Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Regulation Impact Statement Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003) Authorised by the Minister for Communications, Information Technology and the Arts, September 2003 _____________________________________________________________________ Introduction On 16 August 2002, the Minister for Communications, Information Technology and the Arts announced the establishment of the independent Regional Telecommunications Inquiry (RTI). The RTI was established to report on whether telecommunications services in regional, rural and remote Australia are adequate, as well as the arrangements that should be put in place to ensure that all Australians continue to share in the benefits of further service improvements and developments in technology. The RTI report was released in November 2002. On 25 June 2003, the Government announced its comprehensive response to the 39 recommendations of the RTI. As part of this response, and to ensure the adequacy of current services, the Government accepted Recommendation 4.1 of the RTI that: The benefits provided by the Internet Assistance Program for users of dial-up Internet services should be guaranteed into the future. A licence condition should be placed on Telstra that would require all Australians to be guaranteed dial-up Internet speeds, or equivalent throughput, over the Telstra fixed network of at least 19.2kbps. As part of the licence condition Telstra should be required to report on its compliance with the requirement, and more generally on the data speed performance of its regional network, which should be maintained at least at current levels. The RTI did not document any assessment of different regulatory options to address the identified problems, nor any analysis of the costs and benefits of these options. This Regulation Impact Statement sets out the Government’s analysis of the options and their costs and benefits in support of its decision to accept this recommendation and to implement the licence condition proposed by the RTI. Problem All Australians with a fixed telephone line connection can access the Internet via an Internet Service Provider (ISP) and using a modem. According to the most recent data available to the RTI, there were approximately 4.2 million people in Australia who have access to the Internet via a dial-up service.1 Of these, 3.7 million are household services, and 505 000 are business services 2. Latest data show these numbers have increased. 1 Australian Bureau of Statistics, Internet Activity - 8153.0, March 2002, p.9 RTI, Connecting Regional Australia Report of the Regional Telecommunications Inquiry, November 2002. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 1 2 Dial-up Internet access is provided using the public switched telephone network (PSTN) which, for historical reasons, is primarily operated by Telstra. Dial-up customers may be the customers of Telstra or they may be the customers of competitors who are resellers of Telstra’s PSTN service or, in some circumstances, operate their own PSTN facilities. The speed at which Australians can access the Internet via dial-up has been a long-standing issue. With current technology the minimum dial-up speed that can be achieved is 56 kbps. In practice, however, a range of factors mean that actual dial-up speeds vary considerably across Telstra’s public switched telephone network (PSTN). These include: the quality and configuration of customer equipment (primarily PC and modem), and the connection by the customer into the Telstra network; the quality (including length) of the Telstra link from the customer to the exchange (and from there to the ISP); the quality and adequacy of the ISP equipment and links to the Internet; and the quality and adequacy of links within the Internet to the requested server (website), and the quality and adequacy of that server. In 2000 the Telecommunications Service Inquiry (TSI) examined the adequacy of telecommunications services levels in Australia. The TSI expressed concern that a small but significant minority of dial-up Internet users experienced slow dial-up speeds. In this context, the TSI recommended the Government take measures to provide a minimum dial-up throughput. The TSI concluded ‘data speeds of between 14.4kbps and 28.8kbps provide a reasonable service for the current usage of most residential customers’.3 As a result of the TSI report, the Government established the Internet Assistance Program (IAP). The IAP applies in all of Australia except Telstra’s so-called Outer Extended Zones. The IAP is aimed at ensuring Internet users can achieve an effective dial-up Internet throughput of 19.2kbps or equivalent throughput over Telstra’s fixed network.4 Assistance is provided to dial-up users on request. The IAP operates on an impartial and competitively neutral basis; that is, irrespective of whether customers belong to Telstra or its competitors. 19.2 kbps was selected as the benchmark for throughput as it allows effective basic email use and web-browsing.5 At the same time, this level of performance could be provided at a reasonable cost to Telstra and the wider community. The IAP is a three-year joint initiative between the Government and Telstra (formalised through a deed of agreement), ending in June 2004. Separate arrangements are in place to address the needs of users in Telstra’s Outer Extended Zones. The Extended Zones Tender offered $150 million to provide 3 TSI, Connecting Australia, Report of the Telecommunications Service Inquiry, September 2000, p.100 The TSI noted that 14.4kbps was a reasonable speed for email and web-browsing. In establishing the Internet Assistance Program, the Government, with the agreement of Telstra, determined that 19.2kbps was an appropriate data speed. 5 Consumers wanting faster Internet access have access to a 64 kbps ISDN service or comparable one-way satellite services under the DDSO upon request and payment of applicable charges. Access to faster services is available on a commercial basis, with the Higher Bandwidth Incentive Scheme (HBIS) to provide assistance in some circumstances. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 2 4 untimed local calls in remote Australia, with the successful tenderer becoming the exclusive Universal Service Provider for three years. The tender was won by Telstra. Under the Extended Zones Agreement, Telstra is required to ensure a line speed for Internet access of 14.4kbps is available. This obligation is in place until 2011. Telstra’s Outer Extended Zones comprise the most remote parts of Australia, covering about 28,000 consumers. The RTI found that the IAP and EZA had led to welcome improvements in dial-up Internet access across Australia. However, it concluded that there were still people who had dial-up data throughputs below 19.2 kbps, and that future subscribers could have a similar problem. Information provided to the RTI showed that 2.6 per cent of users who accessed Telstra’s BigPond Internet server in June 2002 achieved speeds under 19.2 kbps. With a view to ensure all people in Australia have access to a reasonable minimum dial-up Internet experience on an ongoing basis, in Recommendation 4.1 the RTI therefore proposed that a minimum Internet throughput of at least 19.2 kbps be provided for into the future. In making Recommendation 4.1, the RTI report noted that: the need for the IAP will continue beyond the current three year term of the agreement with the Government, and that it needs to be extended in both time frame and scope. The following issues need to be addressed in revised arrangements: once the upgrade to services in Extended Zones is complete, dial-up users in those areas need to be brought under the scope of the IAP; and consumers need to be reassured that they will be guaranteed a data speed of 19.2kbps (or equivalent throughput), over the Telstra fixed network, rather than provision of that level of service on a ‘best endeavours’ basis.6 Objectives In light of the findings of the RTI and its recommendation 4.1, the Government’s policy objective is to put in place arrangements that will provide dial-up Internet users across Australia with a uniform level dial-up Internet access equivalent to at least 19.2 kbps. Implicit in the RTI’s recommendation is that a minimum equivalent throughput be locked in through a licence condition is the need for certainty as to the durability of this outcome. Subsidiary objectives in pursuing this key objective are: the overall cost of providing the solution; the impact on industry investment, commercial operation and competition; the administrative burden; the ease and timeliness of implementation. Options for achieving these objectives are assessed below in terms of their effectiveness in achieving these objectives. 6 Regional Telecommunications Inquiry, Connecting Regional Australia the report of the Regional Telecommunications Inquiry, November 2002. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 3 Stakeholders The key stakeholders affected by the issues discussed in this RIS, and whose interests it considers are: residential and business consumers of telecommunications services; particularly those in regional, rural and remote Australia who the IAP and EZA currently target, namely the small number of customers with dial-up access of less than 19.2 kbps; and consumers generally, who will benefit from improved communications with direct beneficiaries, and who ultimately fund telecommunications services through their payments; Telstra and its shareholders, including the Commonwealth – in terms of additional costs, potential competitive disadvantage, and possible loss in shareholder value; other telecommunications service providers, especially Internet Service Providers (ISPs) – as both wholesale customers and retail competitors of Telstra, and contributors to the ACA’s costs – and their shareholders; and the Commonwealth and the ACA – as the policy-maker, as the regulator required to monitor the industry and administer regulatory requirements regarding the guaranteed minimum, and a potential source of funding. Description of Options Four options are considered realistic and meriting detailed consideration. Option 1 – Continuation of the status quo (allow IAP and EZA to run their course) Option 1 would continue the existing arrangements whereby minimum Internet throughputs are guaranteed the current IAP and EZA. The IAP would continue to provide assistance to users to achieve a minimum throughput of at least 19.2 kbps, until its expiry on 30 June 2004. After this time, the provision of IAP-like services – such as the self-help website, phone service and technical support service – would be at the discretion of Telstra, which may well choose to discontinue the services. Services that had been upgraded under the IAP would likely continue to operate at 19.2 kbps, however the upgrade of further services to 19.2 kbps would not be guaranteed. As the IAP does not apply to customers covered in the Outer Extended Zones, users in these areas would continue to have a minimum line speed of at least 14.4 kbps, until the expiry of the EZA in 2011. As with the IAP, Telstra would not be required to provide a minimum line speed once the EZA expires. Once both the IAP and EZA expire, data speeds would depend on available commercial solutions. Option 2 – Introduce a regulatory requirement on Telstra to guarantee a 19.2 kbps minimum dial-up speed across its network nationally, on request Option 2 would entail a regulatory requirement on Telstra to guarantee the provision of a dial-up Internet throughput of at least 19.2 kbps, to all Australians on request. ‘On request’ means that customers who cannot achieve an Internet throughput of at least 19.2 __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 4 kbps would request Telstra to provide it. As far as practicable, the requirement would reflect the obligations in the existing IAP Deed of Agreement between the Commonwealth and Telstra. However, these obligations would be extended to include customers in the Outer Extended Zones, thus establishing a uniform, national requirement. Telstra would be required to promote its obligation and report to the ACA on its compliance with it. A variation of Option 2 would be to require all carriers operating networks providing telephone services to provide an Internet throughput of at least 19.2 kbps upon request. This variation is not considered appropriate because such networks, unlike Telstra’s, are not extensive and there is no evidence that dial-up data speeds on these networks are problematic. Option 3 - Introduce a regulatory requirement on Telstra to guarantee a 19.2 kbps minimum dial-up speed as a default standard across its network Option 3 would entail a regulatory requirement on Telstra as per Option 2. However, rather than the 19.2 kbps being guaranteed to customers ‘on request’, Option 3 would require Telstra to upgrade all lines on its network to provide the guaranteed minimum dial-up Internet speed as a matter of course (ie. as a default). This would avoid the need for customers to request action on Telstra’s part to provide the minimum throughput as it would be readily available as a matter of course across the network once the required upgrades have occurred. Telstra would be required to promote its obligation and report to the ACA on its compliance with it. A variation of Option 3 would be to require all carriers operating networks providing telephone services to provide an Internet throughput of at least 19.2 kbps as a default. Again, this option is not considered appropriate because such networks, unlike Telstra’s, are not extensive and there is no evidence that dial-up data speeds on these networks are problematic. Option 4 – Conduct a tender (or negotiations) for the commercial delivery of a 19.2 kbps minimum throughput, nationally, on request or as a default Option 4 would entail a competitive tender for the supply on a commercial basis of a 19.2 kbps minimum equivalent throughput. Delivery would cover all of Australia, including the Outer Extended Zones. Provision could be on an ‘on request basis’ or on the basis of a uniform upgrade. Given practicalities of the delivery of the solution, it may be a competitive tender would not be practical (see below). In this context, commercial negotiation may be necessary with Telstra. A variation of Option 4 would be the establishment of commercial arrangements with all carriers operating networks providing telephone services to provide an Internet throughput of at least 19.2 kbps on request or as a default. Again, this option is not considered appropriate because such networks, unlike Telstra’s, are not extensive and there is no evidence that dial-up data speeds on these networks are problematic. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 5 Reliance on other assistance schemes Another option would be to take no action to guarantee a minimum dial-up throughput and rely on customers obtaining faster Internet access under the DDSO or the Higher Bandwidth Incentive Scheme. This approach would require customers to incur additional expense and is not considered consistent with the objective of providing a minimum dial-up throughput. Impact analysis An assessment of the effectiveness of each option and an analysis of its impact on key stakeholders follows. Option 1 – Continuation of the status quo (allow IAP and EZA to run their course); customer pays thereafter Consumers: Option 1 would continue to guarantee the majority of dial-up customer access to an Internet throughput of at least 19.2 kbps until the end of the IAP Deed on 30 June 2004. For those who have achieved that minimum or a higher throughput by that date, they are likely to have ongoing access to that speed, though that would not necessarily be guaranteed. (While unlikely, Telstra would be free to undertake actions which could reduce Internet throughput below the current 19.2 kbps minimum.) Similarly, customers in the Outer Extended Zones would continue to have dial-up access of at least 14.2 kbps until the termination of the Extended Zones Agreement in 2011. They would likely have ongoing access beyond that date to a 14.4 kbps minimum throughput as the EZA is requiring the network generally to support that outcome. Under Option 1 the OEZ customers would not achieve any improvement in guaranteed minimum Internet throughput. Option 1 would not involve any additional costs for consumers in the short term. Following cessation of the relevant contracts however, they may find they need to meet the cost of measures to achieve a minimum throughput of 19.2 kbps, or purchase an alternative higher speed service. Telstra and its shareholders, including the Commonwealth as majority shareholder: Option 1 would be cost neutral to Telstra and its shareholders as the current IAP and EZA have already been entered into by Telstra of its own volition and on a commercial basis. In the case of the IAP, Telstra is receiving $10 million from the Commonwealth to 30 June 2004, and committed to spending up to $38 million itself. In the case of the EZA, Telstra is receiving $150 million from the Commonwealth. As Option 1 does not involve any further regulation of Telstra it would be positive for Telstra and its shareholders. Other telecommunications service providers, content providers and their shareholders: By definition Option 1 would not impact on competitors as it is the status quo. The IAP has been designed and is being administered in a way that is competitively neutral. (The __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 6 IAP is available to competitors’ customers serviced used Telstra’s underlying network.) Upon termination of the IAP, Telstra’s competitors could loss the benefits of the IAP, or find themselves in a situation where they must meet the cost of providing any upgrade. To the extent the contracts improve users’ ability to use the Internet, the delivery of content is improved, potentially improving content providers’ businesses. Licence charges would be unaffected, as the ACA would not face additional costs. Commonwealth and ACA: The Commonwealth would achieve its objective of guaranteeing a minimum Internet throughput for a limited period, however a uniform minimum service level across the country would not be assured. The cost to the Commonwealth would remain at is current levels. There would be no additional cost imposts on the ACA. (The ACA currently monitors compliance with the EZA. Telstra’s compliance with the IAP is monitored by the IAP Advisory Panel.) As a significant provider of online services, the Commonwealth would benefit from improved data speeds, to the extent they eventuate. Summary: Option 1 would benefit consumers by guaranteeing the delivery, upon request, of an Internet throughput of at least 19.2 kbps in most areas and, by default, of 14.4 kbps in the Outer Extended Zones, but only for a specified period. There would be no ongoing safeguard. Depending on industry initiatives, beyond this date customers may need to fund their own solutions, but with the advantage of the Higher Bandwidth Incentive Scheme (HBIS). Options 1 would not involve additional costs for Telstra, competitors or the Commonwealth. There would be no significant competitive impact on competitors. There would be no financial impact for shareholders. Option 2 : Telstra to provide 19.2 kbps minimum throughput on request nationally Consumers: Option 2 would guarantee dial-up customers using Telstra’s network, either directly or indirectly, with access to an Internet throughput of at least 19.2 kbps when they requested it. As the obligation would apply nationally it would increase the minimum throughput available to customers in the Outer Extended Zones by 4.8 kbps from 14.4 kbps to 19.2 kbps. A regulatory requirement would provide a high level of certainty for consumers and could be implemented quickly if done by a licence condition. The requirement would provide a guarantee into the future. Option 2 would not involve any additional direct costs for consumers seeking a minimum equivalent throughput. To the extent Telstra incurs additional costs in meeting the obligation, these might be passed on to some extent to consumers, through its wholesale and retail prices. Telstra’s scope to do so, however, would be subject to ACCC scrutiny in the case of wholesale charges and price controls in the case of retail prices. Telstra and its shareholders, including the Commonwealth as majority shareholder: Option 2 would mean that, from the date the obligation commences, Telstra would incur costs in the Outer Extended Zones that it would not otherwise incur. Similarly, Telstra will be likely to incur costs after 30 June 2004 elsewhere in Australia that it would not otherwise incur. The level of these costs will be determined by demand for upgrades under the obligation, which in turn will depend on computer usage and demand for dial-up Internet access. The other key factor will be the cost of solutions, these could range from tens of dollars where issues can be addressed online or __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 7 over-the-phone, to several thousands of dollars where field work or alternative solutions are required. On the basis that Telstra entered into the IAP on the assumption that it may need to upgrade all services needing an upgrade and committed to expending $38 million, $38 million can be assumed to be a reasonable cost of the obligation as it pertains to Australia outside the Outer Extended Zones. As Telstra expenditure under the first three years of the IAP has been significantly less than expected, it can be argued that Telstra still has available to it funding for this purpose. In the case of the Outer Extended Zones, Option 2 will involve additional expenditure Telstra would not otherwise have incurred because the infrastructure it is deploying under the EZA may not always readily provide a throughput of at least 19.2 kbps. In this area more use may need to be made of more expensive satellite solutions. (As well as equipment and installation costs, satellite solutions involve additional ongoing usage costs because of the need to purchase satellite capacity.) If it is assumed that 5% of the 40,000 OEZ premises require an upgrade at a capital cost of $5,000 (a reasonable allowance for a satellite solution), a total cost of $10 million would be involved. An important factor to bear in mind is that because upgrades are only provided upon request, costs are not incurred providing upgrades where they are not wanted. Consideration also needs to be given to the extent to which customers may seek to take advantage of the Higher Bandwidth Incentive Scheme (HBIS) to obtain subsidies to access faster Internet services, thereby by-passing upgrades of their dial-up access and reducing the cost to Telstra. As the IAP is in place, Telstra would not be expected to incur significant implementation costs. Administration, promotional and reporting costs incurred under the current arrangements would continue but these are relatively small. In the overall context of Telstra’s operations, the additional costs of Option 2 would be small and are unlikely to have a discernible impact on shareholder value. Other telecommunications service providers, content providers and their shareholders: Option 2 would be expected to be beneficial for overall for other telecommunications service providers. As noted, Telstra would be required to fulfil its obligation in a completely neutral manner, thus carriers and ISPs providing services over Telstra’s network would be able to provide their customers with the benefit of the minimum equivalent throughput. As the minimum throughput obligation is on Telstra, Telstra is not expected to pass these costs on to its competitors. To the extent improved Internet throughput facilitates content delivery, content providers will benefit. It is unlikely that the proposed requirement would put other carriers at a disadvantage. The limited number of carriers providing comparable infrastructure are likely to already be providing these dial-up speeds and, as noted above, resellers of Telstra services will benefit from the obligation. There may be some increase in carrier licence charges as a result of increased ACA administrative responsibilities, but the __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 8 increase is estimated to be small, most will be funded by Telstra and otherwise be spread over a large number of carriers. As the impact on competitors is likely to be slight and most likely positive, the impact on shareholders, similarly, is likely to be slight and most likely positive, if at all discernible. Commonwealth and ACA: The Commonwealth would achieve its objective of guaranteeing a minimum Internet throughput nationally and on an ongoing basis. There was be no significant cost for the Commonwealth. There would be some additional costs for the ACA through monitoring, reporting on, and if necessary, enforcing the regulatory requirement. As noted above, the costs are eventually recovered though carrier licence charges. Given the size of the obligation in the context of Telstra’s overall business, it is not expected to have a discernible impact on the value of Commonwealth’s majority shareholding in Telstra. (It should be noted, however, that the Commonwealth’s financial interest is not considered in deciding on regulation.) As a significant provider of online services, the Commonwealth would benefit from improved data speeds. Summary: Option 2 would deliver an Internet throughput of at least 19.2 kbps nationally on an ongoing basis, thus ensuring consumers could have access to a reasonable dial-up Internet experience. It would involve additional costs for Telstra, the amount depending on demand and the cost of solutions. $38 million has been previously allocated in this context. There is likely to be no discernible impact on Telstra shareholders. The impact, if any, on other stakeholders would likely be slight and most likely positive. Competitors would have the benefit of improved services over Telstra’s network. The Commonwealth would achieve its policy objective at no significant cost to it. The ACA would face some additional administration costs. Option 3 : Telstra to provide 19.2 kbps minimum throughput nationally as a default Option 3 would have many of the impacts of Option 2. The main difference would be the higher cost to Telstra. Consumers: Option 3 would provide all customers using Telstra’s network, either directly or indirectly, with access to an Internet throughput of at least 19.2 kbps as a matter of course. The capability would be available to them whether or not they wished to use the Internet and whether or not they wanted dial-up access or some other form of access. As the obligation would apply nationally it would increase the minimum throughput that could be requested by customers in the Outer Extended Zones by 4.8 kbps from 14.4 kbps to 19.2 kbps. A regulatory requirement would provide a high level of certainty for consumers and could be implemented quickly if done by a licence condition. The requirement could provide a guarantee into the future. As the requirement would establish a default standard of operation, once the necessary work had been done, the minimum throughput would be readily available, and consumers would not need to wait for work to be done after they requested it. Option 3 would not involve any additional direct costs for consumers seeking a minimum equivalent throughput. To the extent Telstra incurs additional costs in meeting the obligation, these might be passed on to some extent to consumers, __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 9 through its wholesale and retail prices. Its scope to do so, however, would be subject to ACCC scrutiny in the case of wholesale charges and price controls in the case of retail prices. The opportunity cost of such a requirement is also worth considering as it would represent a significant diversion of funds from other initiatives for which there is greater consumer demand, for example, the provision of broadband. Telstra and its shareholders, including the Commonwealth as majority shareholder: Option 3 would mean Telstra would be likely to incur significant additional costs as a result of the need to upgrade its network to provide a minimum throughput of 19.2 kbps as a matter of course. These costs are estimated to be significant. Most of the cost of upgrading a line is incurred by the labour required to visit sites, inspect plant, test circuits and, if required, replace cable and equipment. In its 1998 Digital Data Inquiry, the ACA reported that Telstra’s estimated capital cost for upgrading relevant lines to a minimum data speed of 14.4 kbps was over $2 billion.7 Such an upgrade would be potentially wasteful because it would require all services currently below 19.2 kbps to be upgraded even though all customers may not want to access the Internet or, even if they did, may not want dial-up. For example, they may want faster access than is ever possible via dial-up, preferring broadband access that must be delivered by cable, ADSL or satellite. This is one of the key reasons a default dial-up minimum throughput has not previously been mandated. (Such an approach may not even be practicable in that throughput cannot be provided to premises without computers and Internet access. Throughput is also dependent on factors outside the Telstra network, so having the Telstra network alone operate at a certain level will not necessarily deliver the desired outcome.) Telstra would incur costs nationally that it would not otherwise have incurred from the date the obligation commences. The level of these costs will be determined by the number of services requiring upgrade and the cost of solutions. Given that all services currently operating below 19.2 kbps would need to be upgraded, the cost of the upgrade would be significant. As noted above, this cost would likely exceed $2 billion. Consideration also needs to be given to the extent to which customers may seek to take advantage of the Higher Bandwidth Incentive Scheme (HBIS) to obtain subsidies to access faster Internet services, thereby by-passing upgrades of their dial-up access and reducing the cost to Telstra. As the IAP is in place, Telstra would not be expected to incur significant implementation costs. Ongoing administrative costs may be lower as a default performance would be established, however, as noted above, factors outside the network may still need to be addressed, requiring ongoing administration. Telstra would incur promotional and reporting costs as under Option 2. 7 ACA, Digital Data Inquiry, Melbourne, 1998, pp.126 and A.6.3 of Appendix 6. On page 126 the ACA reports that Telstra estimated the cost of an upgrade to 28.8 kbps at $3.95 billion. In Appendix 6 the ACA reports that Telstra estimated the cost of an upgrade to 14.4 kbps was $1.3 billion less, indicating an estimated upgrade cost of $2.65 billion. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 10 As Option 3 would be likely to incur significant additional costs for Telstra, it could have an impact on its profitability, with a follow-on effect for its shareholders. The opportunity cost of such a requirement is also worth considering as it would represent a significant diversion of funds from other initiatives for which there is greater demand, for example, the provision of broadband. The additional costs of Option 3 could be significant, as such Option 3 is more likely than any other to impact adversely on Telstra’s shareholder value. Other telecommunications service providers, content providers and their shareholders: The impact of Option 3 on other telecommunications service providers, content providers and their shareholders would appear much the same as Option 2, but magnified. In particular, competitors may be competitively advantaged by the need for Telstra to direct considerable funding and management resources uniformly upgrading its network. Competitors may be disadvantaged to the extent the obligations prevented Telstra undertaking other investments (eg. ADSL enablement) from which they might otherwise benefit. As with Option 2, there may be some increase in carrier licence charges as a result of increased ACA administrative responsibilities. As the impact on competitors is likely to be slight and most likely positive, the impact on shareholders is similarly likely to be slight and most likely positive, if at all discernible. Commonwealth and ACA: The Commonwealth would achieve its objective of guaranteeing a minimum Internet throughput nationally and on an ongoing basis. There was be no significant direct cost for the Commonwealth, however any impact on shareholder value would impact on the Commonwealth as the major shareholder in Telstra. (Note, the benefit of regulation is considered without regard to the impact on the Commonwealth’s shareholding.) There would be some additional costs for the ACA through monitoring, reporting on, and if necessary, enforcing the regulatory requirement. As noted above, the costs are eventually recovered though carrier licence charges. Summary: Option 3 would deliver an Internet throughput of at least 19.2 kbps nationally on an ongoing basis, thus providing consumers with access to a reasonable dial-up Internet experience. It would likely involve significant additional costs (likely over $1 billion) for Telstra, which may impact on investment in higher priority areas like broadband, which may adversely affect consumers, and Telstra’s shareholder value. Competitors would have access to improved services over Telstra’s network. The Commonwealth would achieve its policy objective, without significant direct cost. The ACA would face some additional administrative costs. Option 4 – Tender or negotiation of a new contract for the provision of minimum equivalent throughput nationally, on request or by default Option 4 involves significant risks because its success is contingent on the voluntary participation of Telstra and/or other service providers, which may not be forthcoming, at least at a reasonable price. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 11 Consumers: Providing the Commonwealth could conclude an agreement that would achieve the desired outcome, Option 4 would continue to guarantee the majority of dial-up customers access to an Internet throughput of at least 19.2 kbps on an ongoing basis nationally. While the risk of a regulatory obligation may provide an incentive for Telstra or some other party to come to an agreement, there is some question as to whether such an agreement could be achieved, thus calling into question the viability of this option. Option 4 would not involve any additional costs for consumers. Consumer generally may benefit from Telstra being able to invest its own funds in other areas. There would also be no need for Telstra to try to pass upgrade costs on to consumers. Telstra and its shareholders, including the Commonwealth as majority shareholder: Given the objective being pursued (ie. the provision of a minimum throughput on Telstra’s public switched telephone network), Telstra would have a considerable advantage in bidding for any such contract. By being funded to provide the minimum equivalent throughput, Telstra would be advantaged in terms of its ability to deliver services and it would be funded to do so, therefore it would not suffer any financial disadvantage. This would allow Telstra to direct its own resources to other investment priorities. As the level of funding is not likely to be significant in the context of Telstra’s overall business (assuming an ‘on request’ approach), the impact on shareholders is likely to be slight if at all discernible. Shareholders may benefit more from Telstra not suffering the opportunity cost of having to meet the costs of upgrades. Other telecommunications service providers, content providers and their shareholders: Option 4 would provide competing operators with the opportunity to bid for the business involved in providing the minimum equivalent throughput. However, given the close linkage between the throughput outcome and Telstra’s network, it is questionable whether competitors would be interested in offering these services, or would, in fact be able to do so in a meaningful way. (For example, it would be complex process for competitors to undertake upgrade work on Telstra's network.) While such an approach might appear competitively neutral in theory, it may not be practical. On the assumption that Telstra would win the contract, competitors would have the advantages outlined above. They would also be likely to benefit from Telstra investment in other areas. At the same time, however, their competitive position vis-a-vis Telstra could suffer as a result of Commonwealth funding of Telstra. However, the funding would be directed at benefiting the wider industry, as upgrades would be available to customers serviced using resold Telstra services. Licence charges could increase if the ACA were assigned responsibility for contract monitoring as in the case of the EZA. The impact on shareholders would be expected to be slight and most likely positive. Commonwealth and ACA: Providing the Commonwealth could negotiate a satisfactory contract, the Commonwealth would be able to achieve the desired outcome. Option 4 would involve additional costs for the Commonwealth in terms of the administrative cost of conducting the tender or entering into the agreement (say $100,000 plus); and more importantly, funding the provision of minimum equivalent throughput. The cost to the Commonwealth of providing minimum equivalent would __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 12 be expected to be comparable to that estimated under Option 2. However, as Telstra would likely be the only viable provider of the required solution, Telstra may seek to exploit this position and increase the price offered. This could, of course, be balanced by the Commonwealth’s ultimate power to regulate. There is clearly, however, a high degree of risk here. The Commonwealth has not allocated funds for this outcome and so this is not an option. Costs would also be incurred either directly or indirectly via the ACA in monitoring compliance with the contract. If administered by the ACA, these costs could be recovered from the industry through licence fees. Summary: Option 4 involves a high risk that the Commonwealth would not be able to conclude a satisfactory contract with Telstra or another provider to deliver the desired outcome, particularly at a reasonable cost. If this were the case, consumers would have no ongoing guarantee of a reasonable minimum Internet dial-up experience. The option also involves a significant cost for the Commonwealth that the Commonwealth has not considered it necessary or appropriate for it to meet. Provided Option 4 could be implemented, it could provide a reasonable dial-up Internet experience for consumers and the service provider would be fully funded. Competitors would have access to improved services over Telstra’s network. The ACA would face few additional costs. Consultation In undertaking its assessment, the Regional Telecommunications Inquiry invited public submissions and met with over 40 key stakeholders on a range of issues of relevance to the Inquiry. Views were sought on the adequacy of current arrangements as they relate to dial-up Internet access. A key theme emerging from submissions was the need for improved speed of Internet services – demonstrating the greatly increased awareness in regional, rural and remote areas of the value of higher bandwidth Internet services, and a rapidly growing, real level of demand for these services. (Thirty-seven per cent of submissions to the RTI noted concerns with dial-up Internet speeds and the quality of service provided. The majority of Internet-related complaints concerned problems with dial-up speeds.8 Between the release of the RTI’s report and the release of the Government’s response, the RTI recommendations, including 4.1, were discussed with a range of stakeholders including State and Territory representatives (eg. through the sub-groups of the Online Council), industry participants (eg. Telstra, Optus, Vodafone, Comindico, AAPT) and business and community organisations (eg. the Australian Telecommunications Users’ Group, the National Farmers Federation and the Isolated Children’s Parents’ Association). No strong opposition was voiced to a regulatory obligation as proposed by the RTI in Recommendation 4.1. Telstra has indicated it is willing to accept the requirement proposed by the RTI. Telstra has been be consulted during the drafting of the proposed licence condition, consistent with the requirements of the Telecommunications Act 1997. The ACA and TIO have also been consulted. The ACA has also held discussion with Telstra about future administrative and reporting arrangements. 8 RTI, Connecting Regional Australia, p.155 __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 13 Conclusion and Recommended Option Option 1 would not provide a uniform minimum throughput nationally (ie. it would not cover the Outer Extended Zones) and would not guarantee the outcome on an ongoing basis. Option 4 would potentially deliver the required outcome but it is dependent on the agreement of external parties that may not be forthcoming. Moreover, the Commonwealth does not have funding available to pursue this approach. As neither of these options provides the required certainty that they will be effective in delivering the minimum throughput, that leaves Options 2 and 3. Option 2 would provide the minimum throughput required by those who seek it upon request, without the considerable cost of a uniform network upgrade. Option 3 has the clear disadvantage of requiring a significant upgrade cost that may be economically wasteful as it would upgrade services of people who may not want Internet access or dial-up access. As noted, the cost of such an upgrade has been estimated to be over $2 billion. In the relation to other lesser criteria, there is little difference between Options 2 and 3. Telstra has indicated its willingness to accept Option 2. Other stakeholders have not expressed concerns about Option 2. The recommended option, therefore, is Option 2, a regulatory requirement that Telstra provide a minimum throughput upon request. Implementation There are two main ways a regulatory requirement of the type required could be implemented, through a licence condition on Telstra or through amendment of the relevant primary legislation. A licence condition is proposed because this mechanism is already provided for in the legislation for the implementation of such requirements. Compared to a statutory amendment, it can be implemented relatively quickly. It is also relatively simple to modify in the future should circumstances prove it is appropriate. This approach is also consistent with that recommended by the RTI. A licence condition has therefore been prepared. Licence conditions can be imposed by a Ministerial declaration under section 63 of the Telecommunications Act 1997. The proposed declaration will amend the Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 to require Telstra to provide an Internet assistance program with a view of providing a minimum equivalent throughput as it does under the IAP. It is proposed that the licence condition work in parallel with the Commonwealth’s pre-existing Deeds of Agreement with Telstra in relation to the IAP and the Extended Zones. Review Because of the size and significance of the telecommunications industry and the rapidity of change in the sector, the impact of regulation is monitored closely on an ongoing basis by the ACA and the Department of Communications, Information Technology and the Arts (DCITA). Each year the ACA must publish a report on __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 14 industry performance. This will require the ACA to report on Telstra’s compliance with the licence condition. The ACA is also able to report on the effectiveness of regulation such as that imposed by the licence condition. Historically DCITA has also reviewed regulation on a regular basis (ie. every 3-5 years). Given the origins of the licence condition it is envisaged that its effectiveness and operation will be assessed under the proposed regular reviews of the state of regional telecommunications provided for in the Telstra (Transition To Full Private Ownership) Bill 2003. These reviews are in response to RTI recommendation 9.1 The proposed Regional Telecommunications Independent Review Committee (RTIRC) will be required to review the adequacy of telecommunications services in regional, rural and remote parts of Australia. These reviews must occur at least every five years. __________________________________________________________________________________ Regulation Impact Statement - Carrier Licence Conditions (Telstra Corporation Limited) Declaration 1997 (Amendment No. 2 of 2003), September 2003 15