Telecommunications for the Future

Introduction

Telecommunications is a dynamic industry experiencing rapid change and development. It is one of the fastest growing industries in Australia and there are now more than 142 licensed telecommunications carriers.

Access to high quality, affordable telecommunications services is more important than ever if Australia is to keep pace with other industrialised countries. The telecommunications policies of the Howard Government are designed to give all Australians equitable access to telecommunications services, and to ensure that Australia, as a nation, takes full advantage of the benefits that new technology can bring in terms of increased productivity and better delivery of services.

The Government’s focus and responsibility is to all Australians, all consumers of telecommunications services, and all providers of telecommunications services.

Telecommunications policy in Australia revolves around the interaction between three core policy levers – encouraging competition, establishing and maintaining strong consumer safeguards, and providing targeted Government investment where there is evidence of market failure, most notably in rural regional and remote Australia.

There are clear signs that telecommunications policy has been successful with evidence that all Australians have benefited from the telecommunications reforms, particularly those that took place in 1997:

• before 1996 Telstra aimed to connect new phone services in remote Australia within 27 months – or more than two years – whereas now people can get a new phone service within 20 working days wherever they live;
• average prices of telecommunications services have fallen by more than 20 per cent since 1997. This reduction includes both call prices and line rentals;
• the Australian economy is more than $10 billion larger than it would have been without the 1997 reforms; and
• small businesses have experienced benefits of $2.16 billion and households have benefited by around $924 per household as a result of the 1997 reforms.

We are now at a critical point in Australia’s telecommunications history when consumers are looking for new advanced services and the industry is having to make major investment decisions. It is vital to Australian businesses, communities and families that the benefits continue into the future.

This is why the Government announced on 17 August 2005 a far reaching package of measures to Connect Australia now and into the future. There are four elements to the package:

• immediate investment of $1.1 billion in regional communications services now, and establishment of a $2 billion Communications Fund to generate revenue to fund services in the future;
• introduction of operational separation to address concerns about Telstra’s high degree of integration;
• improved competition regulation; and
• enhanced and toughened consumer safeguards.

This is the biggest regional telecommunications assistance program in Australia’s history and it reaffirms the Government’s commitment to telecommunications for all Australians, particularly those living in rural, regional and remote places. The Government has already spent more than $1 billion on telecommunications services since 1997 in rural and regional Australia alone, and this investment has simply transformed the way in which Australians can live, work, get an education and have a decent life in rural Australia.

The Government will implement its commitments through:

• five new pieces of legislation introduced into Parliament this week;
• amending a range of subordinate legislation and licence conditions to tighten consumer safeguards; and
• Appropriating the first tranche of the $1.1 billion Connect Australia funding to roll out vital services through a range of programs and spending initiatives.

Sale of Telstra

A key part of the package involves fulfilling the Coalition’s long standing policy to enable the full privatisation of Telstra. The Government is firmly of the view that the full privatisation of Telstra is in the long term interests of all Australians, the Australian telecommunications market as a whole, and of Telstra itself.

The most compelling argument for selling Telstra is to resolve the inherent tension in having the Government setting the rules for all telecommunications companies while owning the largest of these companies. The role of Government is to regulate in the interests of all consumers, and to achieve a sustainable competitive industry. The role of Government is not to regulate in favour of Telstra.

Selling Telstra will complete the transition from telecommunications being provided by a Government Department, the PMG, to telecommunications being provided by a multitude of private sector interests. This is a process that began under the former Labor Government with the corporatisation of Telstra and allowing Optus to enter the market in 1991.

The Legislation

The Government has introduced five pieces of legislation into the Parliament this week.

• Telstra (Transition to Full Private Ownership) Bill 2005 – introduced into the Senate;
• Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2005 – introduced into the Senate;
• Telecommunications Legislation Amendment (Future Proofing and Other Measures) Bill 2005 – introduced into the House of Representatives;
• Telecommunications (Carrier Licence Charges) Amendment (Industry Plans and Consumer Codes) Bill 2005 – introduced into the House of Representatives; and
• Appropriation (Regional Telecommunications Services) Bill 2005-2006 – introduced into the House of Representatives.

Telstra (Transition to Full Private Ownership) Bill 2005

The key elements of the Bill are that it:

• allows the Government to sell its all its remaining shareholding in Telstra;
• allows flexibility about how and when the Government can sell its remaining equity;
• re-affirms the Government’s commitment to maintaining the Universal Service Obligation (USO) and the Customer Service Guarantee (CSG); and
• does not change the Government’s policy on foreign ownership.

Flexibility to sell Telstra

The Bill does not set a time for a sale, but will allow a sale to proceed at some point in the future. The Bill also gives the Commonwealth the flexibility to develop detailed arrangements for the sale process, which will protect and optimise the Commonwealth’s interests. The provisions to facilitate the sale are broadly defined to allow not only conventional single tranche sales, but also sales implemented through a number of tranches, or through the use of other market instruments and financial products, such as hybrid securities.

Universal Service Obligation and the Customer Service Guarantee

The Government is committed to maintaining the cornerstone requirements of the USO and the CSG and this is re affirmed in the legislation. The objects of the universal service regime remain unquestioned: that all people in Australia wherever they work or live, should have reasonable access, on an equitable basis to standard telephone services, payphones and digital data services.

Foreign ownership of Telstra
Telstra will continue to remain an Australian owned and controlled corporation. The maximum foreign ownership allowed in Telstra will remain at 35 per cent with the maximum individual foreign ownership at 5 per cent.

Telecommunications Legislation Amendment (Competition and Consumer Issues) Bill 2005

The key elements of this Bill are:

• imposing operational separation on Telstra to establish and demonstrate equivalent treatment for its wholesale customers;
• improved investment incentives by requiring the Australian Competition and Consumer Commission (ACCC) to take account of the costs and risks of new investment when considering access decisions;
• implementing procedural rules to increase transparency and speed up decision making by the ACCC;
• a new obligation on carriers to facilitate full interconnection of the networks of competing carriers; and
• enhancing the powers of the Australian Communications and Media Authority (ACMA) to accept enforceable undertakings.

Operational separation

A major plank of the Government’s competition reforms is a requirement on Telstra to introduce operational separation. The objective of operational separation is to provide equivalence and transparency to Telstra’s wholesale customers. It is designed to fit within Australia’s existing regulatory framework and to fit with Telstra’s business arrangements.

Operational separation will ensure and demonstrate that Telstra treats its wholesale customers fairly. The new arrangements include internal wholesale pricing mechanisms for Telstra which will ensure its retail businesses receive no more favourable treatment than its wholesale customers.

Telstra will be required to maintain separate retail, wholesale and network business units and to publish internal contracts setting out non-price terms and conditions.

Compliance with operational separation will be enforceable by the ACCC and the Minister. A review of the operational separation arrangements will be undertaken before 1 July 2009.

Investment incentives

An issue of concern to investors in new telecommunications networks is whether the access regime sufficiently takes into account the uncertainties and risks of investing in those networks. The Government recognises that the access arrangements must balance the needs of access seekers with the need to maintain adequate incentives for investment. The access arrangements must not only provide certainty but must also recognise that investors risk their capital and are entitled to returns on their investments.

Building on the existing provisions that allow a person to obtain an exemption or agree to regulatory conditions prior to making investments, the Government will require the ACCC to take account of the costs and risks of new investment when making decisions under the telecommunications access regime by amending the provisions in Part XIC of the Trade Practices Act 1974 (TPA).

ACCC procedural rules

To provide increased transparency and speed up decision making by the ACCC in relation to access issues, the Government will give the A C C C the ability to make rules setting out its procedures and processes for declaring new services, assessing access undertakings and exemptions, and arbitrating access pricing disputes. The rules are expected to cover:

• public consultation processes;
• the exercise of the ACCC’s discretion about considering access undertakings and resolving access disputes;
• matters affecting the period of time available to the ACCC to make decisions under different provisions; and
• a generic confidentiality regime to apply in consideration of access exemptions, access undertakings and access disputes.

Full connection to the network

Currently it is possible for an operator of a large network to deny full connection to the network to users on a smaller network, such as a new fibre customer access network installed in new housing estates.

This is being addressed by a new obligation on carriers to acquire certain services from a carriage service provider where this is necessary to enable the carrier’s customers to make calls to customers of the carriage service provider (ie to facilitate any-to-any connectivity). Where parties cannot agree on terms and conditions, disputes will be arbitrated by the ACCC.

New Enforcement powers for the Australian Communications and Media Authority

The Government is extending ACMA’s powers by providing it with greater flexibility to respond to breaches by carriers and carriage service providers of their regulatory obligations. ACMA will be provided with the ability to seek and accept enforceable undertakings from carriers and carriage service providers to enhance compliance with telecommunications legislation. The undertakings will be enforceable in the Federal Court of Australia.

Telecommunications Legislation Amendment (Future Proofing and Other Measures) Bill 2005

The key elements of the Bill are that it:

• legislates a requirement for regular reviews of the adequacy of regional, rural and remote telecommunications;
• establishes a $2 billion perpetual Communications Fund dedicated to implementing the Government’s response to the regular reviews;
• changes the method of recovering the cost of developing consumer codes to improve the participation of consumer groups; and
• makes a consequential amendment to the Telstra Corporations Act 1991 that refers to at least two of Telstra’s directors having knowledge of or experience in regional areas so that they must now have regional, rural and remote knowledge or experience.

Regular reviews of regional, rural and remote telecommunications

The Regional Telecommunications Inquiry 2002 (RTI) recommended that to provide certainty for regional, rural and remote communities and equitable access to important telecommunications services, the Government should put in place a process to regularly and independently review telecommunications services in these parts of Australia.

The Bill establishes a Regional Telecommunications Independent Review Committee that will review the adequacy of telecommunications services in regional, rural and remote Australia on a regular basis. The first review is to commence before the end of 2008, with the maximum time between subsequent reviews to be three years.

The Committee will be required to report to the Minister on its findings and recommendations and this report will be required to be tabled in Parliament. Within six months of receiving the report, the Government must publicly respond to any recommendations made by the Committee.

$2 billion Communications Fund

The Government will establish a $2 billion perpetual Communications Fund from the proceeds of the sale of the Government’s remaining shareholding in Telstra or through the transfer of Telstra shares. The $2 billion Communications Fund will be tied to the legislated, regular independent reviews of regional, rural and remote telecommunications services.

The Bill establishes the Communications Fund as a special account and provides for arrangements for managing the account. The Bill establishes that revenue generated from the fund will be spent on implementing the Government’s responses to recommendations in the reports of the Regional Telecommunications Independent Review Committee.

Details of the structure, governance and operation of the Communications Fund will be developed throughout the rest of 2005.

Improved funding of consumer codes

Currently, telecommunications industry bodies or associations, such as the Australian Communications Industry Forum, rely almost entirely for funding on voluntary membership fees. It is becoming increasingly difficult for these bodies to meet the costs of developing comprehensive consumer-related industry codes of practice from these fees.

The Government is providing a scheme to enable industry bodies and associations that develop consumer-related industry codes to recover the approved costs of code development. Industry bodies and associations will be able to apply to ACMA prior to commencing code development.

Telecommunications (Carrier Licence Charges) Amendment (Industry Plans and Consumer Codes) Bill 2005-06

This Bill supports the arrangements in the Telecommunications Legislation Amendment (Future Proofing and Other Measures) Bill 2005, to enable approved costs of code development to be recovered through annual carrier licence charges.

Appropriation (Regional Telecommunications Services) Bill 2005

This Bill appropriates funding to support decisions taken by Government since the 2005-06 Budget, in particular in relation to measures in the $1.1 billion Connect Australia package, which aims to ensure that Australians have access to advanced telecommunications services in regional, rural and remote Australia.

The key elements of the Bill are that it:

• appropriates approximately $152.3 million as the first tranche of the Connect Australia measures; and
• appropriates $67 million previously approved by the Government to continue the Higher Bandwidth Incentive Scheme for the remainder of 2005.
  

Non Legislative initiatives – tighter safeguards

Consumer safeguards

The Government has established a comprehensive regime of consumer safeguards to ensure that all Australians have equitable access to standard telecommunications services. These safeguards include the:

• USO to provide reasonable access to basic telephone and payphone services;
• CSG to address connection, repair and appointment times;
• Network Reliability Framework (NRF) to ensure that the customer access network is maintained to deliver a high level of service;
• Priority Assistance for people diagnosed with life threatening medical conditions;
• Price Controls on Telstra;
• Access to Untimed Local Calls;
• Low Income Measures to address affordability;
• National Relay Service (NRS) to assist people with disabilities;
• Telecommunications Industry Ombudsman; and
• Consumer Codes developed by industry as part of the self-regulation process.

Many of the safeguards have been reviewed and improved over the last two years and, in addition to the legislative initiatives discussed above, the Government has recently announced further improvements to the consumer safeguard regime.

Strengthening the Customer Service Guarantee

The CSG requires telephone companies to meet specified timeframes to connect fixed line services, repair reported faults and keep appointments subject to limited exemption. If timeframes are not met, a customer may be entitled to financial compensation from the company.

The Government has committed to strengthen the CSG by:

• restricting the ability of providers to claim exemption from the CSG timeframes through declaring mass service disruptions in the case of predictable events;
• providing industry with guidelines developed by the Department of Communications, Information Technology and the Arts (DCITA) and ACMA on the use of mass service disruptions and other exemptions from the CSG timeframes; and
• increasing the CSG penalties by 21 per cent to reflect movements in inflation since they were last increased in 1998.

Network Reliability Framework (NRF)

The NRF monitors and aims to improve the reliability of telephone services provided by Telstra. The NRF is established by a licence condition on Telstra, and requires Telstra to fix services that have recurring faults, or face financial penalties.

In responding to a recent review of the NRF by ACMA, the Government has committed to strengthening the Framework by requiring Telstra to automatically remediate a minimum of 480 of the worst performing cable runs in its network each year.

This automatic remediation, coupled with Telstra’s normal ongoing commercial upgrades of its network, is expected to improve the reliability of the network and reduce the number of faults. Telstra will be required to report quarterly and annually on the outcomes of its remediation. The Government will review the NRF in two years time and assess whether it is meeting the objectives of reducing faults and improving the reliability of Telstra’s network and, if necessary, adjust the NRF further.

Price controls

Price control measures applying to Telstra are a legal requirement designed to drive efficiency improvements and lower overall prices for consumers in markets where competition is not yet fully developed.

The Telstra price control arrangements are set out under Part 9 of the Telecommunications (Consumer Protection and Service Standards) Act 1999. The A C C C is required to assess compliance annually and report to the Minister.

The Government will introduce the new price controls on Telstra that will commence on 1 January 2006 and expire on 30 June 2009. The new price controls will:

• focus the benefit of price controls on residential and small business customers by removing services provided to big business from the price controls;
• require a basket of Telstra’s line rentals, local calls, STD, international and fixed to mobile calls, to be subject to an overall price freeze, that is, requiring no real price increase;
• provide a line rental safety net through a price cap that will not allow Telstra’s basic line rental products to increase by more than the rate of inflation;
• maintain the principle of local call pricing parity in regional, rural and remote areas and re-focus the arrangements to require parity between the local call prices offered to regional and metropolitan consumers;
• maintain the 22 cent cap on untimed local calls and on dial-up Internet calls using the 0198 number range;
• maintain the cap on new connection services limiting price increases to inflation; and
• in order to maintain a viable payphone industry, increase the local call cap on payphones from 40 cents to 50 cents.

Telstra will be required to continue to offer a package of services targeted at low income consumers, including targeted support for low income customers disadvantaged by the payphone price increase.

Consumer rights information

The Government has asked ACMA to review the current requirements on industry for information provision on regulatory consumer safeguards, including industry compliance with current consumer awareness and information requirements. The Government is seeking to tighten the requirements within the regulatory framework and encourage industry to undertake greater consumer rights awareness activities.

Voice quality

The Government has asked A CMA to develop a strategy to reduce the occurrences of voice quality problems on the standard telephone service. A CMA is currently reviewing and analysing voice quality issues for the standard telephone service, as well as international developments. On completion of this analysis ACMA will develop a range of options in developing a strategy to reduce the incidence of voice quality problems.

Telstra’s local presence

The 2002 RTI found that regional consumers value the service improvements achieved through Telstra Country Wide®, and its direct relationship with Telstra customers in regional, rural and remote Australia.

The Government believes that a strong regional, rural and remote local presence by Telstra is a very important component of adequate telecommunications service delivery in Australia.

In August 2005, a licence condition was imposed on Telstra to require that it:

• maintain a local presence in regional, rural and remote Australia; and
• prepare a local presence plan setting out the range of activities and strategies it will have in place to fulfil its obligation to maintain a local presence.

Telstra was also provided with written guidance specifying matters to be addressed in its inaugural local presence plan.

Telstra is now required to prepare a local presence plan, which must be submitted for Ministerial approval by December 2005, 120 days after the licence condition was imposed. The plan must run for a period of three years at which time Telstra will be required to submit a new plan for approval, and Telstra is required to report annually on its performance against the plan.

The activities in the plan will be broadly compatible with Telstra's commercial interests and will benefit regional communities in a range of ways, including:

• better access for customers to Telstra’s services and staff;
• better coordination of service maintenance by Telstra;
• better targeting of network and service investments by Telstra, and
• providing a major voice for regional consumers in the Telstra boardroom and with senior management.

Telstra is required to consult with stakeholders in preparing the plan and demonstrate to the Government and to regional, rural and remote Australian communities that it is maintaining an effective and beneficial local presence in regional, rural and remote Australia.

Funding package - Connect Australia

The Government will provide funding of $1.1 billion for the comprehensive communications package called Connect Australia. This funding is dependent on the passage of legislation for the full sale of the Government’s remaining shareholding in Telstra, and is in addition to the perpetual Communications Fund.

In addition, a $5.9 million targeted Government consumer rights awareness campaign to commence in the 2006–07 financial year will complement ACMA’s review of the current requirements on industry for information provision on regulatory consumer safeguards.

Connect Australia is the biggest regional telecommunications assistance package in Australia’s history. It is a targeted at providing all Australians with access to first-class telecommunications now and into the future. The package comprises four components that are outlined below.

Broadband Connect

Broadband Connect is an $878 million program, due to commence on 1 January 2006, to give regional Australians access to affordable broadband services over the next four years.

This program will expand on the success of the $157.8 million Higher Bandwidth Incentive Scheme (HiBIS) to provide subsidies to Internet service providers to connect homes, small businesses and not-for-profit organisations to fast, reliable and affordable broadband services in areas where market conditions mean that broadband provision would otherwise be unlikely to occur in the near future, or provision would be far more expensive.

Broadband Connect will build on the principles of HiBIS that broadband services are provided to people in regional, rural and remote Australia at metro comparable prices. It will support a range of technologies and services will be based on minimum level service requirements. To maximise and ensure the sustainability of the Government’s investment in broadband, consultation will occur with a wide range of stakeholders prior to the arrangements for Broadband Connect being finalised.

Furthermore, regular annual reviews of Broadband Connect will be conducted to ensure that the scheme remains consistent with any changes in market pricing and takes into account the emergence and impact of new technologies.

Broadband Connect will also incorporate a metropolitan component—the previously announced $50 million Metropolitan Broadband Connect program.

Clever Networks

The $113 million over four years for Clever Networks will provide broadband networks in regional areas for innovative applications to improve the delivery of health, education and other essential services.

C lever Networks will build additional infrastructure to support and complement Broadband Connect by extending the reach of competitive broadband solutions to regional, rural and remote communities.

Clever Networks will be strategically focused to attract significant funding from commercial partners and others, including state governments, and will be targeted at areas of demonstrated demand. The infrastructure projects will seek at least matching funding for any Australian Government contributions, and projects could be brought forward from carriers, state, territory and local governments, as well as other institutions.

Mobile Connect

Mobile Connect is a $30 million program to further improve mobile services over four years.

Through this program, the Government will implement a dual strategy of supporting the extension of terrestrial mobile phone infrastructure, and continuing to provide satellite phone handset subsidies for people living or working in more remote areas.

Mobile Connect will extend mobile phone coverage in smaller regional communities and along highways where a case for strategic location or economic importance can be established and where services will have ongoing commercial viability. This infrastructure will be funded through contributions from carriers, communities and state governments, as well as the Australian Government. Program arrangements will be finalised early in 2006.

Mobile Connect will also provide significant additional funds for the Satellite Phone Subsidy Scheme, which offers up to $1500 to people who live or work in areas without terrestrial mobile phone coverage for the purchase of a satellite phone.

Backing Indigenous Ability

The new $90 million Backing Indigenous Ability program will target identified gaps in telecommunications services in remote Indigenous communities over four years.

The program will:

• roll out shared community phones to approximately 190 remote Indigenous communities with two or more permanent residences and between 20 and 49 residents, and extra community phones in as many as 209 communities with 50 or more people;
• refresh, upgrade, establish and support public Internet access in hub communities identified with the assistance of Indigenous Coordination Centres;
• provide access to videoconferencing services through public Internet access centres, and encourage community access to government agency videoconferencing facilities;
• support the sustainability and use of telecommunications through training, skills development, information provision, culturally appropriate content and demand aggregation; and
• restore ageing radio infrastructure and strengthen the Indigenous television service.

Conclusion

This comprehensive and visionary package of legislative and related measures is a further significant demonstration of the Government’s ongoing and proactive commitment to ensuring that Australia’s telecommunications system combines the best elements of competition and customer service.

It represents the biggest commitment by any Australian Government for telecommunications services – not only for rural Australia, but for all Australians.

The legislative package and the full sale of the Government’s shareholding in Telstra, will allow the Government to focus on its core business of setting the rules for the whole telecommunications industry. Telstra will be able to focus on being competitive and delivering the best services to its customers. Consumers can be confident that telecommunications services will continue to improve, service quality will be maintained at high levels and existing consumer rights protected, regardless of Telstra’s ownership. Rural Australia can be assured that ongoing targeted funding will allow them to access 21 st century telecommunications services that are comparable with those in metropolitan areas.

All Australians will have the opportunity to share in the benefits from this legislative package.