Historic reforms to telecommunications regulation

In April the Rudd Government embarked upon an ambitious program to fundamentally transform Australia’s telecommunications industry in the interest of all Australians.

The National Broadband Network will be the largest nation building investment in Australia’s history.

It will drive future growth, productivity and innovation across all sectors of the economy.

However, while the NBN is progressively rolled out around the country the existing telecommunications regulatory regime remains critical to the delivery of affordable, high quality services to businesses and consumers.

For years telecommunications companies, industry experts and the regulator have been calling for fundamental reforms in the telecommunications sector.

Today we are delivering historic reforms in Australia’s long-term national interest that will:

• address Telstra’s high level of integration to promote greater competition and consumer benefits;
• streamline and simplify the competition regime to provide more certain and quicker outcomes for telecommunications companies;
• strengthen consumer safeguards to ensure service standards are maintained at a high level; and
• remove inefficient regulatory red-tape.

Vertical and Horizontal Integration

The first element of this reform program focuses on the current structure of the telecommunications sector.

Telstra is one of the most highly integrated telecommunications companies in the world.

While significant structural reform has occurred in other key infrastructure industries, previous governments of both persuasions have failed to undertake necessary structural and microeconomic reform in telecommunications.

The measures in this legislation will finally correct the mistakes of the past.

The Government will require the functional separation of Telstra, unless it decides to voluntarily structurally separate.

Functional separation is a regulatory tool that has been used successfully in other countries, including the UK and New Zealand.

It is designed to promote competition by addressing the underlying incentives for the incumbent to favour its own retail businesses over its wholesale customers.

The Government is also introducing measures to address Telstra’s horizontal integration across the copper, cable and mobile platforms.

Many countries restrict incumbents from owning both cable and traditional fixed-line telephone networks.

Moreover, in a range of countries, the fixed-line incumbent does not also own the largest mobile carrier, as is the case in Australia.

The Government intends to correct Australia’s unique and highly integrated market structure by preventing Telstra from acquiring additional spectrum for advanced mobile services unless it structurally separates, divests its HFC cable network and divests its interests in Foxtel.

The legislation provides scope to remove either or both of the cable network and Foxtel requirements if Telstra submits an acceptable undertaking to structurally separate.

The measures will promote competition across the different delivery platforms while providing Telstra with the flexibility to choose its future path.

The Government’s clear preference is for Telstra to submit an undertaking to voluntarily structurally separate that is acceptable to the ACCC.

The Minister will provide guidance to the ACCC to assist its assessment of these matters.

Importantly, the Government retains an open mind on how structural separation may be achieved.

For example, it may involve the creation of a new company into which Telstra could transfer some of its fixed-line assets.

Alternatively, it may involve Telstra progressively migrating its fixed-line traffic to the NBN over a 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 full structural separation over time.

Such a negotiated outcome would be consistent with the wholesale-only, open access market structure to be delivered through the National Broadband Network.

The Government has commenced constructive discussions with Telstra on how NBN Co and Telstra could work collaboratively towards the NBN.

We believe it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians.

Part XIC and XIB of the Trade Practices Act

The second element of the reform package addresses the telecommunications competition framework.

The existing telecommunications anti-competitive conduct and access regimes in the Trades Practices Act have been widely criticised as being cumbersome, open to gaming, and providing insufficient certainty for investment.

In other regulated sectors there have been only three access disputes since 1997.

Over the same timeframe there have been more than 150 telecommunications access disputes.

The Government will reform Part XIB and Part XIC of the TPA to simplify the access regime and deliver greater regulatory certainty.

It will also enable the ACCC to act quickly on anti-competitive conduct.

Consumer safeguards

The third part of the reform package will strengthen consumer safeguards.

These include changes to the Universal Service Obligation, Customer Service Guarantee and Priority Assistance arrangements, to ensure that consumers are protected and service standards are maintained at a high level during the transition to the NBN.

Mandatory performance benchmarks will be required in relation to the delivery of universal services that, backed up with civil penalties, will encourage improved compliance.

Telstra will also be required to provide payphones in accordance with new criteria and the Australian Communications and Media Authority will be given the power to direct whether payphones can be removed.

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.

Removal of Red Tape

The final element of the package is for the removal of inefficient and redundant red tape.

This is consistent with this Government’s broader commitment to address impediments to Australia’s long-term productivity growth.

Conclusion

These historic fundamental reforms address the long-standing inadequacies of the existing telecommunications regulatory regime.

They are the most significant reforms in telecommunications since 1997.

The measures provide the flexibility for Telstra to choose its future path.

The Bill will:

• strengthen consumer safeguards,
• promote competition,
• drive lower prices, better quality and more innovative services.

Thank you and now over to you for questions.