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 and Copyright Details

Passage History

Telecommunications (Consumer Protection and Service Standards) Bill 1998

Date Introduced: 12 November 1998

House: House of Representatives

Portfolio: Communications, Information Technology and the Arts

Commencement: The 28th day after Royal Assent except the provisions dealing with the Universal Service Regime and the National Relay Service which commence on 1 July 1999.

Purpose

The primary purpose of the Bill is to restate in a single Bill the range of safeguards that are presently available to consumers of telecommunications services.

Background

The sale of the first third

The coalition's 1996 election policy contained a commitment to partially privatise Telstra. The major features of the policy were:

• One-third of the Commonwealth's equity to be made available through a share float, 65% of which would be reserved for Australian investors
• Foreign investors only to be allowed to subscribe to 35% of the float and no foreign investor to be allowed to acquire more than five per cent of the one-third float
• Incentives to be provided to Australian citizens and Telstra employees to encourage participation in the float
• Telstra not to be broken up
• Telstra to remain incorporated in Australia with an Australian citizen as Chairman of the Board, of which a majority will also be Australians
• The government would reserve the right to veto any excessive management remuneration
• The community service obligations (CSOs) of telecommunications carriers to be maintained, along with the requirement for such carriers to contribute to a Universal Service Levy to meet the costs of the CSOs
• The existing right to untimed local telephone calls to be maintained and guaranteed by legislation
• All existing price caps to be maintained and the price controls outlined in the Labor Government's August 1995 statement to be adhered to
• A new legislated customer service guarantee to be met by all telephone companies
• Competition regulation to be administered by a special branch of the Australian Competition and Consumer Commission.(1)

On 2 May 1996, the government introduced the Telstra (Dilution of Public Ownership) Bill 1996.

The Telstra share offer opened on 15 October 1997. By the close of applications on 3 November 1997, 1.8 million Australians had applied for shares. Of the employees eligible to subscribe for shares under the employee share scheme, 92% took up the offer. Shares were issued at $3.30 and that price was payable by two instalments; the first $1.95 ($2.00 for institutions) and the second $1.35 ($1.40 for institutions).

Of the one-third of shares which were sold, up to 35% (11.67% of all issued shares) could be purchased by foreign investors. At the end of 1997 the actual figure was 19.5% (6.8% of all issued shares).(2)

Telstra instalment receipts were first traded on the Australian stock exchange on 17 November 1997. Telstra has been traded as a fully paid share from 27 October 1998. The second instalment was due on 17 November 1998. Fully paid Telstra shares were trading at $7.08 on 30 November 1998.

The remaining two thirds

On 15 March 1998, the Prime Minister announced the government's decision to sell the remaining two-thirds of Telstra. It was envisaged that the legislation to facilitate the sale, namely the Telstra (Transition to Full Private Ownership) Bill 1998, would be enacted prior to the recent general election but the provisions in respect of the sale would not commence until after the election.

The passage of the legislation prior to the election was defeated in the Senate.

Apart from the general issue of public ownership versus privatisation the major concerns in respect of the sale have related to the continued provision of service and new technologies to rural and remote parts of Australia and to the continued access to untimed local calls, an the implications of private ownership for the local telecommunications equipment industry.

The Customer Service Guarantee (CSG)

In addition to providing for the sale of one-third of Telstra and imposing ownership restrictions, the Telstra (Dilution of Public Ownership) Act 1996 introduced a significant regulatory policy measure, in the form of the customer service guarantee (CSG).

The CSG provisions have been re-enacted in Part 9 of the Telecommunications Act 1997 and essentially provide that the Commonwealth's telecommunications regulatory agency the Australian Communications Authority (ACA) may make performance standards to be complied with by carriers.(3) Those performance standards relate to practical matters such as connection and fault rectification times and the keeping of appointments to meet customers.(4) If a carrier fails to meet a performance standard it is liable to pay compensation to the customer in the amount specified in a scale determined by the ACA.(5) For example, where there is a delay in connecting a standard telephone service, the customer is entitled to be paid (or to have their first account reduced by) the equivalent of one month's line rental for each day of delay. If the delay exceeds 5 days, the amount of compensation increases to $40 per day.

Telstra's performance in country areas

Concerns in respect of the standard of service provided by Telstra to country areas have been underscored by statistics contained in the Telecommunications Performance Monitoring Bulletin, which are prepared by the ACA.(6) The ACA monitors carrier performance using over 50 different indicators. Prominent among these are the following:

• The percentage of new services connected on or before the agreed commitment date (ACD - this is the date agreed between the customer and Telstra which is acceptable to the customer and realistic in terms of available workforce)
• The percentage of faults cleared within one working day
• The percentage of faults cleared within two working days
• The percentage of payphone faults cleared within one working day
• The percentage of payphone faults cleared within two working days.

These performance indicators are summarised as follows:

Service Provided in Country Areas	Dec '96 Quarter	Sept '97 Quarter	Dec '97 Quarter	Mar '98 Quarter	Jun '98 Quarter
New Services connected on/before the ACD	82%	75%	66%	64%	73%
Faults cleared within one working day	74%	68%	61%	59%	62%
Faults cleared within two working days	90%	86%	80%	77%	81%
Payphone faults cleared within one working day	67%	61%	47%	43%	48%
Payphone faults cleared within two working days	84%	78%	68%	66%	68%

Source: Australian Communications Authority, Telecommunications Performance Bulletin.

The Ministers' response to concerns for country areas

In response to community concerns over Telstra's performance in country areas, the Ministers for Communications, the Information Economy and the Arts and Finance and Administration jointly announced in March 1998 that the government would introduce amendments to empower the ACA to direct all carriage service providers, including Telstra, to take remedial action to correct any systemic problems which arise in meeting customer service guarantee performance standards.(7) This measure was contained in the first Telstra (Transition to Full Private Ownership) Bill and is now proposed in this Bill.

The Universal Service Obligation (USO)

The Universal Service regime is contained in Part 7 of the Telecommunications Act 1997. The USO is the obligation on the carrier who is the declared universal service provider to ensure that the standard telephone service (STS) and payphones are reasonably accessible to all Australians on an equitable basis.(8) STS refers to a service which permits voice telephony or an equivalent service for a person with a disability.(9) Regulations may be created which extend the definition of STS.

The ACA held an inquiry this year to determine whether the USO should be extended to incorporate digital data capability (of a type comparable to Integrated Services Digital Network - ISDN).(10) The ACA found that such an inclusion was not supported by a cost/benefit assessment. It was also found that using the USO to make this capability available to all Australians would have unfavourable impacts on competition. A full discussion of the findings of that extensive inquiry is beyond the scope of this Digest and interested readers should seek further information from the writer.

The Minister for Communications, Information Technology and the Arts is empowered to declare that a specified carrier is the national universal service provider. At present, Telstra is the declared national universal service provider. Where Telstra incurs a loss in complying with the USO it is entitled to recoup those losses. That amount is recouped by imposing an annual levy on all carriers in proportion to each carrier's share of total carrier revenue.

Telstra recently calculated the cost of the USO at $1.8 billion in 1997-98 or $3686 for each subsidised customer in rural and non-urban areas. This costing has been disputed and the other carriers and ion 12 October the Minister for Communications, Information Technology and the Arts announced that the cost of the USO would be capped at $253 million for 1997-98.

Untimed local calls

Part 8 of the Telecommunications Act 1997 deals with the obligation on carriage service providers to provide customers with an option to have their local calls charged on an untimed basis. The untimed local call option must be given in respect of:

• residential voice calls
• residential data calls (i.e. internet connection and fax calls)
• business voice calls.

There is no requirement to provide an untimed local call option in respect of business data calls.

Section 226 of the Telecommunications Act 1997 deals with the provision of comparable benefits to the untimed local call for those rural and remote customers for whom there is no such thing as a local call. The Minister is obliged to ensure that regulations are in force from 1 January 1998 to give comparable benefits to those who do not have untimed local call access. For the purposes of comparing benefits the legislation provides that regard must be given to the ability to make essential community and business calls on an untimed basis.

The insertion of section 226 into the Telecommunications Act 1997 was prompted by an Australian Democrats amendment proposed during the Senate's consideration of the Telecommunications Bill 1997. It has resulted in the Minister announcing a rebate scheme of up to $160 per year for the 17,000 or so customers who are without benefits comparable to untimed local calls.(11)

The price control arrangements

Part 6 of the Telstra Corporation Act 1991 empowers the Minister for Communications, Information Technology and the Arts to determine amounts which may be charged by Telstra for services provided by it. Amongst other things, the Telstra Carrier Charges - Price Control Arrangements, Notification and Disallowance Determination 1997, sets a cap on local call charges at 25 cents from subscriber telephones and 40 cents from public payphones.

The Minister's power to direct Telstra

Section 9 of the Telstra Corporation Act 1991 enables the Minister to give such written directions to Telstra as appear to the Minister to be necessary in the public interest. The only limitation on the power is that the Minister cannot give a direction in relation to the amounts to be charged for work done or services supplied by Telstra. If the Minister wishes to regulate Telstra's charges he must do so under the price control arrangements in Part 6 of the Telstra Corporation Act 1991.

In its original form, the Telstra (Dilution of Public Ownership) Bill contained a provision which repealed section 9. However, the non-government parties succeeded in retaining the Minister's power of direction through a Senate amendment. As far as the writer is aware, the Minister has never issued a direction under section 9. However, it could be argued that the existence of this power has made Telstra more amenable to the wishes of the Minister.

Main Provisions

This Bill is comprised of 10 Parts. Parts 2 to 8 replicate the provisions of 7 Parts of the Telecommunications Act 1997 with only minor changes. Part 9 deals with the price control arrangements applying to Telstra, and largely repeats the substance of the provisions of Part 6 of the Telstra Corporation Act 1991. Part 10 provides a limited power to the Minister to direct Telstra in certain circumstances.

In his Second Reading Speech in respect of this Bill, the Minister for Finance and Administration said:

Given that much of the Bill is a restatement of existing legislation, this digest will only outline the current provisions and draw the reader's attention to any changes.

Part 2 - Universal Service Regime

The universal service obligation is outlined above.

The are no changes to the existing universal service regime legislation currently contained in Part 7 of the Telecommunications Act 1997.

Part 3 - The National Relay Service

The National Relay Service is the service which provides persons who are deaf or who have impaired hearing with access to a standard telephone service on terms comparable to those on which other Australians have access to a standard telephone service.

There are no changes to the provisions dealing with the National Relay Service which are presently contained in Part 7A of the Telecommunications Act 1997.

Part 4 - Continued access to untimed local calls

The existing provisions (contained in Part 8 of the Telecommunications Act 1997) dealing with untimed local calls are outlined above.

There are no changes to those provisions.

Part 5 - Customer service guarantee

The customer service guarantee provision in Part 9 of the Telecommunications Act 1997 are outlined above. New Part 5 contains an amendment which was also contained in the failed Telstra (Transition to Full Private Ownership) Bill 1998.

Clause 118 empowers the ACA to give directions to carriage service providers requiring them to:

• take specified action to ensure that the provider does not contravene a CSG performance standard, or
• take such action as will ensure that the extent of the provider's compliance with the standard reaches or exceeds a specified goal or target.

The Minister will be able to require the ACA to give directions under this provision.(12) The ACA must consult with the Telecommunications Industry Ombudsman before giving a direction unless the direction is one which the Minister has requested it to make.

The ACA's directions are disallowable instruments.

The proposed section provides 2 examples of the type of direction that the ACA may issue:

• that the provider implements effective administrative systems for monitoring compliance with a CSG performance standard
• that the provider take such action as is necessary to ensure the provider's compliance with a CSG performance standard reaches or exceeds a specified goal.

A failure to comply with a direction by the ACA may result in the provider being liable to a civil penalty of up to $10 million.(13)

Part 6 - The Telecommunications Industry Ombudsman

The Telecommunications Industry Ombudsman (TIO) scheme provisions are currently contained in Part 10 of the Telecommunications Act 1997. The provisions require carriers and carriage service providers to enter into a TIO scheme which must provide for the TIO to investigate and make determinations about complaints by end-users of telecommunications services.

The only change to these provisions is a minor one and is the insertion of new section 128(3) which provides that there is to be only one TIO scheme. The remaining provisions are unchanged.

Part 7 - Protection for residential customers against failure by carriage service providers to provide standard carriage services

Existing Part 11 of the Telecommunications Act 1997 is reproduced without amendment by this new Part. The Part allows the ACA to formulate schemes to ensure that new carriage service providers do not accept advance payment for services and then fail to deliver those services. The sorts of schemes that are envisaged are the payment of any advance amounts into a trust fund, the provision of a third party guarantee or the maintenance of insurance against a failure to provide service.

Part 8 - Provision of emergency all services

This Part reproduces unchanged the provisions of Part 12 of the Telecommunications Act 1997.

Part 9 - Price control arrangements for Telstra

Part 6 of the Telstra Corporation Act 1991 currently deals with regulation of Telstra charges, sometimes referred to as the price cap regime. New Part 9 now contains those provisions.

Part 10 - Miscellaneous

Clause 159 is headed 'Direction to Telstra to comply with this Act'. It empowers the Minister to direct Telstra to take specified action to ensure that Telstra complies with the Act. Telstra is obliged to comply with such a direction. The Minister is required to consult with Telstra before making a direction.

 

 

Concluding Comments

The power of the Minister to direct Telstra, which is contained in section 9 of the Telstra Corporation Act 1991, is a very wide power which is constrained by only two relatively minor limitations:

• the directions must be 'as appear to the Minister to be necessary in the public interest'; and
• they must not relate to charges by Telstra for work done or services, goods or information supplied. Those charges may be regulated by the Minister under the price-cap regime (currently provided for in Part 6 of the Telstra Corporation Act 1991 and to be reenacted by Part 9 of this Bill)

Clause 159 of this Bill empowers the Minister to direct Telstra to take specified action directed towards ensuring that Telstra complies with the Act. The Explanatory Memorandum states:

To compare the existing power of direction in section 9 to that proposed in clause 159 by suggesting that one 'replaces' the other would be like a comparison of chalk with cheese. Section 9 is a very broad power to direct Telstra in regard to any matter, except pricing arrangements. Clause 159 merely allows the Minister to direct Telstra to take specified action to comply with the Act. Telstra is of course obliged to arrange its affairs to comply with the law like any other corporation or person.

The rationale for the removal of the power to direct Telstra is that it is 'inappropriate to retain such a power in a situation where the Commonwealth no longer holds a majority equity interest in Telstra'.(14) Whilst this may be true, it is arguably inconsistent that:

• the Government retains full power to control the amounts that Telstra charges for its services under the price cap arrangements.
• Proposed section 8BUA of the Telstra Corporation Act 1991 (to be inserted by the Telstra (Transition to Full Private Ownership) Bill 1998) will require Telstra to ensure that at least 2 of its directors have knowledge of communications needs in regional areas of Australia.

The abolition of section 9 is often supported by the argument that by complying with the Minister's direction, Telstra's board of directors could place themselves in a position where shareholders might claim that they are being oppressed under section 246AA of the Corporations Law. This could occur in circumstances where, for example, the Minister directed Telstra to engage in a substantial infrastructure development program in a non-profitable area. However, it should be noted that that concern could be avoided by specifically providing that a breach of the law by the directors does not occur upon compliance with a direction from the Minister.

Endnotes

2. Liberal Party of Australia and National Party of Australia, Better Communications, 1996.

3. Mullane, M., 'That's not all from Telstra', Australian Financial Review, 22 December 1997.

4. Telecommunications Act 1997, Part 9.

5. Telecommunications (Customer Service Guarantee) Standard 1997.

6. Telecommunications (Customer Service Guarantee) Scale of Damages 1997.
7. Australian Communication Authority, Telecommunications Performance Monitoring Bulleting, December 1997 quarter.

8. Minister for Communications, the Information Economy and the Arts (Richard Alston) and Minister for Finance and Administration (John Fahey), 'Government to get tough on telecommunications service standards', , 30 March 1998.

9. Telecommunications Act 1997, section 149. Press Release

10. Telecommunications Act 1997, section 17.

11. Australian Communications Authority, Digital Data Inquiry Public Inquiry under Section 486(1) of the Telecommunications Act 1997, 15 August 1998.

12. Minister for Communications, the Information Economy and the Arts (Richard Alston), 'Remote Australia to receive discount on phone calls', Press Release, 14 January 1998.

13. Telecommunications Act 1997, section 242.

14. Through the operation of section 98, section 101(1), clause 1 of Schedule 2 and section 570(3) of the Telecommunications Act 1997.

15. Explanatory memorandum to the Telstra (Transition to Full Private Ownership) Bill 1998, p. 58.

 

Contact Officer and Copyright Details

Lee Jones
2 December 1998
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.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1998

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1998.

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