ATS marketing plans' which will set out alternative telecommunications services (ATS) that the provider will supply in fulfilment of a service obligation for a universal service area. The Minister may by a disallowable instrument determine the requirements for ATS plans (proposed sections 12Q and 13N). ATS marketing plans must be submitted to and approved by the ACA under proposed sections 12T and 13Q respectively. The Australian Communications Authority must be satisfied that the ATS will fulfil the relevant service obligation. The Minister may also revoke these plans (proposed sections 12Z, 13V).
In his second reading speech, the Minister observed that '[i]n effect the ATS will be service packages which have the key features of USO services but may vary in some way, including in their terms and conditions'.(7) The standard of alternative services would be a matter for the provider to submit the ACA. However in evidence before the Senate ECITA Committee, the Department of Communications, Information Technology and the Arts made clear that alternative services maybe of a lesser standard than the standard telephone service:
The additional services have to meet the fundamental requirements of the universal service obligation, which at the moment include the provision of the standard telephone service, which in turn requires voice telephony. There are technical standards applying to the provision of standard telephone service which handle things like noise, delay, data rates and so forth, and the ACA would have regard to those. But I suppose at the end of the day the ACA is free to make a subjective decision that it could be to the benefit of consumers to have an alternative service in the marketplace which consumers could make a decision about.(8)
An officer of the Department also conceded that an alternative service might not offer untimed local calls.(9) It should be noted that customers would not be forced to accept an alternative service. If an alternative service is to be successfully marketed, it would have to be appealing to customers in some respect (e.g. price).
Before the Senate Committee there was some concern expressed that customers would not be fully informed by providers of the distinctions between an alternative service and the standard telephone service. While the Government members of the Committee felt that this issue could be handled by the Australian Communications Authority (ACA) in an administrative fashion,(10) Labor and Democrat Senators argued that the Bill should be amended to explicitly require providers to inform customers of any divergence from standard requirements.(11)
Universal Service Subsidies and the Levy
Existing section 57 of the Act provides for the calculation of the net universal service cost (NUSC). This is the cost incurred by Telstra in fulfilling its universal service obligations. The NUSC is met through a levy imposed on all carriers in proportion to their share of total carrier revenue. The concept of the NUSC is replaced in proposed section 16 by the notion of the universal service subsidy. The Government has stated that the term 'subsidy' is intended to reflect the reorientation of the universal service regime away from the old monopoly USO delivery model to one increasingly open to competitive USO delivery.(12)
Proposed section 16 states that for each claim period(13) the Minister must determine a universal service subsidy for each universal service area in respect of each service obligation (although the subsidy may cover more than one area or obligation). The subsidy is only payable to those PUSPS or CUSPs that have taken all reasonable steps to fulfil their service obligations and that have complied with their approved policies and plans as required by proposed sections 12C and 12D (proposed subsection16(5)).
The Minister's determination must specify the amount of the subsidy or a methodology for calculating it and the circumstances in which a universal service provider is eligible for the subsidy. Proposed subsection 16(4) explicitly provides that the determination may take into account whether a provider is a PUSP or CUSP. In addition, the types or amount of equipment, goods or services that are supplied to a person in a universal service area may also be taken into account. This provision may allow the Minister to provide for a different subsidy where a provider supplies alternative services rather than standard telephone services. A subsidy determination applies for the period specified in the determination, the period cannot however be longer than three years (proposed subsection 16B(2)).
The Minister may seek the advice of the ACA on the determination of subsidies, but is not required to follow it (proposed section 16A).
Proposed Division 13 deals with the collection, recovery and distribution of the levy from 'participating persons'.
Currently only licensed carriers are required to contribute to the costs of providing the USO. The definition of participating persons proposed subsection 20A(1) potentially expands the contribution base to include carriage service providers (CSPs) such as Internet service providers. CSPs will only be captured by the definition where the Minister has made a written determination to that effect. Under proposed subsection 20A(2) the Minister may determine that a person is not a participating person if the person's gross telecommunications revenue falls below a specified threshold or if they belong to a specified class. Such determinations are disallowable instruments.
For each financial year (or any other period the Minister determines)(14) all carriers and any carriage service providers that have been determined by the Minister (participating persons) must submit a return of their 'eligible revenue' to the ACA (proposed section 20). A person's eligible revenue is determined by the ACA under proposed section 20B. If the ACA's assessment of their eligible revenue exceeds a threshold amount determined by the Minister under proposed subsection 20F(2), then they may be required to make a levy contribution. This 'levy debit' will be calculated on the basis of the ratio of each carrier/provider's eligible revenue to the total of all eligible revenue multiplied by the total amount of levy credits (that is, the total amount of claims for payment of a USO subsidy accepted by the ACA) (proposed sections 20H and 20R).
Within 45 days after the end of a claim period (financial year) providers may lodge a claim for 'levy credit' with the ACA. The levy credit is the sum of the universal service subsidies to which they are entitled (proposed section 20J). The ACA will assess these claims on the basis of principles determined by the Minister under proposed section 20P. Either House of Parliament may disallow these principles. Providers will then either receive or make payments according to the balance of their levy credits and levy debits as assessed by the ACA (proposed section 20U). Levies payable under proposed section 20U must be paid within 28 days unless the ACA determines otherwise (proposed section 20Z). There is no time limit for the payment of levy credits. These payments will be made through the Universal Service Account (proposed sections 21-21E).
Price Control Arrangements
Under proposed Division 11 charges imposed by universal service providers in respect of service obligations ('universal service charges') may be subject to price control determinations by the Minister. Among other things, the Minister may prohibit the charge from being imposed or altered without the consent of the Minister or the ACCC (proposed section 18C).
Telstra and Services Subject to Tender
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, which has the purpose of extending access to untimed local calls to those who are outside the standard zones. Sections 56 and 57 provide for the grant of financial assistance to States and other persons from the Reserve. On 23 March 2000 the Government announced that it would call for tenders for the $150 million project to extend untimed local call access.(15) Under the tender, carriers must put forward proposals to install new communications infrastructure in the relevant regions. Under the existing legislation the successful tenderer will become the regional universal service provider.
Under the provisions of proposed section 12E, such providers will be deemed to be PUSPs and the zones will be regarded as universal service areas. This means that if Telstra is not the successful tenderer then it will not be obliged to continue to provide a service (because it will no longer be the PUSP). In contrast, under the regional contestability pilots Telstra will be required to continue to provide a service in respect of a contestable service obligation.
The Contestability Model
As Telstra has observed, the Government's proposal to introduce contestability into the provision of the USO is counter-intuitive. It 'suggests that there may be a net public benefit in having multiple operators supplying services in areas where it is currently uneconomic for one supplier to do so.'(16) The approach is in contrast to the project to extend access to untimed local calls in the remote zones where the successful tenderer for the $150 million grant will become the primary universal service provider. Telstra will be allowed to leave the extended zones if it is not the successful tenderer.
Competition will necessarily result in the duplication of some infrastructure and maintenance costs. While the method of calculating the USO subsidy is not outlined in the Bill, if the subsidy bears any relationship to costs there would seem to be a strong possibility that competition will actually increase the cost of the USO and therefore ultimately the cost of telecommunications services to consumers. Potential entrants argue however that these costs may be offset if competition has the effect of increasing the size of the market thereby reducing net loss per customer. Further, a contestable market for the delivery of the USO may encourage greater cost efficiencies.(17)
The difficulty of determining the net effect of competition on the cost of providing the USO provides strong justification for limiting the introduction of contestability to two trial areas. While this is the Government's stated policy there is nothing in the legislation which limits contestability to trial areas. If this Bill was enacted contestability could be extended to other universal service areas without any further recourse to the Parliament.
The success of any trial depends initially upon the willingness of carriers to apply to be CUSPs. Optus has cast doubt however on the viability of the proposed competitive framework. In its submission to the Senate ECITA Committee Optus stated that 'no carrier will tender in contestable areas because the contestable model does not encourage competition and the total USO cost will increase as contestability is introduced'.(18)
Potential CUSPs like Optus and Vodafone are concerned that the Bill does not sufficiently address the advantages that accrue to Telstra as a result of incumbency. Some of these matters can be dealt with administratively. For example, Optus argues that the Minister should choose contestable areas that are close to non-incumbent infrastructure. Further, it states that the problem of customer inertia should be addressed by way of a preselection ballot which requires customers to actively choose their preferred USP. A preselection ballot was used to introduce competition in long distance services.
In terms of the Bill, Optus is critical of the proposal to set the subsidy in advance (proposed section 16). It argues that Telstra, armed with detailed customer data, will be able to target and retain the most valuable customers. Optus advocates declaring a methodology for setting a subsidy at the end of the USO period to ensure that competitors are adequately compensated for providing USO services:
USO subsidies should be determined at the end of the USO period to ensure providers are adequately compensated for providing USO services. Subsidies determined in advance create unnecessary risk for new USPs as their revenues will probably diverge widely from the revenue averages reflected in the subsidy - particularly as Telstra will know individual customer profiles and is likely to target (cherry pick ) the higher value customers. (19)
Ironically, these concerns also reflect Telstra's long stated complaint that there is no required link between the subsidy paid (currently the NUSC determined) and actual costs incurred by USPs. Although the existing legislation provides for a default formula (efficient provider avoidable cost forgone) in practice the level of net universal service cost is set by Ministerial determination.
Should Telstra be subsidised for operating in Contestable Universal Service Areas?
Potential competitors have also opposed the policy to compensate Telstra for remaining in contestable markets arguing that it will increase the cost of the USO. As noted above, the question whether Telstra should be compensated for this so called 'stranded asset risk' is a matter of government policy rather than something that is required by the Act.
Optus and Vodafone argue that any compensation is unnecessary. They point to the fact that Telstra already has an established network and comprehensive data on customers and argue that Telstra's risk is smaller than potential competitors. In the past customers in rural and regional Australia have shown strong loyalty to Telstra. In the STD/ISD pre-selection ballot 10 per cent of customers in major regional centres and only 3-4 per cent in regional Australia chose Optus.(20)
The provisions of the Bill significantly extend the scope of Ministerial discretionary power with regard to the operation of the USO. For example proposed section 9B provides that the Minister may divide the service obligations (with regard to standard telephone services, payphones and prescribed carriage services) and specify what must be supplied or done in order to fulfil the obligations. Telstra has objected that proposed section 9B permits the USP's obligation to be varied, without any regard to specified criteria, and without any necessary compensation for costs thereby incurred.
The Explanatory Memorandum states that proposed section 9B has its antecedent in subsection 25(2) of the Principal Act, which provides for regulations to divide the USO between two or more USPs.(21) However the Explanatory Memorandum does not explain why these disallowable regulations are to be replaced with Ministerial determinations which are not disallowable.
Other instances of Ministerial determinations that will not be disallowable by Parliament are:
- the power to revoke determinations that a specified carrier or provider is a primary universal service provider (proposed section 12B)
- the power to revoke a primary universal service provider's approved plan for alternative telecommunications services - known as ATS marketing plans (proposed section 12Z)
- the power to revoke a competing universal service provider's approved ATS marketing plan (proposed section 13V)
- the determination of universal service subsidies (proposed section 16), and
- the determination of the 'eligible revenue period' which is to be used in calculating levy obligations (proposed section 20C) and the threshold amount for eligible revenue (proposed section 20F).
Carriage Service Providers and the Levy.
Internet service providers (ISPs) have objected to the provisions which would potentially render them liable to pay the USO levy. They argue that proposals in proposed Division 13 of the Bill could result in them paying twice as carriers already pass on a USO cost component.(22) The proposal could also be administratively difficult as there are hundreds of backyard ISPs. The Government has stated that the Ministerial determination power would be used to set a revenue threshold to exempt 'small' ISPs. However the appropriate level of the threshold may be a matter of some debate.
- Background on the NUSC and other USO issues can be obtained from the Parliamentary Library E-brief at http://www.aph.gov.au/library/intguide/SP/uso.htm.
- 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.
- In August the Government announced that the two pilots will be conducted in:
- the Greater Green Triangle of south-west Victoria and south-east South Australia, expanded to include the Central Goldfields and Greater Bendigo; and
- north-east New South Wales and the Queensland Downs, stretching from Kempsey in NSW, inland, to Caloundra Shire in Queensland.
- Further background on this Bill can be obtained from the Bills Digest prepared by the Parliamentary Library at http://www.aph.gov.au/library/pubs/bd/1999-2000/2000BD185.htm
- Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000, Report by the Senate Environment, Communications, Information Technology and the Arts Legislation Committee (June 2000). This report can be obtained from the following page: http://www.aph.gov.au/senate/committee/erca_ctte/index.htm
- Department of Communications Information Technology and the Arts, Submission to ECITA, 28 July 2000, p. 22.
- Second Reading Speech, 'Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000', 29 June 2000, House of Representatives, Hansard, p. 18571.
- Department of Communications, Information Technology and the Arts, Evidence, 18 August 2000, p 40.
- ibid., p. 41.
- Senate Environment, Communications, Information Technology and the Arts Legislation Committee, Report on the Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000, August 2000, p. 10.
- ibid., p. 24, 28.
- Second Reading Speech, Telecommunications (Consumer Protection and Service Standards) Amendment Bill (No.2) 2000, 29 June 2000, House of Representatives, Hansard, p. 18571.
- A 'claim period' is defined in proposed section 8D to be a financial year unless the Minister determines otherwise.
- See definition of 'eligible revenue period' in proposed section 20C.
- 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.
- Telstra, Submission to ECITA Committee 28 July 2000, p. 4.
- Vodafone, Submission to ECITA Committee 28 July 2000, p. 6.
- Optus, Submission to ECITA Committee 26 July 2000, p. 3.
- ibid., p. 7.
- Vodafone, Submission to ECITA Committee 28 July 2000, p. 6.
- Explanatory Memorandum, p. 29.
- Selina Mitchell, 'ISPs in uproar on USO charge', The Australian, 28 March 2000.
Mark Tapley and Kim Jackson
4 September 2000
Bills Digest Service
Information and Research Services
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