Coalition Senators Dissenting Report
Coalition Senators have serious concerns about the proposals
contained in the Bill and the Government’s claims about the urgency of the
measures.
It is concerning that the majority report has almost entirely
ignored the weight of the evidence presented to the Committee about this
legislation. The vast majority of submissions to this inquiry are opposed to
the provisions in the Bill that deny Telstra access to spectrum unless it
enters a structural separation undertaking. The hostility to this legislation
is evident throughout the submissions encapsulated by Synstrat Management who
state that the “proposed legislation is morally abhorrent”.[1]
National Broadband Network (NBN)
There is no mistaking that this Bill is primarily about ensuring
the Government’s proposed National Broadband Network can work by forcing the
participation of Telstra.
Labor’s attack on Telstra and its shareholders via Part 1 of Schedule
1 of this Bill, is a form of legislative blackmail that we believe can only be
seen as an admission that its new NBN policy cannot be implemented without
effectively re-nationalising Telstra’s fixed-line network.
Labor doesn’t want its NBN to have to compete with Telstra; it
wants its NBN to be a majority Government-owned monopoly. The Government
recognises that Telstra’s fixed line customers are its most valuable asset and
requires their migration onto the NBN in order for it to have any chance of
being viable.
The Second Reading Speech does not disguise this aim. In relaying
the “options” open to the Company, Minister Albanese told the House that:
Alternatively, it may involve Telstra progressively migrating
its fixed line traffic to the NBN over an agreed period of time and under set
regulatory arrangements and for it to sell or cease to use its fixed line
assets on an agreed basis. This approach will ultimately lead to a national
outcome where there is a wholesale only network not controlled by any retail
company—in other words, full structural separation in time. Such a negotiated
outcome would be consistent with the wholesale only, open access market
structure to be delivered through the National Broadband Network.[2]
The evidence presented to the Committee from those supportive of
the legislation, left Coalition Senators in no doubt that these legislative
proposals are inextricably related to the NBN.
The Competitive Carriers Coalition CEO, David Forman, confirmed
this during the Senate Committee hearing when he said in response to a question
from Senator Birmingham:
If you suggested to me that the NBN was likely to succeed in
the absence of this legislation, then I would suggest that was a pretty big bet.[3]
Maple-Brown Abbott describe the bill as:
a high risk strategy to deliver the NBN and more competition
in the telecommunications sector. It runs the risk of damaging Australia’s
sovereign risk rating as well as stifling investment and innovation in the
telecommunications sector. It places too much power in the hands of the ACCC.[4]
Significance of the NBN Implementation Study
Minister Albanese stated during the second reading speech that:
The establishment of the NBN will fundamentally transform the
competitive dynamics of the communications sector in this country. NBN Co. will
be a wholesale only telecommunications provider with open access arrangements.[5]
The NBN Implementation Study is due in February 2010. The
Implementation Study is set to provide clarity on how the NBN roll-out will actually
occur, how much it will cost taxpayers, how long it will take and how much
consumers can expect to pay for the NBN’s services.
Senator Conroy has previously
outlined to the Committee the intent of the Government’s Implementation Study.
During Budget Estimates, he told the Committee that:
The government will shortly commence its implementation
study, which will, among other things, work through the detailed network design
and rollout schedule for the NBN. It will also investigate the extent of coverage
that will be achieved by FTTP, next generation wireless broadband and satellite
elements. That implementation study is due for completion in early 2010.[6]
The Coalition has asked a range of questions about the NBN
roll-out and each time the Government has used the guise of the Implementation
Study to avoid providing further information. Some examples include:
Senator
Conroy, Senate Question Time 14 May 2009:
The government recognises that affordability is an important
factor that will drive take-up of services on the NBN. NBN prices cannot be
structured without considering the prices people pay today for comparable
services. Pricing levels on the National Broadband Network will be a key issue
considered in the Implementation Study.[7]
Budget Estimates, 26 May 2009:
Senator
MINCHIN— Can you guarantee that the wholesale fixed line prices will be
no higher than they currently are?
Senator
Conroy—That is why we are having an implementation study.[8]
Budget Estimates, 26 May 2009:
Senator
MINCHIN - Thank you. I turn to the costing. We did touch on this $43
billion and the basis on which you came to that costing. Are you able to give
the committee at least some breakdown of that $43 billion in terms of wages,
equipment, capital and expenditure?
Senator
Conroy—The implementation study is examining most of those issues.[9]
In an answer to a Question on Notice asked by Senator Abetz,
Senator Conroy provided the following answer on 17 August 2009[10]:
|
What is the total Federal Government contribution to its cost? |
To be determined as part of the Government’s consideration of
the Implementation Study. |
|
If applicable, what other funding sources are involved and what
is their contribution to the project cost? |
Private sector funding will be sought to invest in the company
established to build and operate a new National Broadband Network. Strategies
to maximise private sector investment will be investigated as part of the
Implementation Study which will report in early 2010. |
|
Is the project to be completed in stages/phases; if so, what is
the timing and cost of each stage/phase? |
The rollout will be phased. The Tasmania element will commence
first. Negotiations are currently in progress. Projects under the
$250 million Regional Backbone Blackspots Program are expected to
commence in the first half of 2009-10.
The phasing and associated costs for the full rollout will be
developed as part of the Implementation Study. |
|
What cost benefit or other modelling was done before the project
was approved? |
Costings were developed in consultation with and validated by
the Department of Finance and Deregulation. The Government has commenced the
process to undertake a detailed Implementation Study that
will include business case modelling. |
- Rural and Regional Australia
ECA Committee, Budget Estimates, 26 May, 2009:
Senator
BIRMINGHAM—Are you basically saying when you talk about the NBN
process—which
we have learnt in the past 18 months or so, of course, is a bit like the piece
of string that never ends—that regional Australia could be waiting 10-plus
years to see the remaining $325 million spent anywhere?
Senator
Conroy—The regional review recommended to government that responses
relating
to the NBN are held until the outcome is fully known.
Senator
BIRMINGHAM—How do you define what the outcome being fully known of
the NBN
is?
Senator
Conroy—At this stage, the final outcome is not known.
Senator
BIRMINGHAM—That is plainly obvious for all to see.
Senator
Conroy—It is a matter of ongoing discussions between ourselves and the
Tasmanian
government. It is a matter of an ongoing tender process to be commenced shortly
for the Regional Backhaul Blackspots program. It is an ongoing process of the
implementation study which will report in February next year. It is an ongoing
discussion with satellite, wireless and fibre owners at the moment to meet the
national broadband network proposal. All of those are ongoing. What we have
said is that the project will take up to eight years. We have not tried to
pretend that this is anything other than the largest infrastructure project in
Australia’s history.
Senator
BIRMINGHAM—Will the outcome be known at the end of the scoping study in
February next year or will it not be known for eight years when all your
targets are met?
Senator
Conroy—It is an implementation study.
Senator
BIRMINGHAM—That is right, you are not doing a scoping study.
Senator
MINCHIN—No, they are not bothering with that.
Senator
BIRMINGHAM—Sorry about that.
Senator
Conroy—It is an implementation study which will recommend to the then
board how to implement our proposal to round out all of those issues, which
have been legitimately raised by not only yourselves but also many in the
sector. We are not going to rush simply because you are demanding we have an
outcome before we actually have it, just because you are demanding it.[11]
Senator
BIRMINGHAM—No, at what point in all of these different processes will the
Glasson
requirement for an outcome to the NBN be met? What do you define to be the
outcome?
Senator
Conroy—We will see what the implementation study provides to us and then
we might be in a better position to make an assessment along the lines that you
are calling for. At that point we will be able to make an assessment of the
question you are asking.[12]
Senator
FISHER—Will the study have a map of who will be covered, where and why?
Senator
Conroy—The implementation study is designed to generate the
configuration of the network.[13]
- Cabling, aerial deployment, shareholdings
Senate Question Time, 16 June 2009:
Senator Minchin: I ask
the minister what assumption was made regarding the degree to which aerial
cabling would be used in relation to the government’s cost estimate of $43
billion for its NBN mark 2. Does the minister agree with Optus that the
estimated cost of the project—that is, $43 billion—will mean at least 70 per
cent aerial deployment nationwide?
Senator Conroy: but
let me be clear: we have said we are having an Implementation
Study to go through all of these issues. We have said that from day one, and we
do not resile from that. We are in negotiations which will allow us to be
definitive on that. Depending on whether one company or another company is
involved, we will change this equation.[14]
ECA Committee, Budget Estimates, 26 May, 2009:
Senator
MINCHIN—The government has indicated a minimum shareholding of 51 per
cent. Has the government indicated a maximum shareholding in this company?
Currently it owns all the shares.
Mr
Lyons—The government has indicated that there will be retail ownership
caps yet to be determined. Other issues relating to the structure of the
company will be finally determined after the implementation study.[15]
ECA Committee, Supplementary
Budget Estimates, 19 October 2009
Senator
MINCHIN—So, up to $2 billion. At this stage, the maximum equity that the
government will put into
NBN Co. is $2 billion?
Senator
Conroy—Under that mechanism, yes.
Senator
MINCHIN—There has been no other decision to make any other moneys
available, has there? I am not saying there might not be in the future, but to
this point this is the only mechanism?
Senator
Conroy—We have indicated that we will issue bonds.
Senator
MINCHIN—No, I am talking about equity.
Senator
Conroy—NBN Co. will, potentially, issue bonds. What was the time profile
of the other equity?
Mr
Heazlett—It is over a number of years.
Senator
Conroy—Over a number of years.
Mr
Heazlett—It is an issue that will also be dealt with as part of the
implementation study as the appropriate mechanisms to utilise.[16]
All this evidence points to a Government that announced a massive
spending proposal without any detail to support it.
And despite the fact they have been unable, or unwilling to answer
a single question about the NBN roll-out, they expect the Parliament to
tick-off on significant changes to the telecommunications sector in a truncated
period of time.
The Minister’s Second Reading speech indicated that the measures
are “designed to position the telecommunications industry to make a
smooth transition to the NBN environment as the new network is rolled out.”[17]
Yet, until we know how this network will be rolled out, it is the
view of Coalition that it is premature for the Parliament to consider the
reforms that affect the structure and operation of Telstra.
Urgency before Christmas
In answer to Questions from
Senator Ian Macdonald at Estimates on 19 October 2009, the following exchanges
took place:[18]
Senator IAN
MACDONALD—Telstra
told us the other day that they are hopeful of coming to some negotiated
settlement with you shortly, and I am wondering if you can update us—without,
of course, giving away anything that is commercial-in-confidence—on what is the
necessity for the bill that is currently before the parliament being passed
before Christmas, and how are the negotiations going?
Senator Conroy—As I have said
many times publicly, I am not going to be giving a day-by-day description of
how negotiations are going other than to generally say—
Senator IAN
MACDONALD—We
do not want it every day, just this one day.
Senator Conroy—Today is part of
every day.
Senator IAN
MACDONALD—All
right.
Senator Conroy—I would say what I
have said consistently, which is that discussions are constructive and
positive. In terms of wanting to resolve it before Christmas and pass the
legislation, it is very simple; there is a great deal of regulatory overhang on
the Telstra share at the moment and Telstra shareholders are very concerned
about that. We are seeking to end the regulatory uncertainty around Telstra and
the sooner that that can be done the better. We believe that dragging it into
next year will not be to the benefit of the market as a
whole or,
importantly, Telstra shareholders.
Senator IAN
MACDONALD—Of
course, that is not Telstra’s view. I thought they were more into you—
Senator Conroy—You asked me my
view. I am giving you my view.
Senator MINCHIN—Are you telling
Telstra what is good for Telstra?
Senator IAN
MACDONALD—Telstra
shareholders—that is the point. Wouldn’t Telstra know what is best for Telstra
shareholders?
Senator IAN
MACDONALD—Could
you answer the question?
Senator Conroy—the Telstra share
price dropped nearly 40 per cent.
Senator IAN
MACDONALD—So
you know what is better for Telstra shareholders?
Senator Conroy—No, I am simply
making the point that at the moment the market would say to you, if you go and
read any analyst’s report, that there is an enormous amount of regulatory
overhang and if that were cleared up by Christmas I am sure every Telstra
shareholder would be relieved.
Senator IAN
MACDONALD—That
is not what the shareholder associations all told us.
Senator Conroy—So they are now
speaking on behalf of Telstra shareholders!
Senator IAN
MACDONALD—Well,
that is what they are; they are Telstra shareholders.
Senator BIRMINGHAM—That is not what
Telstra told us; they would expect to be speaking on behalf of their
shareholders.
This exchange shows there is no real
argument for passage this year and in fact, a delayed passage may well resolve
many of the issues for both the Government and Telstra.
Structural Separation of Telstra
As recently as May 2009 the Minister told the Committee that he
had never advocated structural separation of the Telstra:
Senator Minchin: I am
asking you whether you would rule out forced structural separation?
Senator Conroy: I am
not advocating it. I have never advocated it. I think I can say that but –
Senator Minchin:
Interestingly you have never actually advocated separation, as far as I can
tell.
Senator Conroy: I have certainly
never advocated structural separation, I do not believe. I think that is a true
statement. What I have said, though, is that the existing regime is not
satisfactory.[19]
Coalition
Senators are concerned that the Minister’s position changed so rapidly.
Coalition
Senators note that Labor did not propose structural separation in its
2007election policy, nor has it ever before proposed breaking-up Telstra.
Coalition
Senators believe that the proposals in the Bill to either impose functional separation
and potentially prevent Telstra accessing advanced spectrum, or to structurally
separate and still risk forced divestment in its HFC cable network and its
Foxtel interests, are an extreme and unacceptable way of forcing a publicly
listed company to the negotiating table.
These
choices offered in the Bill appear to have been structured by the Government to
offer little more than a ‘Clayton’s choice’. The Government is on the record
as saying that it is their ‘clear desire that structural separation occur
voluntarily’. During this inquiry it became clear from the way the Department
responded to questions about legal advice and compensatory risks faced by the
Commonwealth that this choice has only been structured to reduce the legal risk
to the Commonwealth. The Government will clearly use the full force of this
Bill to force structural separation, ideally through the transfer of assets
into its NBN, however possible.
Foxtel
also raised their concern about the discretion given to the ACCC stating that
the “Bill does not set any limits on the Commission’s power to accept or
reject an undertaking for Telstra to divest its interest in its HFC Cable or
Foxtel.”[20]
In
relation to divestiture of assets, we believe that this is a matter for
shareholders and the Minister should not be given the discretion to require
such divestiture, or not, in connection with a structural separation
undertaking.
In
its submission to the NBN Regulatory Reform discussion paper, even the ACCC was
not convinced of the merits of divestiture of Telstra’s HFC network in advance
of the completion of the Implementation Study. The ACCC said in their
submission:
Therefore, the ACCC considers that the size of the benefits
that would flow from the divestiture would, in the longer term, depend on the
way in which the NBN is implemented, including the nature of any involvement by
Telstra in the NBN Co.[21]
Spectrum Threat
Of
particular concern to Coalition Senators is the Bill’s proposal to
legislatively prevent
Telstra from acquiring specified bands of spectrum which could be used for
advanced wireless broadband services.
This
can be seen as nothing more than attempted legislative blackmail given that the
mobile
and wireless market is highly competitive in Australia with Telstra’s network competitors
actually having the majority of the market share.[22]
As
many submissions to the Senate inquiry have pointed out, and as was explained
by Telstra in its evidence to the Committee, denying Telstra future advanced
spectrum will mean there is no upgrade path to a higher speed and capacity next
generation network.
Given
Telstra has the largest network in the country, in terms of geographical
coverage, this is likely to have greatest impact on rural and regional
customers. In its submission responding to the Government’s regulatory reform
discussion paper, the ACCC advised that “no specific legislative changes are
required to address competition concerns in relation to the allocation of
spectrum.”[23]
As
Telstra highlighted in their submission to the inquiry:
Taking Telstra out of the market for next generation spectrum
will make the mobile market less competitive and punish the telecommunications
company that has not only led innovation but invested in the world’s fastest
mobile wireless network covering 2.1 million square kilometres.
Denying Telstra access to spectrum will undoubtedly hurt
consumers, particularly those in rural and remote Australia, by depriving them
of an upgrade path with reduced competition and innovation. It will put at risk
Australia’s place as a global leader in the mobiles market.[24]
Former
ACCC chair Allan Fels is reported as saying that if the Government was fully
covered under the Trade Practices Act the spectrum threat would likely amount
to an abuse of market power.[25]
The
Government itself in the Explanatory Memorandum of this Bill acknowledges that
there could be a loss to taxpayers if Telstra is not allowed to participate in
spectrum auctions through reduced competitive tension.[26]
And
if Telstra is unable to further upgrade its mobile network, this could reduce
the incentive for its competitors to also invest in next generation upgrades of
their mobile networks.
Synstrat
Management view this legislative proposal as:
Legal trickery in attempting to coerce Telstra to divest its
assets under threat of being forbidden from bidding for 4G frequency spectrum,
and therefore curtailing the long-term competitiveness of its mobile telephone
network is an unethical way for the government to conduct its business.[27]
Sovereign Risk
The
Government cannot ignore the overwhelming concerns expressed by Telstra
shareholders through this inquiry, nor can they ignore the concerns expressed
by well-respected investment and management firms about this heavy-handed
legislation. Coalition Senators believe the evidence presented to the
Committee raises serious concerns that the Government must address.
In
its submission, the Australian Foundation Investment Company (AFIC) stated:
If the Parliament passes this legislation we think
Australia’s investment standing could be significantly diminished. Investors,
particularly international investors, will perceive substantially heightened
sovereign risk if the Australian Government can act arbitrarily in this way.[28]
AFIC
are not alone in their concern about this Bill. BT Investment Management Ltd
expressed similar concerns about investment certainty in stating that:
We consider that the Telecommunications Legislation Amendment
(Competition and Consumer Safeguards) Bill 2009 (the Bill) goes beyond well
established regulatory practice and undermines independent regulation of the
telecommunications sector by the Australian Competition and Consumer
Commission. Our concerns are that the proposed legislation creates additional
and unnecessary regulatory risk and so complicates risk assessment for
investment purposes and potentially raises sovereign risk for our Telstra share
holding.[29]
The
Australian Shareholders Association also highlighted their concerns in their
submission:
The ASA is concerned not just about the value destroying
nature of the proposal for Telstra shareholders, but also about the
implications for investment generally. International investors in particular
will consider Australia to have a much higher level of sovereign risk if this
Bill is passed and the Government allowed to impose its will on a private
company. Investors, both small and large will consider that the level of risk
of Government or regulator intervention when investing in highly regulated
industries is increased by this decision. In addition the decision is likely to
on impact the confidence the market will have in future privatisations.[30]
Further,
Maple-Brown Abbott strongly expressed their concern about the precedent
established by this Bill:
The effects of the Bill are unprecedented in this country.
If investors become concerned about exposure to acts of Government such as
legislative and regulatory impositions, it could have a detrimental impact on
the valuation of many financial assets, not only Telstra and the wealth of its
1.4 million shareholders. Of major concern is that the Bill may damage Australia’s
sovereign risk rating.[31]
And
Packer and Co Ltd stated:
As international investors, we spend a great deal of time
thinking about sovereign risk in our capital allocation decisions. We can
assure you that the Government’s actions will be closely monitored by the
global investment management community.[32]
Access arrangements
Coalition
Senators support sensible reform to improve existing competition provisions in the
telecommunications sector.
However,
given the evidence presented to the Committee, we are concerned about some of
the proposed amendments to the Trade Practices Act and the level of
discretion that is handed to the regulator, the Australian Competition and
Consumer Commission (ACCC).
Particularly,
Coalition Senators note that the powers given to the ACCC seem unjustified in
relation to even the suggestions put forward by the ACCC to the NBN Regulatory
Reform Discussion Paper.
Coalition
Senators have concerns about the total removal of merits review in relation to
regulatory decisions under part XIC. We are also significantly concerned about
the Government’s proposal to waive procedural fairness.
Again,
concerns were raised about these amendments during the Senate inquiry.
Vodafone
Hutchinson indicated that the Bill should include provisions for a merits
review of the ACCC declaration and/or determination.[33]
Foxtel’s
submission has focussed on the amendments to the TPA and they state that:
The Draft Bill proposed dramatic changes to the regulatory
regime governing the telecommunications industry despite the Government not
having undertaken a rigorous analysis or inquiry into whether there has been
significant market failure justifying such changes”.[34]
“The proposal to give the Commission the broad power to make
interim access determinations without giving affected parties procedural
fairness is contrary to well established principles equally of good public
policy and administrative law designed to protect against arbitrary decision
making.[35]
In
relation to the abolition of merits review, BT Investment Management Ltd
stated:
As investors in Australian telecommunications we consider
there are huge risks in allowing the ACCC to set prices up front without any
right of appeal. Ordinarily in a market price setting is a right that follows
investment, and in turn is instrumental in driving investment. The ACCC is not
a market player; it does not make investment decisions and it does not face
investment risk.[36]
Vodafone
Hutchinson highlight their concerns with the broad powers given to the ACCC
under the proposals. They state in their submission to the inquiry that:
We are concerned, however, that the move to strengthen and
streamline the access regime provides too much discretion to the Australian
Competition and Consumer Commission (the Commission), with too little
accountability.[37]
Vodafone
Hutchinson also highlight the potential conflict of interest that exists due to
the ACCC’s responsibility for “both building the case for an access
determination and assessing its merits” and that “the benefits from a
merits review process exceed the costs associated with regulatory uncertainty
of delays”.[38]
Coalition
Senators strongly agree with the views of Foxtel regarding the abolition of
procedural fairness.
...the proposal to give the Commission the broad power to make
interim access determinations without giving affected parties procedural
fairness is contrary to well established principles equally of good public
policy and administrative law designed to protect against arbitrary decision
making.[39]
Consumer Measures
The
Coalition supports sensible measures to ensure consumers are given appropriate
protections and support in their telecommunications choices.
Coalition
Senators note that these consumer measures are scheduled to commence on 1 July
2010.
In
relation to the Universal Service Obligations (USO), Coalition Senators want to
ensure that the arrangements underpinning the USO are strong in order to ensure
rural and regional Australians have access to quality and affordable
telecommunications services.
However,
Coalition Senators strongly believe that the NBN will require a thorough and
comprehensive review of the USO regime. Even the Government has acknowledged
that issues surrounding the USO would be considered when the NBN roll out was
determined.[40]
The
Explanatory Memorandum (EM) entirely contradicts the Government’s proposed
timing for this Bill. The EM States:
Broadening universal service arrangements at this time could
lead to significant higher costs that may be avoided if the reforms were
deferred until after the detailed operating arrangement for the NBN had been
settled.
The Government has announced that once the detailed operating
arrangements for the NBN have been settled, the Government will consider the
broader range of issues associated with the delivery of universal access in an
NBN environment.[41]
It
also specifically states that: “Future USO arrangements will be considered
once the detailed operating arrangements for the NBN have been settled in early
2010.” [42]
We
therefore think on balance that it makes more sense to await the Implementation
Study, which if completed on schedule, will not delay the 1 July 2010
commencement of these measures, to ensure that the USO does reflect the
operating environment created by any NBN roll-out.
Conclusion
Coalition
Senators believe that the structure of Telstra is a matter for Telstra and its
shareholders.
The
Government’s decision to hold a gun to the head of the company is a concerning
precedent that has raises sovereign risk questions about the Australian
investment climate.
The
threat to starve Telstra of future advanced mobile and wireless spectrum will
harm rural and regional customers and will reduce competition in a highly
competitive market.
While
Coalition Senators strongly support sensible reforms to ensure competition
improvements in the telecommunications market, we have concerns about the
discretion this Bill gives to the Minister and ACCC, particularly through the
proposed waiver of procedural fairness and the removal of merits review of
regulatory decisions made by the ACCC under part XIC.
Given
the proposed expansion of powers to the Minister and ACCC proposed by this
Bill, Coalition Senators support continued consideration of areas in which the
Bill can be improved.
Recommendation
Coalition
Senators recommend that further consideration of this Bill not proceed until
after the NBN Implementation Study has been completed, the Government has
tabled its response to the Implemenation Study and the Senate has certainty
about the network structure of NBN Co and the regulatory framework which will
surround it.
Should
debate proceed in advance of the completion of the Implementation Study, the
Bill should be amended to address the significant concerns raised with the
Committee.
Senator Simon Birmingham
Senator for South Australia
Senator the Hon. Nick Minchin
Senator for South Australia
Senator the Hon. Ian Macdonald
Senator for Queensland
Senator Mary Jo Fisher
Senator for South Australia
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