Government Response to Productivity Commission Report on the Review of Telecommunications Competition Regulation

The Australian telecommunications industry is a key sector of the economy and a major input to all other sectors.  It is important that telecommunications competition regulation provides timely, efficient and transparent outcomes.  The Government’s policy is to introduce measures to deliver these benefits and provide a boost to investment and competition during a period when external factors, such as access to capital, are providing new challenges for the telecommunications industry.

In 1997, the Government introduced open competition into the telecommunications industry.  The telecommunications regulatory regime that was introduced in 1997 consists of the Telecommunications Act 1997 and the telecommunications specific competition provisions in the Trade Practices Act 1974 (the TPA).  The broad objectives of the telecommunications regulatory regime (the regime) are to promote the long-term interests of telecommunications users and to encourage further efficiency and competition in the Australian telecommunications industry.  Since 1997, the Government has made a number of amendments to the regime to ensure that consumers continue to enjoy lower prices and improved services from a competitive telecommunications industry.

The telecommunications competition provisions in the TPA are contained in Part XIB (anti-competitive conduct) and Part XIC (access regime).  The 1997 legislation provided for a review of the anti-competitive conduct provisions.  The Government broadened the scope of this review to cover other aspects of the regime including the telecommunications access regime and associated provisions of the Telecommunications Act 1997, to provide for a comprehensive assessment.  As requested by the Government, the Productivity Commission (the Commission) has reviewed the regime.  The Commission supports the retention of telecommunications competition regulation and has made fifty-eight recommendations to improve its operation.  The report was released on 21 September 2001 and is available on the Commission’s web site at http://www.pc.gov.au.

The Commission made a number of recommendations that the Government is pleased to accept.  The recommendations can generally be characterised as moving towards light touch regulation.  However, industry developments that have largely emerged since the report was finalised indicate that, to some extent, the industry is undergoing consolidation and that effective competition in the sector is not yet well entrenched.  The Government is therefore not prepared to accept all of the Commission’s recommendations at this time.

The Government agrees that the telecommunications-specific aspects of the regime need to be retained, particularly given recent market consolidation.  The Government also agrees that scope exists for improvements to the operation of the regime.  This includes making changes that facilitate efficient investment in infrastructure, provide greater certainty and more timely access to interconnect services, improve the operation of the anti-competitive conduct provisions and provide a more transparent regulatory environment.

The Government has introduced a package of measures in the Telecommunications Competition Act 2002, consistent with the direction of existing regulation, that deal with current concerns within the industry.  Key measures in the Act include:

• facilitating further investment in the telecommunications infrastructure required for broadband and other key communication services, by enabling potential investors to obtain up-front certainty, through undertakings to the Australian Competition and Consumer Commission (the ACCC) about access prices and terms and conditions that will apply to their future investments;
• providing greater certainty and more timely access for access seekers through strengthening measures with wide application, such as undertakings, removing merits review of ACCC arbitrations, requiring the ACCC to produce model terms and conditions for ‘core’ telecommunications service, encouraging voluntary undertakings and ensuring the effective operation of the standard access obligations;
• recognising the industry-wide benefits of undertakings by allowing the ACCC to defer consideration of an access dispute in order to consider an access undertaking received by the ACCC that relates to the matter that is subject to the access dispute;
• improving the operation of the anti-competitive conduct regime by enabling the ACCC to issue advisory notices before a competition notice is issued and requiring the ACCC to consult with affected parties before issuing a competition notice; and
• a mechanism to require the preparation of regulatory accounts providing greater transparency of Telstra’s wholesale and retail operations, particularly in relation to the core interconnection services provided over Telstra’s network.

The above measures, which have been developed in close consultation with key stakeholders, including carriers, service providers and representatives of telecommunications users, following the release of the Commission’s report are broadly supported by participants in the telecommunications industry. The Government is confident that this package will sustain the development of competition within the Australian telecommunications industry.

Against this background, the Government’s final response to the Commission’s recommendations is set out below.