CONNECT AUSTRALIA

A Plan to Future Proof Telecommunications

17 August 2005

The Government today announced a comprehensive communications package called Connect Australia to give Australians access to first-class telecommunications services with a $1.1 billion roll-out of broadband, new regional clever networks, mobile services and Indigenous telecommunications.

In addition, a $2 billion dedicated Communications Fund will be established and earnings from the fund will be available to provide new communications services for rural Australia. And the Government will provide a more robust regulatory framework for the telecommunications industry, while maintaining strong safeguards to protect consumers.

The Government plans to:

• provide $1.1 billion of targeted Government funding to address identified gaps in current services ;
• provide a $2 billion C ommunications Fund in capital, which will be invested to deliver an income stream to fund new technologies in regional areas into the future;
• strengthen telecommunications competition regulation; and
• tighten the consumer safeguards.

The immediate up-front $1.1 billion funding includes:

• $878 million for Broadband Connect to provide all Australians with affordable broadband services;
• $113 million forClever Networks to rollout innovative broadband networks for new applications to improve the delivery of health, education and other essential services;
• $30 million forMobile Connect to extend terrestrial mobile coverage and continue satellite handset subsidies for more remote areas; and
• $90 million forBacking Indigenous Ability to deliver a comprehensive package addressing phones, Internet and videoconferencing in remote Indigenous communities and improved Indigenous radio and television.

On passage of the Telstra sale legislation, the Government will establish a range of future proofing measures.

The Government will introduce legislation that requires regular reviews of the adequacy of regional telecommunications services. The Communications Fund of $2 billion capital will be tied to the legislated, regular independent reviews of rural, regional and remote telecommunications services.

Recognising that promoting competition is the best means of providing greater choice and affordable services for consumers, the Government has agreed to a series of reforms to telecommunications competition regulation.

As the centrepiece of the competition reforms Government has agreed to introduce an Australian model of operational separation of Telstra’s internalstructure. Operational separation is designed to ensure that Telstra, as the dominant carrier, treats all other telecommunications companies on a fair basis.

The model for operational separation was developed with expert advice in consultation with Telstra and the Australian Competition and Consumer Commission (ACCC). Compliance with operational separation will be enforceable by the ACCC and the Minister, and will be imposed through a licence condition.

The package also includes tougher consumer protection measures and other regulatory reforms to promote competition in the telecommunications market. A public information campaign will be undertaken to inform consumers of their telecommunications rights and legislated safeguards.

CONNECT AUSTRALIA

A Plan to Future Proof Telecommunications

Telstra Sale

The Government has agreed to a broad, integrated package of measures designed to further encourage telecommunications competition, tighten legislated consumer safeguards and provide major targeted funding assistance now and into the future.

The Government has agreed to introduce legislation to enable the further sale of its interest in Telstra, but a final decision on the timing of any sale has not yet been made.

Connect Australia

To address well known gaps in the provision of mobile and broadband services the Government has committed to the biggest regional telecommunications assistance package in Australia’s history – the $1.1 billion Connect Australia package.

Connect Australia has four components which will rollout affordable broadband connections to people living in regional, rural and remote areas, extend mobile phone coverage, build new regional communications networks and set up vital telecommunications services for remote Indigenous communities.

The $878 million Broadband Connect program will give all Australians access to affordable broadband and build on the success of the Higher Bandwidth Incentive Scheme (HiBIS). The funding will be delivered on a competitively and technologically neutral basis. All broadband service providers will have access to the subsidies. This program will also be used to support the rollout of new wireless, satellite, fibre and high speed copper broadband infrastructure.

The $113 million Clever Networks program will be strategically invested in new broadband infrastructure, supplemented by at least matching funding from other governments or private investment. These networks will be built to improve the delivery of essential services, such as health and education, in regional areas.

The construction of additional infrastructure under Clever Networks will extend the reach of competitive broadband networks to consumers more generally and will be able to be integrated with the Broadband Connect program.

Recognising that gaps in mobile phone coverage remain, and also that some parts of Australia will never be covered by terrestrial mobile networks, $30 million will be provided for Mobile Connect to expand terrestrial mobile coverage and extend the satellite phone handset subsidies scheme.

Remote indigenous communities are among the most disadvantaged groups when it comes to access to modern communications services. The $90 million Backing Indigenous Ability package will deliver community phones, Internet and videoconferencing in remote Indigenous communities, and improved Indigenous radio and television services. The elements of the $1.1 billion Connect Australia package will commence following the successful passage of legislation giving Government the authority to sell Telstra.

Future Proofing

Looking to the future the Government will introduce legislation that requires regular reviews of the adequacy of regional telecommunications services. The first review will occur three years after the sale of Telstra.

Legislation will guarantee that these reviews are supported by a $2 billion Communications Fund, the earnings from which will deliver a perpetual source of funding to use in response to reviews.

The $2 billion of capital in the Communications Fund will be invested to deliver an income stream to fund regional communications programs. All funds will be allocated on a competitive basis and will only be directed at areas of clear market failure.

Competition Reform Measures

A series of reforms to telecommunications competition regulation have been agreed following an extensive review of the regulatory arrangements. These reforms strike a balance between the need for regulation which promotes competitive services to consumers and investment in new infrastructure on the one hand and allowing Telstra the scope to meet changing market conditions and demand for services on the other.

The centrepiece of the competition reforms will be 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. The model for operational separation was developed on expert advice in consultation with Telstra and the ACCC. The details of price equivalence arrangements under this model will be determined though a working group under the Minister’s direction.

Compliance with operational separation will be enforceable by the ACCC and the Minister, and will be imposed through a licence condition. Other changes to competition regulation will provide companies with greater certainty when making investments in new networks and will speed up decision making by the ACCC.

Building on the existing provisions that allow any company to obtain an exemption or agree regulatory conditions with the ACCC prior to making investments, the government will legislate to require the ACCC to take account of the costs and risks of new investment when making decisions under the telecommunications access regime.

To speed up decision making and provide greater certainty to the industry the government will allocate significant additional resources to the ACCC’s telecommunications group and require it to publish procedural rules on how it will operate under the access regime.

Consumer Measures

To improve the safeguards for the provision of basic phone services, the Government has decided to strengthen the Customer Service Guarantee by limiting the situations in which companies can claim exemptions using Mass Service Disruption Notices.

To better protect consumers the Australian Communications and Media Authority (ACMA) will get additional enforcement powers allowing it to accept enforceable undertakings to address breaches by carriers of their obligations. One of the most important components of the package of measures agreed by Government is the new Telstra retail price controls to commence from 1 January 2006.

The price controls will: maintain the 22c cap on untimed local calls; e nsure parity in the local call prices offered to regional and metropolitan consumers; cap increases in the charges for connecting phones to inflation; e nsure that, on average, a basket of Telstra’s line rentals, local calls, STD, international and fixed to mobile calls, will not increase in price; p rotect consumers from major line rental increases by only allowing basic line rental products to increase to match inflation; and r equire Telstra to have a package of services targeted to low income consumers.

The new price controls will no longer cover the services provided to large businesses.  This ensures that the benefits of call price reductions are passed through to consumers and small businesses.

The new price controls will maintain a cap on local calls, prevent further large increases in line rentals and encourage ongoing decreases in call charges. The price controls will also cap prices charged for new phone connections. A package of measures to protect low income consumers will be maintained.

Recognising that the continuing evolution of competition may place pressure on Telstra’s national pricing structures, the Government will be looking further into the interaction between current approaches to wholesale and retail pricing regulation in consultation with Telstra and the ACCC.

Legislation and Timing

We will be moving to introduce a package of legislation to give effect to the regulatory reforms, the regular reviews and authority for the further sale of Telstra at the earliest opportunity. Passage of this legislation is critical to securing immediate ongoing funding for regional telecommunications and to lock in future funding arrangements to operate following any actual sale of Telstra.