House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Communications, Urban Infrastructure, Cities and the Arts, the Hon Paul Fletcher MP)

OUTLINE

The Telstra Corporation and Other Legislation Amendment Bill (the Bill) would amend legislation relating to Telstra Corporation Limited (Telstra) to ensure regulatory equivalency of obligations across the restructured Telstra group, as suggested in Telstra's proposed Scheme of Arrangement pursuant to the Corporations Act 2001. The restructured group will comprise the following main entities:

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Telstra Group Limited (Telstra Group) - this entity will be a new parent company that holds the other three Telstra entities.

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Telstra InfraCo Limited (InfraCo) - this entity will be the current Telstra entity (known as "Telstra Corporation Limited") and will in the future only operate Telstra's passive infrastructure assets including ducts, fibre, rural and remote copper, exchange buildings, and poles.

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Amplitel (Amplitel) - this is a new entity and will own and operate most of Telstra's passive tower assets. Telstra sold a 49 per cent non-ownership share of its Amplitel holdings to a consortia. A unit trust will also be established to operate all of the towers owned by Amplitel and the remaining towers owned by Telstra.

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Telstra Limited (ServeCo) - this is a new entity and will operate Telstra's current retail business and own the base stations, and other network units in Telstra's network, as well as its data centres, existing spectrum assets and some non-shareable towers. Most of Telstra's employees will be employed by ServeCo.

Telstra does not require Government approval to undertake the restructure. However, without legislative and regulatory change, a range of key obligations that currently apply to Telstra would become ineffective or cease to apply to the successor entities. These obligations cover core parts of Telstra's regulatory arrangements (including the restrictions on foreign ownership and the Universal Service Obligation (USO)), other consumer safeguards (including emergency call services and priority assistance) and the requirement for Telstra to provide other carriers with access to its transmission towers.

The purpose of this Bill is to ensure the Commonwealth's policy interest in protecting consumers, promoting competition and supporting Telstra's public interest roles in Australia's telecommunications system is not diminished as a result of the restructure. The Bill has been developed on the principle of regulatory equivalence - that is, the regulatory obligations that currently fall on Telstra should also fall on the entities in the new corporate group in roughly the same way. While Telstra is free to restructure its business as it sees fit, successive Parliaments have placed and maintained a range of obligations on that business, and it is important that these remain effective.

The Bill seeks to address several related policy issues that arise from the restructure. The Bill:

1)

Creates a concept in the Telecommunications Act 1997 to re-point Telstra-specific obligations that would otherwise cease to apply to new Telstra entities (referred to as a 'Telstra successor company' and 'designated Telstra successor company'); and

2)

Closes a loophole that allows carriers, including Telstra, to avoid facilities access obligations by transferring assets such as towers and underground facilities, into subsidiaries or other related entities.

To re-point obligations, the Bill generally defines three new categories of entities in the Tel Act:

1.

Demerged Telstra companies, which are the main Telstra entities (described in the Background section above). The Bill specifies that Telstra Group Limited, Telstra InfraCo Limited, Amplitel Pty Ltd and Telstra Limited (ServeCo) are demerged Telstra companies.

2.

Telstra successor companies, which are Telstra entities to which Telstra-specific obligations in the Telstra Corporations Act 1991 apply, and

3.

Designated Telstra successor companies, which are Telstra entities to which Telstra-specific obligations in other Acts and secondary legislation apply, which are generally telecommunications specific obligations.

Telstra specific obligations

The Bill places existing retail obligations on ServeCo within the Telstra group, and also re-points corporate obligations (largely in terms of obligations specified in the Telstra Corporations Act 1991 (the Telstra Act)) to all of the main entities in the Telstra group.

The Bill also includes a power to make a declaration to specify an entity or a class of entities as a Telstra successor company, or a designated Telstra successor company, or for the entity to be excluded altogether. Once specified, an entity would need to comply with all obligations, a class of obligations or specific obligations, as set out in the relevant instrument. These declarations are limited to constitutional corporations or those engaged in a telecommunications business as defined under the Bill. Alternatively, the Minister may also, by legislative instrument, declare that a specified company is not a Telstra successor company, or a designated successor company, for the purposes of each prescribed telecommunications law.

Carrier obligations

In addition to Telstra-specific obligations, Telstra is subject to a range of general obligations by right of being a licensed carrier under the Tel Act. ServeCo will need to apply for, and receive, a carrier licence to legally function as a telecommunications provider. The Bill recognises that in the event that a carrier licence is not forthcoming, that continuity of service remains paramount, and that it would not be in the public interest for the Telstra group to cease providing services.

The Bill mitigates this potential risk by providing that the newly created entities that own or operate network units (such as ServeCo), and who do not have a carrier licence, are deemed to hold a carrier licence until such time as either a new carrier licence application under s52 of the Tel Act has been approved or rejected by the Australian Communications and Media Authority (ACMA).

An entity with deemed carrier licences (i.e. ServeCo) is also required, within five days, to submit an application for a licence. If no application is submitted within that timeframe, one is taken to have been received by ACMA and carrier licence conditions will continue to apply to these deemed licence holders. This ensures obligations associated with carrier licences continue between the passage of the Bill and the commencement of the restructure. Carrier licence conditions that sit with InfraCo and that are better suited to ServeCo will be transferred to ServeCo as part of the carrier licence conditions attached to the deemed carrier licence, and any subsequent carrier licence approved for ServeCo.

Directions powers

The Bill provides powers for the Minister, and in some cases the ACMA, to direct a Telstra subsidiary to meet its obligations or assist in the delivery of the obligations of another Telstra subsidiary.

The ACMA's direction power allows it to ensure its compliance and enforcement activities continue to apply to entities within the Telstra Group, where satisfied that the relevant entity "has failed, is failing, or is likely to fail" to fulfil an obligation under the relevant instrument and the directed entity has the capability or could reasonably acquire the capability to comply with the direction (including the technical, operational and organisational capability).

The ministerial directions powers allow the Minister to direct an entity to assist a Telstra successor company to fulfil specified obligations where the Minister is of the view that an entity 'has failed, is failing or is likely to fail' to meet that obligation. The directed entity must have the ability, or the ability to acquire the ability, to comply with a direction. The powers also provide for a penalty for failure to comply with a direction.

Access to supplementary facilities and telecommunications transmission towers

A key set of obligations placed on Telstra is the supplementary facilities and transmission tower access regime (the facilities access regime), which requires that carriers provide other carriers with access to bottleneck infrastructure as a means of promoting competition.

The Government has identified that the facilities access regime may not apply to Telstra post-restructure in the way it was originally intended. Whilst the facilities access regime provides that a carrier that 'own or operate' assets must provide access to them, it is silent in terms of what 'own or operate' means. The Government is concerned that this lack of specificity may give rise to an interpretation that a subsidiary or sibling companies of a carrier, that owns towers or other facilities is not 'owned or operated' by the carrier, and therefore that the facilities access framework would not apply.

That interpretation is contrary to the Government's policy intention - the facilities access framework exists to provide access to infrastructure that may be a bottleneck. If a carrier were merely able to create a subsidiary company and shift its passive assets into that subsidiary to avoid its access obligations, then clearly the policy intent of the regime would be defeated.

The Bill seeks to ensure the framework continues to apply. It does so by providing that if a group of companies includes a carrier, a company (other than a carrier) that is in the group must provide carriers with access to facilities and provide carriers with access to telecommunications transmission towers, where that non-carrier company holds facilities or telecommunications transmission towers.

For the purposes of the new facilities access regime, a company is initially defined as being in a group with a carrier if the carrier can cast more than 15% of votes at a general meeting, or controls more than 15% of its shares, or vice versa (referred to below as the control threshold).

The new element to the facilities access framework will not be active for the first six months of the Bill - instead the Bill requires that during this 6 months that the ACCC undertake a review of the control threshold. Following that review, the Minister has then 60 days in which to consider the report and determine an alternate control level. This will allow industry and the Government to consider the appropriate control level early in the operation of the regime.

Key consumer safeguards protected by the Bill

The Department of Infrastructure, Transport, Regional Development and Communications has reviewed and assessed the consumer safeguard obligations imposed on Telstra in consultation with key stakeholders, including Telstra. These consultations have identified the ongoing utility of these obligations as well as the need for certain aspects to be clarified and updated. It is proposed that these obligations be updated and remade as through the Telstra Corporation and Other Legislation Amendment Bill 2021 (the Bill).

The Bill proposes a number of amendments to provide certainty that important consumer safeguards, notably the universal service obligation and Telstra's obligations in relation to emergency call services, will continue to be delivered in an equivalent manner to today. These obligations are currently set out in statute or legislative instruments, but are also subject to a contract between the Commonwealth and Telstra, the Telstra Universal Service Obligation Performance Agreement (TUSOPA). The Bill makes Telstra Limited (ServeCo), Telstra's proposed retail service delivery company, the default primary universal service provider, as opposed to Telstra Corporation Limited, as is the case now. Given the nature of a corporate restructure, which may involve transfers of assets or spinning off business units, the Bill would create new powers for the Minister to determine that two or more different carriers or carriage service providers can be primary universal service providers, if required.

The Bill would also place obligations on designated Telstra successor companies who are parties to the TUSOPA to notify the Commonwealth of contracts relating to those key safeguards, or involving transfers of assets that were used in connection with meeting obligations under the TUSOPA. It also creates powers for the Commonwealth to be provided copies of contracts, and for the Minister to direct Telstra Limited (ServeCo), a designated Telstra successor company or a related body corporate, to do or not do an act or thing where there are actual or likely failures to comply with the TUSOPA.

Telstra has advised the Government that it is drafting inter-company agreements which will ensure that different entities within Telstra's corporate structure are able to access relevant assets and expertise in order to ensure that the universal service obligation and other consumer safeguards continue to be fulfilled. The provisions in the Bill are intended to provide a safety net.

Key legislation amended by the Bill

Regulatory equivalency will maintain consumer and competition safeguards that currently apply to Telstra due to its historic and ongoing role in the telecommunications sector. To achieve this goal, the Bill would amend a range of primary and secondary legislation.

The Telecommunications Act 1997 is the foundational part of the national telecommunications regulatory framework that aims to promote: the long-term interests of end-users of carriage services or of services provided by means of carriage services; the efficiency and international competitiveness of the Australian telecommunications industry; and the availability of accessible and affordable carriage services that enhance the welfare of Australians through economic growth and national security.

The Telstra Act (the Telstra Corporations Act 1991) provided for the merger of Telecom and OTC into Telstra and facilitated the privatisation of Telstra Corporation Limited. The Telstra Act also places ongoing obligations on Telstra Corporation Limited in recognition of the importance of Telstra as an Australian business of national significance. These obligations include restrictions on foreign ownership, location of headquarters and makeup of directors.

The Competition and Consumer Act 2010 sets out competition law in Australia, and seeks to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection. It also contains telecommunications-specific anti-competitive conduct and access regimes.

The Telecommunications (Consumer Protection and Service Standards) Act 1999 contains a range of important safeguards for telecommunications consumers including the USO for the provision of standard telephone services and payphones, for which Telstra is the provider nationally, as well as Telstra retail price control mechanisms.

The Telecommunications (Carrier Licence Conditions - Telstra Corporation Limited) Declaration 2019 currently sets out requirements on Telstra, including responsibility for the management of the Integrated Public Number Database (IPND) and further important consumer safeguards such as directory assistance, operator assistance, priority assistance, low-income measures and the Network Reliability Framework.

The Telecommunications (Emergency Call Persons) Determination 2019 designates Telstra as the national operator of emergency call services.

The Telecommunications (Emergency Call Service) Determination 2019 imposes requirements on carriers, carriage service providers and emergency call persons in relation to emergency call services to ensure that the highest levels of access, integrity and service continuity of the emergency call service are maintained.

The Telecommunications (Statutory Infrastructure Providers-Exempt Real Estate Development Projects and Building Redevelopment Projects) Determination (No. 1) 2020 exempts real estate development projects and building redevelopment projects in which carriers have installed networks, primarily to supply voice services, from the requirement to be declared as nominated service areas under the statutory infrastructure provider (SIP) regime.

Consultation

The Department conducted a targeted consultation process with key stakeholders in September 2021. Additionally, select government agencies were provided with an exposure draft for comment.

Commencement

The Act specifies no conditions that need to be satisfied before the power to make the proposed amendments may be exercised.

The Bill would commence in several parts as specified in one or other of the four Schedules. Schedules 1 and 4 would commence the day after Royal Assent is received. The amendments introduced in Schedules 1 and 4 are not dependent on Telstra going ahead with its Scheme of Arrangement.

Schedules 2 and 3 would commence at the earliest time when any of the property of Telstra Corporation Limited (ACN 051 775 556) is transferred to and vested in Telstra Limited (ACN 086 174 781) by virtue of an order of the Federal Court of Australia made in accordance with section 413 of the Corporations Act 2001. Amendments at these parts are only necessary if the Scheme of Arrangement goes ahead, as they change the legislative framework in ways that would not serve the Commonwealth's interest if Telstra maintained its current corporate structure.

REGIONAL AUSTRALIA IMPACT STATEMENT

This Regional Australia Impact Statement (RAIS) provides a summary of how the Telstra Corporation and Other Legislation Amendment Bill 2021 (the Bill) will impact regional communities, economies, and stakeholders for consideration by Government.

Telstra does not require Government approval to undertake its planned restructure. However, without legislative and regulatory change, a range of key obligations that currently apply to Telstra would become less certain, less effective or cease to apply to the successor entities. These obligations cover core parts of Telstra's regulatory arrangements (including the Universal Service Obligation (USO)), other consumer safeguards (including emergency call services and priority assistance) and the requirement for Telstra to provide other carriers with access to its transmission towers.

Identification of Impacted Region/s

If the Bill is not passed by the Parliament, Australia, including regional areas, could be negatively impacted by a reduction in obligations on Telstra. Due to the scope and size of Telstra's service offerings across Australia, and its particular presence in regional and remote areas, many parts of regional Australia could be affected.

Impacts Assessment

The telecommunications sector is critical to the Australian economy. While the sector is important in its own right, without ready access to telecommunications, Australia would suffer both socially and economically. While it makes up a relatively small proportion of the Australian workforce (105,800 people directly employed compared to 12.6 million in the total economy in August 2018 ^[1] ) and a small proportion of Australia's GDP ($43.7 billion in 2017-18 which is approximately 2.5% of Australia's overall GDP ^[2] ), it has a disproportionate multiplier effect on the general economy, by enabling communication and trade for other sectors. Telstra's 4G mobile network covers 98 per cent of the total Australian population, including many regional areas where they are the only provider.

Regional Australia represents the bulk of our landmass. It is home to around 8,291,000 million people. At August 2021 employment in regional Australia was at 3,998,960 persons accounting for 30.9 per cent of total employment in Australia (12,956,180 persons). Its labour force as at August 2021 was 62.0 per cent comparative to capital cities which was recorded at 66.3 per cent.

While Telstra maintains the largest communications network in Australia, in some cases it is the only provider available in some regional and rural areas. Telstra also employs approximately 28,960 staff and provides 18.8 million retail mobile services, 3.8 million retail fixed bundles and standalone data services and 960,000 retail fixed standalone voice services.

Beyond the vital telecommunications infrastructure it provides, Telstra is a major retail service provider in regional Australia, using both its infrastructure and the National Broadband Network. As such Telstra plays a crucial role in the economic and social life of regional Australia. Telstra's key role has long been reinforced by a range of regulated consumer safeguards, including the USO, Customer Service Guarantee (CSG), Network Reliability Framework (NRF), and Priority Assistance, as well as the operation of the Triple Zero Emergency Call Service. While these obligations generally apply nationally, they can be of added importance in regional, rural and remote Australia where alternative telecommunications providers may be limited, and isolation adds to the risk of everyday life. Delivery of the USO and Triple Zero service is further supported by a contract with Telstra, the Telstra USO Performance Agreement (TUSOPA).

Therefore the Bill aims to avoid any negative impact of Telstra's planned restructure by maintaining Telstra's legislative and regulatory equivalency and ensuring services for Australians through existing protections.

There are two possible scenarios that have a positive or negative outcome:

1.

The Bill supports maintaining the current obligations on Telstra, post-restructure. This means, if the Bill is passed, the anticipated impact across Australia and regional areas is nil.

2.

If the Bill is not passed by the Parliament, and Telstra pursues its restructure, the current obligations placed on Telstra will be less certain or become ineffective. This could create opportunities for negative impacts for consumers and businesses across Australia relating to access to telecommunication services and connectivity, and essential infrastructure works around Australia and in regional areas.

Potential obligations that could be negatively impacted by Telstra's restructure, if regulatory equivalency is not maintained include:

a.

Access to the tower and facilities access framework; it is critical that carriers can access each other's towers to provide services to consumers. Any change could impact the connectivity and services available.

b.

Maintenance of the USO, including the delivery services via Telstra's copper network, on which hundreds of thousands of Australian regional consumers rely.

c.

Provision of the Triple Zero Emergency Service facility Telstra current provides, which all Australians depend on.

d.

The effective operation of other important consumer safeguards of particular importance to regional Australians, like the CSG, NRF and Priority Assistance.

Stakeholder and Community Engagement

Targeted consultation on the Bill was undertaken with a small group of stakeholders across the telecommunications industry. Broadly, stakeholders support the Bill in achieving regulatory equivalency for Telstra, post-restructure. The importance of maintaining consumer safeguards, including the USO, is a persistent theme in consultation with regional communities. It is a strong theme in statements received to date in the 2021 Regional Telecommunications Review.

Mitigation and Management Measures

The purpose of the Bill is to maintain the Commonwealth's policy interest in protecting consumers, promoting competition and supporting Telstra's public interest roles in Australia's telecommunications system is not diminished as a result of the restructure.

The Bill supports consumer safeguards and continuity of essential services for all Australians as a key mitigation measure.

FINANCIAL IMPACT STATEMENT

The Bill is not expected to have any impact on Commonwealth expenditure or revenue.