House of Representatives

Extract of Explanatory Memorandum

(Circulated by authority of the Minister for Communications, Cyber Safety and the Arts, the Honourable Paul Fletcher MP)

OUTLINE

Overview

The Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019 (the Bill), together with the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 (the Charge Bill) will implement the main legislative components of the Australian Government's response to the independent cost-benefit analysis and review of regulatory arrangements for the National Broadband Network (NBN) undertaken by the panel of experts headed by Dr Michael Vertigan AC. The Government's response, Telecommunications Regulatory and Structural Reform, was released on 11 December 2014.^[1]

The Government response proposed three major reforms:

•

amendments to the superfast network rules in Parts 7 and 8 of the Telecommunications Act 1997 (Tel Act) to make the default structural separation requirement clearer and more effective as a baseline for industry, while at the same time creating new commercial and competitive opportunities

•

introduction of a statutory infrastructure provider (SIP) regime

•

introduction of a funding mechanism for regional broadband services.

The Bill, together with the Charge Bill, implements these reforms.

The Bill reintroduces the measures contained in the Telecommunications Legislation Amendment (Competition and Consumer) Bill 2018 (the previous Bill), with minor modifications, including minor changes to the operation of the Regional Broadband Scheme (RBS), a new measure designed to enhance mapping information about the NBN, some fine tuning to the SIP regime, and removing a provision resetting the statutory default for the designated day.

The previous Bill was introduced into the House of Representatives on 22 June 2017 and passed the House of Representatives on 10 May 2018. It was introduced into the Senate on 18 June 2018, but lapsed at the end of the 45th Parliament. The previous Bill was referred to the Senate Environment and Communications Legislation Committee on 22 June 2017 and the Committee reported on 6 September 2017. The Committee recommended that the previous Bill be passed. The previous Bill was also considered by the Senate Standing Committee for the Scrutiny of Bills (Scrutiny Digests 8 and 10 of 2017).

Telecommunications Legislation Amendment (Competition and Consumer) Bill 2019

The Bill proposes amendments to the Tel Act, the Competition and Consumer Act 2010 (CCA) and the Telecommunications (Consumer Protection and Service Standards) Act 1999 (TCPSS Act).

Schedules 1 and 2: Amendments to the superfast network rules

The superfast network rules in Parts 7 and 8 of the Tel Act were introduced in 2011 and apply to superfast fixed-line networks servicing residential and small business customers (other than the NBN). Part 7 requires operators of such networks to supply a Layer 2 bitstream service to access seekers. Part 8 requires the networks to be wholesale-only (that is, structurally separated). The requirements do not apply to superfast networks that existed prior to 1 January 2011 (and are not altered, extended or upgraded), or to extensions of pre-2011 networks of less than 1 kilometre on or after 1 January 2011. There are exemptions from the requirements in relation to the supply of services to utilities. The Minister may also grant exemptions.

The Bill makes several key amendments to the superfast network rules to make the default structural separation requirement clearer and more effective as a baseline for the industry, while at the same time creating new commercial and competitive opportunities. These amendments reset the structural separation arrangements, establish functional separation arrangements and promote competition.

The three key ways in which the Bill improves commercial and competitive opportunities are by removing regulation of networks servicing small business customers, enabling new superfast networks to operate on a functionally separated basis subject to the approval of the Australian Competition and Consumer Commission (ACCC), and enabling the ACCC to exempt small start-up networks from separation regulation. The overall rationale for the superfast network rules and these changes is discussed in the relevant Regulation Impact Statement (RIS).

Generally, apart from limited exceptions, it is intended that future superfast residential networks would either be subject to a class exemption granted by the ACCC, operate on a functionally separated basis approved by the ACCC, or operate on a wholesale-only basis.

As part of these arrangements, the Bill provides that non-discrimination requirements apply to eligible services supplied by persons owning or controlling superfast local access lines built on or after the designated commencement date (being the day which is three months after the Bill, once passed by Parliament, receives the Royal Assent).

Grandfathering arrangements

The Bill proposes to amend Part 8 so that the current wholesale-only obligations in section 143 of the Tel Act will now generally apply to superfast fixed-line networks that came into existence between 1 January 2011 and the day immediately before the designated commencement date, or to networks that existed before 1 January 2011 and were extended, altered or upgraded between 1 January 2011 and the day immediately before the designated commencement date. A new proposed section 142C will then apply the new structural separation or functional separation rules to local access lines that come into existence on or after the designated commencement date, or that are altered or upgraded after that date and as a result become capable of being used to supply a superfast carriage service. In effect, therefore, the rules applying to networks that were subject to the current Part 8 will be grandfathered. Network operators will still be able to connect premises to networks that are subject to the existing rules, without needing to comply with the new rules.

A number of networks that are subject to Part 8 currently operate under Ministerial exemptions. For example, Telstra's fibre-to-the-premises (FTTP) network in South Brisbane and specified Telstra Velocity and TransACT networks have exemptions until the 'designated day'. Specifically, the instruments that enable these exemptions are the Telecommunications (Network Exemption-Telstra South Brisbane Network) Instrument 2012, the Telecommunications (Network Exemption-Telstra Specified Velocity Networks) Instrument 2012, the Telecommunications (Network Exemption-TransACT Upgraded VDSL Networks) Instrument 2012 and the Telecommunications (Network Exemption TransACT Very Small Scale Networks) Instrument 2012. The Bill provides powers for the Minister to extend any exemptions that are in place on the designated commencement date, but after that date the Minister will have no powers to grant new exemptions.

The Bill also provides for the Minister to establish grandfathering arrangements for local access lines that are currently subject to the Carrier Licence Conditions (Networks supplying superfast carriage services to residential customers) Declaration 2014 (CLCs Declaration). Such lines are not otherwise subject to the existing Part 8 rules. The CLCs Declaration effectively requires networks it covers to operate on a functionally separated basis.

The Bill exempts the CLCs Declaration from sunsetting, which will ensure that it continues to apply in relation to lines that form a part of a telecommunications network to which the rules applied between 1 January 2015 and the commencement of the new rules, provided that the lines have not been altered, upgraded or extended on or after the designated commencement date. The Bill also provides that a network that is subject to the CLCs Declaration can continue, on or after the designated commencement date, to connect premises that are in close proximity to the network under the rules set out in the CLCs Declaration, rather than the new rules in proposed section 142C. The requirements of the CLCs Declaration currently extend to 30 June 2020 but the amendments in the Bill provide for the Minister to extend these conditions indefinitely.

The requirements of the CLCs Declaration will not apply to a network that is included in a functional separation undertaking given by the carrier who owns or controls the network and which is in force.

Repeal of Part 7

Part 7 of the Tel Act and associated provisions in the CCA will be repealed. Currently Part 7 requires affected providers to supply a Layer 2 bitstream service. The associated provisions in the CCA required the ACCC to declare this service, which it did in 2012 (the Local Bitstream Access Service). Following repeal, access to specific wholesale services on superfast broadband networks would only be mandated if the services are declared by the ACCC under Part XIC of the CCA. For example, networks that are not currently subject to Part 7 (such as Telstra's Velocity networks and TPG's fibre-to-the-basement (FTTB) network) are required to supply the superfast broadband access service (SBAS) as declared by the ACCC in July 2016 under Part XIC of the CCA. Furthermore, under the Bill, superfast networks would operate on either a functionally or structurally separated basis. They would therefore supply eligible services on a wholesale basis.

Changes to Part 8, including exemptions

The Bill makes changes to the exemptions in Part 8. It amends the exemption under subsection 156(4) for network extensions of less than 1 kilometre from a point on the infrastructure of a network as it stood immediately before 1 January 2011. This exemption would, from the designated commencement date, only be available for networks that are being transferred to NBN Co Limited (NBN Co) under contracts (the Definitive Agreements). As a result, extensions of pre-existing networks on or after the designated commencement date which are not covered by the amended exemption must be used to supply services on a structurally separated (wholesale-only) basis as the default (or be covered by a functional separation undertaking approved by the ACCC, as the alternative).

The existing exemption under subsection 156(3) of the Tel Act for networks that, prior to 1 January 2011, were being rolled out in stages as part of a real estate development project, will now only apply until the day immediately before the designated commencement date. From the designated commencement date, a new section 143E of the Tel Act will cover such real estate development projects, but also amend the exemption, so that projects will continue to be covered even though there may be changes to the relevant contracts. The Minister will also be able to grant exemptions for specific new developments or a class of new developments within the geographical footprint of already exempt networks. This ensures that, subject to the approval of the Minister, the exempt network can be extended to service the new developments and those extensions will also be exempt from sections 142C and 143. The Ministerial exemption power would expire on the date that the NBN is declared, under section 48 of the National Broadband Network Companies Act 2011(NBN Companies Act), to be built and fully operational.

For clarity, the existing exemptions in the Tel Act for the supply of services to specified classes of utilities will not be changed by these amendments.

Five separate Ministerial exemptions have been granted under Parts 7 and 8 of the Tel Act. One of those exemptions, for specified TransACT fibre networks, is no longer operative due to the sale of these networks to NBN Co. The other four (for two categories of TransACT networks and for Telstra's South Brisbane and Velocity fibre networks) remain in force. The Bill provides that, if these exemptions are in force on the designated commencement date, they can continue to be varied by the Minister. The Bill also provides, through new section 143G of the Tel Act, that any new local access lines that form part of the infrastructure of the exempt networks will be exempt from section 142C. This ensures that the networks can continue to be operated in accordance with the terms of the relevant exemption instruments for as long as the exemption instruments remain in force so as to maximise service continuity for consumers.

Local access lines

Part 8 will be amended to focus largely on individual local access lines to better target regulation. The intention is that any single local access line that forms part of a network (other than the NBN) that is wholly or principally supplying services to residential customers and is used to supply a superfast carriage service to residential customers in Australia will be subject to obligations in Part 8. This new approach will apply to lines that come into existence after the designated commencement date, or are altered or upgraded on or after the designated commencement date and as a result become capable of being used to supply a superfast carriage service.

Removal of regulation for networks servicing small business customers

The Bill amends the existing Part 8 rules so that they no longer apply to local access lines that are part of a telecommunications network used to supply superfast carriage services to small business customers. The new Part 8 rules will only apply to local access lines used to supply superfast carriage services to residential customers. This means that lines used to supply superfast carriage services to small businesses will no longer be subject to structural or functional separation requirements. This creates greater flexibility for network operators in the supply of superfast carriage services to small business customers.

A business network may supply a small number of residential customers, sometimes without the knowledge of the network operator (for example, because a customer has ceased trading as a business while still retaining their service). Consequently, the Bill exempts local access lines that are used to supply superfast carriage services to residential customers if that use, when considered in relation to the use of all the local access lines that form part of the infrastructure of the network, is minor. The relevant network also has to be marketed exclusively as a business network.

Functional separation undertakings

The Bill inserts a functional separation undertaking process into Part 8, under which network operators will be able to voluntarily submit undertakings to the ACCC for approval. This creates greater flexibility in the supply of services on an integrated, albeit functionally separated, basis. That is, a telecommunications business could have both network/wholesale and retail operations, subject to certain requirements. Undertakings may be given by a person alone or jointly with one or more other persons. In deciding whether to accept a functional separation undertaking, the ACCC will be required to have regard to the long-term interests of end-users (as currently defined in the CCA) and any matters specified by the Minister in a legislative instrument. If accepted, the operator would be required to comply with the undertaking.

The Bill proposes that the ACCC would also be able to make deemed functional separation undertakings that would apply to specified classes of network operators. If an operator chooses to comply with a deemed undertaking, the undertaking would apply as though the operator had submitted it and the ACCC had approved it. This measure is intended to reduce the regulatory workload for some sectors of the industry as individual undertakings will not need to be prepared by members of the class covered by the undertaking. It is also intended to reduce the ACCC's workload as there would be a lower number of standard functional separation undertakings submitted for its assessment.

The Bill sets a baseline for functional separation by requiring that a functional separation undertaking include a number of key elements. In particular, the operator will be required to:

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operate separate wholesale and retail business units

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ensure that confidential information is not passed between the retail business unit and wholesale business unit and vice versa; and

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offer the same terms and conditions to its retail business unit and wholesale customers.

It is intended that functional separation undertakings can be tailored for each business subject to the underlying purpose of the three principles above being met. The Bill therefore provides some flexibility in how these key elements are met. The ACCC would assess proposed functional separation undertakings based on the size and scale of each business.

Where operators are subject to a functional separation undertaking approved by the ACCC, all of an operator's superfast fixed-line networks would be subject to the functional separation requirements, regardless of when they were built or further altered or upgraded. That is, for example, the undertaking would supersede grandfathered arrangements. This is intended to promote consistent operation of a carrier's networks, regardless of when they were constructed.

The proposed amendments to Part 8 will not alter NBN Co's statutory prohibition on supplying retail services, or Telstra's obligations to structurally separate.

As the assessment of functional separation undertakings will involve significant administrative and regulatory effort on the part of the ACCC, the Bill allows the ACCC to determine a fee, or a method of ascertaining a fee, for the consideration of functional separation undertakings.

Class exemption from superfast network rules for small start-up networks

The Bill introduces a power for the ACCC to exempt operators with a very small retail customer base from the superfast network rules if it considers that exemption would promote the long-term interests of end-users. The exemption would be limited to operators with fewer than 2,000 retail residential customers on all fixed-line networks. The Bill provides that the statutory exemption could be extended, by regulation, to include operators (or groups) with up to 12,000 retail residential services. The figure of 12,000 is based on the exemption threshold for small networks set out in the ACCC's final access determination for the SBAS.

This threshold will minimise the potential impacts on long-term competition from allowing these operators to be vertically integrated, and the operators will be required to offer a wholesale Layer 2 bitstream service, or other service specified by the ACCC in a legislative instrument, on a non-discriminatory basis.

The proposed exemption provision recognises that the costs to such providers of separation could be burdensome and will facilitate entry by new small players into the market. Once such operators exceed the specified threshold, they would become subject to the new requirements of Part 8 and need to become structurally separated unless functional separation undertakings were in place.

Enforcement

The Bill proposes to change the offence provisions under Part 8 from criminal offences to civil offences. Although criminal penalties can be invoked for breaches of some competition laws, they are usually applied in relation to conduct that is especially egregious (e.g. cartel conduct). The Government therefore considers civil penalties more appropriate in the context of Part 8.

The change would mean that contraventions of the proposed revised superfast network rules, including failure to comply with the wholesale-only rules, failure to comply with a functional separation undertaking, or breaches of other obligations in Part 8 (such as the non-discrimination obligations) will be contraventions of the civil penalty provisions for the purposes of Part 31 of the Tel Act. As such, the maximum penalty for a body corporate is $10 million for each contravention. The level of penalty reflects the importance of the new rules.

The Bill would also confer power on the ACCC to issue formal warnings or infringement notices where it has reasonable grounds to believe that an operator has breached the superfast network rules. This will provide the ACCC with mechanisms to resolve matters without taking court action.

As noted above, the Bill proposes that every functional separation undertaking must contain specified elements ('fundamental provisions') that are critical to the achievement of the public policy and competition policy objectives of undertakings. Fundamental provisions must include, but are not limited to, requirements to maintain separate business units and requirements to protect confidential information. Other fundamental provisions can be proposed by the person who gives the ACCC the undertaking.

Where the person who gives the undertaking has breached a fundamental provision, or has an unsatisfactory compliance record in relation to non-fundamental provisions, the ACCC may revoke the undertaking and the operator will have 12 months to structurally separate the parts of its network that would otherwise have been subject to the superfast network rules had the undertaking (which is to be revoked) not been in force.

The ACCC will also be able to revoke an undertaking for breaches of the non-discrimination obligations.

Finally, the Bill will allow carriers or carriage service providers (CSPs) to apply to the Federal Court to have alleged contraventions of subsections 142C(2), 143(2) and 143A of Part 8 enforced. The Federal Court will have powers to make orders directing a person to comply with the particular subsection, compensate a person or any other order that the Court thinks appropriate. These powers will operate in conjunction with the ACCC's and Minister's existing powers to seek injunctions under Part 30 of the Tel Act.

Merits review

Key ACCC decisions under the proposed amended Part 8 (for example, the decision not to accept an undertaking, or a decision to revoke a functional separation undertaking), will be subject to merits review by the Australian Competition Tribunal (the Tribunal). This reflects the fact that the ACCC will be making decisions that can affect the commercial viability of individual enterprises. Such an approach is consistent with the guidelines published by the Administrative Review Council.

FINANCIAL IMPACT STATEMENT

The proposals in the Bills will require a small increase in resourcing for the ACMA and the ACCC. Separation and SIP measures are expected to be funded from within those agencies' existing budgets. Their activities in relation to the Regional Broadband Scheme are funded through the receipts from the Scheme.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

TELECOMMUNICATIONS LEGISLATION AMENDMENT (COMPETITION AND CONSUMER) BILL 2019

The Telecommunications Legislation Amendment (Competition and Consumer) Bill (the Bill) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Bill

The Bill comprises four main measures:

1.

amendments to the superfast network rules in Parts 7 and 8 of the Telecommunications Act 1997 (Tel Act) to make the default structural separation requirement clearer and more effective as a baseline for industry and create new commercial and competitive opportunities (Schedules 1 and 2 to the Bill);

2.

introduction of a statutory infrastructure provider regime (Schedule 3 to the Bill);

3.

implementation of administration arrangements for the Regional Broadband Scheme, which will fund the net costs of NBN Co Limited's (NBN Co) fixed wireless and satellite networks (Schedule 4 to the Bill); and

4.

amendments to the National Broadband Network Companies Act 2011 (NBN Companies Act) to include a transparency measure on provision of rollout data for publication on the National Map.

Amendments to the superfast network rules

The Bill proposes to repeal Part 7 of the Tel Act and amend Part 8 so that the current wholesale-only obligations in section 143 of the Tel Act will now apply to fixed-line networks that came into existence between 1 January 2011 and the designated commencement date (being the day, which is three months after the Bills, once passed by Parliament, receive the Royal Assent), or to networks that existed before 1 January 2011 and were extended, altered or upgraded between 1 January 2011 and the designated commencement date. New structural separation rules would apply to local access lines that come into existence, or are altered or upgraded, after the designated commencement date. Network providers will be able to operate on a functionally separated basis where approved by the Australian Competition and Consumer Commission (ACCC). Non-discrimination requirements will apply to both structurally separated and functionally separated networks.

Human rights implications

No human rights issues were raised during consultation.

This Bill does not engage any of the applicable rights or freedoms.

Conclusion

This Bill is compatible with human rights as it does not raise any human rights issues.

ABBREVIATIONS

The following abbreviations are used in this explanatory memorandum:

NOTES ON CLAUSES

Clause 1 - Short title

Clause 1 provides that the Bill, when enacted, may be cited as the Telecommunications Legislation Amendment (Competition and Consumer) Act 2019.

Clause 2 - Commencement

Clause 2 provides for the commencement of provisions in the Bill when enacted.

Item 1 of the table at subclause 2(1) provides that clauses 1-4 of the Bill and any other provisions not covered in the table provided at subclause 2(1), would commence on the day on which the Act receives the Royal Assent.

Item 2 of the table provides that Schedule 1 would commence on the day after the Act receives the Royal Assent.

Item 3 of the table provides that Schedule 2 to the Bill would commence the day after the end of the period of 3 months beginning on the day the Act received the Royal Assent.

Item 4 of the table provides that the provisions in Part 1, Division 1 of Schedule 3 to the Bill would commence on the day after the Act receives the Royal Assent.

Item 5 of the table provides that the provisions in Part 1, Division 2 of Schedule 3 to the Bill would commence on 1 July 2020 or a day to be fixed by Proclamation (whichever is earlier). This is intended to provide industry, the Minister and the ACMA with sufficient time to finalise preparation for the SIP regime's operation in advance of its start, while allowing for its earlier commencement by Proclamation if that work is completed sooner.

Item 6 of the table provides that the provisions in Part 2 of Schedule 3 to the Bill would commence immediately after Schedule 3 (Part 1, Division 2) commences.

Item 7 of the table provides that the provisions in Schedules 4 and 5 to the Bill would commence on the day after the Act receives the Royal Assent.

Clause 3 - Schedules

Subclause 3(1) provides that legislation that is specified in a Schedule to the Bill is amended or repealed as set out in the applicable items in that Schedule, and any other item in a Schedule has effect according to its terms. There are five Schedules to this Bill.

Subclause 3(2) provides that the amendment of the CLCs Declaration does not prevent the declaration, as amended or inserted by the Bill, and any other provisions of the declaration from being varied or revoked by the responsible Minister. The amendments to the CLCs Declaration are contained in Schedule 2 to the Bill (see subsection 13(5) of the Legislation Act). Similarly, subclause 3(3) provides that the provisions of the Legislation (Exemptions and Other Matters) Regulation 2015 amended or inserted by the Bill, and any other provisions of that instrument, may be amended or repealed by regulations made under section 62 of the Legislation Act (see subsection 13(5) of the Legislation Act).

Schedule 2 - Local access lines

Schedule 2 to the Bill contains proposed amendments to the CLCs Declaration (Items 1 to 7 inclusive), the CCA (Items 11 to 14 inclusive), the Legislation (Exemptions and Other Matters) Regulation 2015 (Item 15) and the Tel Act (Items 17 to 87 inclusive). Due to amendments in drafting, there is no Item 9, 10 or 16.

Consistent with the Government's decision to grandfather existing arrangements, the amendments to the CLCs Declaration provide for the Minister to effectively preserve the operation of the declaration for certain networks. The CLCs Declaration applies to certain carriers in respect of specific local access lines that are not subject to the current Part 8 of the Tel Act. The Minister would have the power to make the licence conditions set out in the declaration to continue to apply to lines forming part of a network:

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that came into existence before the designated commencement date; and

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that has not been extended, altered or upgraded on, or after, the designated commencement date; and

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where no functional separation undertaking given by the carrier is in force (in accordance with Part 8 of the Tel Act as amended by this Bill).

The amendments to the CCA would ensure that the ACCC's powers to make record-keeping rules extend to arrangements under Part 8 of the Tel Act.

The amendment to the Legislation (Exemptions and Other Matters) Regulation 2015 would exempt the CLCs Declaration from automatic sunsetting (though it would not prevent the Minister from revoking or varying the CLCs Declaration in the future).

The amendments to the Tel Act would amend Part 8 to give effect to new structural separation and non-discrimination obligations and establish the framework for functional separation undertakings.

Legislation (Exemptions and Other Matters) Regulation 2015

Item 15 - Section 12 (table Item 61, column headed "Legislative instrument", after paragraph (a))

Item 15 adds the CLCs Declaration to the table in section 12 of the Legislation (Exemption and Other Matters) Regulation 2015 setting out legislative instruments that are exempt from rules relating to sunsetting in the Legislation Act. This means that without further amendments, the CLCs Declaration will operate indefinitely.