Helen Coonan (NSW, Liberal Party, Minister for Communications, Information Technology and the Arts) Share this | Hansard source

I seek leave to incorporate a response to question on notice No. 1148 from Senator Allison which has been outstanding for some considerable time. It was dated 7 September 2005.

Leave granted.

The answer read as follows—

QUESTION NO. 1148

Senator Allison asked the Minister for Communications, Information Technology and the Arts, upon notice, on 7 September 2005:

(1)

Can the Minister clarify a recent statement that the Government will ensure services to customers in areas of ‘market failure’ after full privatisation of Telstra.

(2)

Are ‘areas of market failure’ determined by the Government to be in: (a) rural; (b) remote; or (c) metropolitan, areas.

(3)

What is the Government’s definition of ‘market failure’.

(4)

To what extent and how does the Government consider that the privatisation of the Telstra environment will facilitate competition in areas of ‘market failure’.

(5)

Has the Government accepted that areas of ‘market failure’, however defined, are never likely to attract competition.

(6)

Does the Government agree that the commitment to ensure services to customers in areas of ‘market failure’ provides a perverse incentive for Telstra to: (a) withhold or diminish services in these areas; and (b) impede efforts by competitors to set up service provision in these areas.

(7)

What is the extent of ‘market failure’ that has been caused by Telstra’ s prevention of other businesses from setting up services

(8)

How will the Government deal with the well-documented cases of Telstra pushing small competitors out of business when they try to establish competing businesses, particularly in regional areas in, for example, Crookwell, Bungendore and Albury-Wodonga.

(9)

How will the Government deal with excessive regulatory gaming by Telstra, whereby it effectively delays or prevents access by competitors to declared services.

(10)

What is the Government’s estimation of the effect of the proposed additional regulation on: (a) Telstra’s annual profits; and (b) Telstra’s share price.

(11)

Does the Government have a conflict of interest in protecting the shareholders from the cost of additional regulation and ensuring consumers receive the benefits of modern telecommunications infrastructure and services; if so, to what extent.

(12)

How will the Government reconcile the mutually exclusive objective of providing for effective regulation of telecommunications and maximising Telstra’s share price.

(13)

How will the Government ensure that the operational separation model for Telstra creates an incentive for Telstra to treat its retail arm and its competitors equitably.

(14)

How will the Government ensure that Telstra does not operate its retail arm at a loss by charging high wholesale prices to itself and competitors.

(15)

Will the Government give the Australian Competition and Consumer Commission (ACCC) divestiture powers in case operational separation fails.

(16)

What were the reasons for structural separation of Telstra not being considered in the package.

(17)

Does the Government agree that the fact that Telstra is vertically integrated is the single most important factor in Australia being ranked 21st in broadband penetration in the Organisation for Economic Co-operation and Development (OECD) Communications Outlook, 2005.

(18)

How does Australia compare with other OECD countries in terms of the rate of penetration of broadband, as opposed to the current rate of uptake.

(19)

Does the Government acknowledge that Australia’s rate of uptake is relatively high because it starts from a very low base compared with other OECD countries.

(20)

How does the Government’s definition of ‘broadband’ differ from other countries in the OECD.

(21)

What will the Government do about the obvious weakness [of the] anti-competitive conduct regime in the Trade Practices Act as demonstrated by the ACCC’s experience with the Telstra broadband pricing competition notice.

(22)

What will the Government do to make it easier for Telstra’s competitors to get access to reasonably-priced backhaul.

(23)

How will the Government ensure that people in regional areas where there is no competition receive better broadband services as standards improve in metropolitan areas.

(24)

What safeguards will the Government put in place to ensure that money put aside for regional areas will: (a) not simply fall back into Telstra’s hands so as to cement its monopoly in regional areas; and (b) be applied equitably and not directed to Coalition or marginal electorates.

Senator Coonan – The answer to the honourable senator’s question is as follows:

(1)

Yes. The Government’s policy is to target assistance, in the form of funding programs, to those areas where the competitive market alone does not meet consumers’ needs for a timely, quality service at reasonable cost.

(2) and (3)

Market failure may occur anywhere where commercial incentives do not exist to provide key services to consumers at a reasonable cost and in a timely manner.

(4)   Telstra’s shareholding structure has no direct effect on the existence or otherwise of market failures.

(5)   In the long term, technological and market developments have the ability to increase functionality and reduce costs for the provision of services. This can make previously unsustainable business cases commercially sustainable. Hence, the number of instances of market failure are likely to diminish over time.

While market failures continue to exist, they will continue to be addressed by the measures previously mentioned.

(6)   (a)   No.

(b)   No.

(7)   Should this conduct occur, the Government has established competition laws that are able to deal with it.

The ACCC as the competition regulator has extensive powers under the Trade Practices Act to investigate and, where appropriate, prosecute anti-competitive conduct. Under Part XIB of the Trade Practices Act the ACCC can issue a competition notice to carriers and carriage service providers with significant market power that it has reason to believe are engaging in anti-competitive conduct. Competition notices are designed to stop the conduct and open the way to substantial penalties and damages.

(8)   See the answer to question 7. The investigation of instances of anti-competitive conduct is the responsibility of the ACCC.

(9)   The Government has established a telecommunications access regime in Part XIC of the Trade Practices Act which confers rights on access seekers to obtain access to bottleneck services.

The Government has regularly made legislative amendments to close off opportunities for regulatory gaming.

The Telecommunications Legislation Amendments (Competition and Consumer Issues) Act 2005 conferred a wide discretion on the ACCC to set procedural rules for access applications under Part XIC of the Trade Practices Act, with a view to speeding up the resolution of those applications. It also removed the ACCC’s obligation to consult before making an interim determination, in certain circumstances, which again removed a source of delay.

The Telecommunications Competition Act 2002 made many procedural changes to facilitate timely access determinations under Part XIC, including removing merits review of the ACCC’s final access determinations, introducing time limits for decisions by the ACCC and the Australian Communications Tribunal on access and undertakings, limiting parties’ rights to introduce new evidence on the review of the ACCC’s decisions on access and undertakings, and introducing a requirement for the ACCC to promulgate model access conditions for access to core telecommunications services which will streamline access determinations relating to those services.

Earlier, the Trade Practices Amendment (Telecommunications) Act 2001 made streamlining changes to the Part XIC access regime which, among other things: required the ACCC to develop pricing principles to be applied in access determinations; introduced the option of alternative dispute resolution to quickly resolve disputes about access terms; removed access seekers’ rights to object to interim access determinations; enabled the holding of joint arbitration hearings to resolve common disputes; enabled the use of documents and information from one arbitration in another arbitration; and prevented certain decisions of the Australian Competition Tribunal from being stayed.

While taking robust action to foreclose opportunities for unjustified delaying tactics, the Government also recognises the need to ensure that parties to access proceedings are afforded a reasonable opportunity to argue their case and present evidence. This affords them procedural fairness and also facilitates the making of properly informed access decisions.

(10) The Government designs regulation to achieve the intended policy outcome in the most efficient way and without imposing any unnecessary costs or constraints on business. Regulatory action has to be accompanied by a Regulation Impact Statement (RIS) and to go through a consultation and cost-benefit analysis process.

The Government’s measures do not target Telstra’s annual profits or its share price. The measures seek to create a regulatory environment which serves the interests of consumers of telecommunications services and the Australian economy as a whole. Telecommunications businesses, including Telstra, have to operate in that environment.

(11) Yes. There is a latent conflict of interest whenever a government both sets regulations for an industry sector and has an interest in a commercial enterprise which operates in that sector. This is one of the reasons why the Government has decided to sell its remaining equity in Telstra.

(12) By selling its remaining shareholding in Telstra.

(13) In providing for the operational separation of Telstra’s wholesale, retail and network services business units with regard to the provision of designated services, the operational separation plan will have to ensure that:

• there is effective organisational and operational separation between Telstra’s wholesale and retail units, as well as between those units and its key network services unit;
• the wholesale unit is not able to be controlled or influenced by the retail unit; - the key network services unit provides high quality and equivalent services to the retail unit and Telstra’s other wholesale customers;
• the wholesale unit maintains equivalence between the prices it charges the retail unit and the prices it charges Telstra’s other wholesale customers, and also equivalence regarding the non-price terms of supply;
• Telstra establishes an internal compliance function to supervise compliance with the operational separation plan; and
• Telstra meets extensive reporting requirements relating to its activities covered by the operational separation plan (which involve reporting to both the Minister and the ACCC).

Thus, the operational separation plan will work through a combination of creating incentives, mandating specific actions, and providing for ongoing monitoring.

(14) Telstra’s freedom to charge its wholesale customers high wholesale prices for declared services is already constrained by the ACCC’s access price determinations applying to those services under Part XIC of the Trade Practices Act. The price benchmarking requirement in the operational separation plan will provide transparency to the ACCC that Telstra is not favouring its own retail activities over those of its wholesale customers.

(15) Access by Telstra’s competitors to Telstra’s declared wholesale services ultimately does not depend on operational separation. It is already guaranteed by Part XIC of the Trade Practices Act.

Appropriate enforcement mechanisms are included in the Telecommunications Act. If Telstra contravenes the operational separation plan, the Minister can impose a rectification plan on Telstra. If Telstra fails to comply with the rectification plan, the ACCC can direct it to take specified remedial action. Compliance with the rectification plan is a condition of Telstra’ s carrier licence.

The Act gives the Minister the power to vary the operational separation plan from time to time. This will enable the plan to be modified if it is considered not to be working in the way that was envisaged.

Section 61A of the Telecommunications Act requires the Minister to order a comprehensive review of operational separation before 1 July 2009 and to publish and table a report of the review. The review will provide an opportunity to assess how operational separation has worked.

(16) Given the high costs and risks associated with forced structural separation of Telstra, as compared to its uncertain benefits, the Government has concluded that operational separation is to be preferred. Operational separation will provide similar benefits to structural separation, in terms of greater transparency and diminished incentives and opportunities for discriminatory treatment of non-Telstra wholesale customers, without the costs and risks associated with structural separation.

(17) No.

(18) According to the latest OECD statistics (December 2005), Australia’s broadband penetration rose from 7.7 subscribers per 100 inhabitants in 2004, to 13.8 in 2005. This compares to OECD averages of 10.2 and 13.6 subscribers per 100 inhabitants for those years. In terms of the net increase (growth) over the 2004-2005 period, Australia ranks 5th out of 30 OECD economies.

(19) Australia’s high growth rate of broadband uptake in recent times is due to a wide range of factors. On the supply side, improved availability of Asymmetric Digital Subscriber Line (ADSL) infrastructure has underpinned strong uptake. On the demand side, changing consumer preferences and decreases in the price of broadband service packages have also fuelled strong growth, with many consumers switching to broadband from dial-up internet.

(20) The OECD’s current definition of broadband is based on subscription by technology type including digital subscriber line services, cable modem services, satellite broadband internet, fibre-to-the-home internet access, ethernet LANS, fixed wireless subscribers. The latest guidance from the OECD regarding broadband definitions is contained in paragraphs 87 to 91 of the Guide to Measuring the Information Society, Working Party on Indicators for the Information Society, 8 November 2005 (OECD document DSTI/ ICCP/IIS (2005) 6/FINAL).

The Government’s guidelines for the Broadband Connect and Metro Broadband Connect programs specify that service providers offer customers a minimum speed of 256 kilobits per second.

(21) The issuing of the broadband pricing competition notice by the ACCC was followed by a progression of price reductions by Telstra for its wholesale broadband services and culminated in the withdrawal of the notice by the ACCC in February 2005 after it was satisfied that the anti-competitive conduct had ceased. As part of the resolution of the notice, safeguard mechanisms were agreed to by Telstra, under which Telstra will give prior notice to the ACCC of retail price changes and special offers, so that the ACCC can carry out a preliminary assessment of their likely effect on competition and raise any concerns with Telstra. Various other steps were agreed to between the ACCC and Telstra to prevent a recurrence, including using independent expert advice to identify appropriate price relativities between retail and wholesale broadband prices. Telstra also offered its affected wholesale customers reduced wholesale prices and rebates amounting to $6.5 million.

The competition notice was thus effective in producing a satisfactory outcome. Telstra reduced all of its wholesale broadband prices by at least 30%, and now provides wholesale DSL services in regional areas at metropolitan rates. The ACCC has stated that it believes this will increase competition between broadband providers in regional areas.

Competition notices are a powerful aid to enforcement. They constitute prima facie evidence of the anti-competitive conduct specified in the notice, and thus facilitate the taking of enforcement action by the ACCC. The available enforcement actions for anti-competitive conduct (contained in Division 7 of Part XIB) include the following:

• the ACCC can seek pecuniary penalties and an injunction from the Federal Court;
• the Federal Court can award damages to any individual or company that has suffered loss or damage as a result of the anti-competitive conduct; and
• any individual or company that has suffered such loss or damage can itself commence civil proceedings for damages against the perpetrator.

There are no specific procedural requirements in the legislation which pose an obstacle to the ACCC taking appropriate and timely action to enforce a competition notice.

(22) The telecommunications access regime under Part XIC of the Trade Practices Act which the Government has established ensures that there is fair access to services such as backhaul. The regime enables the ACCC to declare that for certain services Telstra must provide access to its network on fair and reasonable terms.

The ACCC has declared the domestic transmission capacity service, which can be used by regional broadband providers to access backhaul transmission capacity. Hence, this service is now subject to the access regime.

The ACCC published a high-level pricing principle in 2004 to provide guidance on how it would determine a reasonable price for transmission capacity should it be called upon to do so in the event of a dispute between Telstra and another party seeking to use its network.

The ACCC has recently indicated that it has started considering both the suitability of the existing transmission capacity declaration and its approach to pricing the transmission capacity service. The ACCC is making inquiries of Telstra and other broadband service providers to gain a better understanding of the market conditions that currently exist for transmission capacity in regional Australia. The ACCC is also examining whether further pricing guidance from the ACCC would promote more reasonable access to transmission capacity and what form any further guidance should take.

I have designated transmission as a designated service for the purposes of the Telstra operational separation plan. Subjecting the transmission service to operational separation will help to ensure transparency and equitable treatment of other service providers as regards the terms on which Telstra gives them access to the service.

(23) The Government is implementing a comprehensive communications package called Connect Australia – the major component of which is the $878 million Broadband Connect program which commenced on 1 January 2006. Broadband Connect provides subsidies to internet service providers to connect homes, small businesses and not-for-profit organisations to fast, reliable and affordable broadband services.

(24) The Government’s targeted assistance funding is available to all telecommunications providers, including Telstra. There are currently more than 45 registered Broadband Connect providers.

The Connect Australia programs are targeted towards under-served areas.