Australian Telecommunications Policy and Regulation

1
Australian Telecommunications Policy and
Regulation

• Rosalind Eason
• Senior National Research Officer
• CEPU

2
Key dates

• 1991 Fixed network duopoly and three mobile
  licences
• 1997 Full liberalisation
• 1997 Sale of first tranche of Telstra
• 1999 Sale of second tranche

3
Regulatory policy duopoly phase

• Roll-out obligations on second carrier (Optus)
• Regulator (AUSTEL) has explicitly pro-competitive
  charter
• Interconnection prices (for second carrier) set
  at favourable levels
• Preselection introduced (cf UK)
• Balloting for customers
• Asymmetric (dominant carrier) regulation

4
Regulatory policy full liberalisation

• No distinction between infrastructure providers
  and others in relation to access rights
• No roll-out obligations
• No line of business restrictions
• Technological neutrality
• Most dominant carrier provisions removed
• Move towards general competition law
• Encouragement of self-regulation

5
Regulatory Agencies

• Australian Communications Authority
• Technical regulation
• Carrier licensing
• Universal Service Obligation costings and
  administration
• Consumer safeguards monitoring
• Quality of service monitoring
• Australian Competition and Consumer Commission
• Access regulation
• Anti-competitive conduct

6
Regulatory Agencies

• Department of Communications, Information
  Technology and the Arts (DoCITA)
• Overall policy direction
• Legislation
• Retail price controls (through the Minister)
• Current legislation also gives the Minister wide
  discretion in relation to a number of central
  aspects of policy e.g.access pricing, universal
  service costings.

7
More regulators ..

• Telecommunications Industry Ombudsman
• Receives and investigates individual complaints
• May refer systemic problems to ACA
• Maintains a register of service providers

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and self-regulators

• Australian Communications Industry Forum (ACIF)
• Voluntary association for industry
  self-regulation
• Prepares voluntary technical and consumer codes.
  These may be referred to the ACA for adoption as
  mandatory standards
• Participation in international fora (APECTel,
  ITU)

9
How it works access

• For third party access to services to be
  mandatory, they must first be declared by the
  ACCC
• Criteria
• Long-term interests of end-users
• Promotion of competition
• Any-to-any connectivity
• Efficient use of and investment in infrastructure

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Access (contd)

• Once service is declared providers must offer
  third party access
• Terms and conditions can be negotiated
  commercially
• If no agreement, ACCC can determine terms and
  conditions (including prices)
• Access providers can also submit undertakings
  on terms and conditions to ACCC
• ACCC approval necessary for these to apply

11
Access

• 21 carriage services have been declared since
  1997
• 4 declarations have subsequently been revoked
• Most of the services declared relate to carriage
  over the fixed Customer Access Network e.g. PSTN
  originating and terminating access, conditioned
  and unconditioned local loop, line sharing.

12
Some problems

• Inconsistencies in regulatory treatment of
  services, especially in relation to local loop
  e.g.
• PSTN originating and terminating access prices
  based on cost plus but local call wholesale set
  at retail minus
• Unbundled Local Loop (ULLS) service charge
  includes contribution to line costs but ACCC
  proposes that Line Sharing Service (for ADSL)
  should not.

13
How it works competition policy

• Telecommunications-specific competition
  provisions in Trade Practices Act 1974
• Effect or likely effect test rather than purpose
  test
• ACCC may issue competition notice
• Onus of proof on carrier
• Penalties Aus10m 1 m per day.

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Problems

• Lack of procedural fairness
• ACCC tends to rely on Competition Notices as
  surrogate for access declaration process e.g.
  internet peering, ADSL wholesale pricing
• Effects test potentially constrains legitimate
  competitive behaviour

15
Problems (contd)

• Competition notice allows ACCC to exert downward
  pressure on wholesale prices without going
  through costing process
• Assumption that margins (how big?) must be
  allowed
• Implications for efficiency?
• Implications for investment?

16
Case study ADSL wholesale pricing

• February 2004Telstra restructures retail ADSL
  prices. Industry complains of price squeeze
• March 2004 ACCC issues competition notice
• August 2004 ACCC rejects Telstras LSS
  undertaking
• November 2004Primus announces new low-price,
  high speed data service
• Jan 2005 Telstra offers new wholesale price
  schedule. Primus notifies dispute over Telstra
  LSS pricing.
• Competition notice still not withdrawn
• Potential penalties approaching Aus450m

17
ADSL pricing
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How it works retail price regulation

• Responsibility for retail price controls rests
  with government
• Still controls on bundles of core services
• Current controls (2002-05)
• First basket local, long distance and
  international CPI-4.5
• Second basket line rentals CPI4
• Third basket connections
• Untimed local call 22c

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Problems

• Responsibility for retail and wholesale (access)
  regulation split
• Encourages pricing inconsistencies
• (e.g. treatment of local call resale)
• Likely to be impediment to large scale price
  restructuring needed as industry moves to
  IP-based pricing structures.

20
How it works Universal Service Obligation (USO)

• Guarantees all Australians have reasonable access
  to
• the standard service (voice telephony)
• equivalent for hearing impaired
• payphones
• Minimalist approach but provision for enlargement
• Separate digital data service obligation (DDSO)
  guarantees two way data services of at least
  64kb/s (i.e. ISDN)

21
Costing and funding

• Costs estimated on basis of avoidable costs minus
  revenue foregone.
• Scheme based on geographical areas rather than
  individual services
• Restricted to the geographic margin
• Funded by industry in proportion to carrier
  revenues

22
USO delivery

• Legislation allows for competitive provision of
  the USO
• In practice, competitive tendering for USO
  delivery has been a failure
• Telstra continues to be the national carrier of
  last resort and provider of the DDSO.

23
Problems

• Ongoing disputes over USO costs
• Industry will not accept any cost increases.
• Present costing methodology in fact understates
  real world costs ..
• .. which is a problem whether USO is funded by
  industry or by government
• .. especially as costs will rise as PSTN traffic
  declines.

24
Other consumer protections

• Range of new consumer protection measures have
  accompanied Telstra privatisation
• Customer Service Guarantee establishes
  standards for fault repair and installation times
• Network Reliability Framework monitors network
  performance at local area level. ACA has powers
  to require remedial action.

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Problems

• Customer Service Guarantee pressures can lead to
  short-cuts in fault restoration practices
• Penalties not severe enough to off-set
  cost-cutting pressures on carriers
• Not effective substitute for positive incentives
  for investment

26
Telstra capital expenditure
Source Telstra annual reports
27
So many problems

• Can current regulatory arrangements cope with
  emerging challenges?
• Need to stimulate investment in fibre
• Need to maintain PSTN despite declining traffic
  volumes
• Mobile substitution
• Unbundled Local Loop
• VoIP
• Need to protect and enlarge universal service

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CEPU position

• Competition policy should be re-examined in
  light of emerging investment needs and social
  policy objectives
• Telecommmunications-specific provisions of Trade
  Practices Act 1974 to be removed or
  substantially modified
• Access pricing reform
• Greater coordination by government of overall
  policy direction and regulatory activity.