Overview (April 2000)

Introduction
The Australian Market
Australian Regulators
Licensing Requirements
Access and Interconnection
Numbering and Customer Access
Competition Safeguards

Introduction

Australia has one of the world's most liberalized telecommunications industries, having undertaken a three-stage transition from a government owned monopoly to a fully liberalized environment. In hindsight, this transition looks more ordered and planned than was actually the case, as technological, political and market forces pushed the Australian government and industry to act more quickly than they had anticipated. The three main stages of liberalization were as follows:

Years 1989 to 1991
Competition was allowed in the supply of value added services and private network services, provided that the underlying infrastructure of the government owned monopoly carriers was used. Local and national long-distance telephony services remained a monopoly of Telecom and international services remained a monopoly of the Overseas Telecommunications Corporation (OTC).

Years 1991 to 1997
A fixed network duopoly was created between government owned carrier, Telstra (which merged Telecom and OTC) and a new privately owned carrier, Optus. A mobile 'triopoly' was established between Telstra, Optus and Vodafone, based on competing global services mobile (GSM) networks. Resale, including simple voice resale was fully liberalized, but only if the underlying infrastructure of the duopoly carriers was used. Telstra, as the dominant carrier, was subject to strict controls on its retail tariffs, similar to the US dominant carrier regulation. Telstra also was required to provide interconnection to Optus and Vodafone at cost-based charges.

Post 1997
Telecommunication services and networks were fully liberalized, with any operator permitted to build and operate any mobile or fixed infrastructure. All service providers have equivalent regulatory rights of access and interconnection. Dominant carrier regulation was removed from Telstra, although there continues to be telecommunications-specific competition safeguards.

The Australian government believed that the post-1997 regulatory regime would prove stable and enduring. However, barely two years later extensive amendments have been required. The Australian experience over the last decade demonstrates that the 'life span' of telecommunications legislation is, at most, five years and shrinking with the faster pace of technological change.

The Australian Market

The former monopoly, Telstra, continues to be dominant in almost every sector of the Australian telecommunications industry. Telstra's market share of national, long-distance and international telephony services is over 70%. It accounts for over 98% of all local telephone lines. Unlike the former local telephone company monopolies in the United States, Telstra continues to operate as a vertically integrated carrier, which gives it substantial competitive advantages in the Australian market. Telstra operates a nationwide GSM network and accounts for approximately 50% of mobile subscribers, and is now deploying a nationwide code division multiple access (CDMA) network.

Telstra is supposed to be majority owned by the Australian government, but the government has been progressively selling its interests. The government has announced its intention to sell the balance of Telstra but, in response to concerns about potential service degradation in rural Australia, only after an inquiry reports by the end of the year on service level safeguards.

Telstra's largest competitor is Cable & Wireless Optus, which is majority owned by the UK-based international carrier, Cable & Wireless. Optus holds approximately 20% of the national, long-distance and international telephony market. Optus' market share of mobile services is approximately 35%. It has connected nearly 200,000 customers to its hybrid fibre coax (HFC) network, and is connecting approximately 6,000 to 8,000 new customers per month. With the recent sales in the Cable & Wireless group, the market is rife with speculation about the break-up of Optus.

Vodafone, the third national GSM operator, holds approximately 15% of the mobile market, but as a result of a more focused marketing effort, its share is rapidly increasing. A quarter of Vodafone will be floated by mid 2000.

Other competitors consist of a mix of resellers and smaller facilities-based operators. The non-Optus new entrants account for approximately 5% of the national and international long-distance traffic, but their market share is growing rapidly.

Australian Regulators

Australia has four telecommunications regulators including the Australian Competition and Consumer Commission (ACCC), the Australian Communications Authority (ACA), the Telecommunications Access Forum (TAF) and the Australian Communications Industry Forum (ACIF).

Australian Competition and Consumer Commission
The ACCC is Australia's general competition regulator. It has been given telecommunications-specific powers, including:

• to specify the services which are subject to the access regime;
  
  
• to arbitrate access disputes;
  
  
• to determine which services should be subject to number portability requirements; and
  
  
• to take action against anti-competitive behaviour.

Australian Communications Authority
The ACA is responsible for the following:

• technical regulation;
  
  
• the numbering plan;
  
  
• administration and auctioning of radio-communications spectrum; and
  
  
• some consumer issues.

Telecommunications Access Forum
The TAF is an industry body of carriers and carriage service providers which advises the ACCC on access issues.

Australian Communications Industry Forum
The ACIF is an industry self-regulatory body consisting of carriers, carriage service providers, content service providers, large corporate customers, individual consumers and industry associations. The ACIF develops industry codes on technical and operational issues between networks, such as pre-selection and number portability, and on consumer issues, such as privacy.

Licensing Requirements

Relevant carriers
A carrier licence is only required if an operator proposes to own or operate network units in Australia which are used to supply services to the public. 'Network units' is defined to include:

• cables or wires between separate properties within Australia such as between customer premises and a telephone exchange or between telephone exchanges;
  
  
• microwave links between separate properties;
  
  
• a radio-communications base station used to supply a public mobile telecommunications service or as part of a terrestrial radio-communications customer-access network (ie wireless local loop); and
  
  
• a satellite-based facility.

'Supply to the public' occurs when the relevant network unit is used to supply telecommunications services outside the 'immediate circle' of the owner or operator of the facility. The concept of 'immediate circle' allows the establishment of private networks which have a common interest with the owner or operator of the network unit and which can be interconnected with the public switch telephone network (PSTN) at one end.

A carrier licensee is not required to own or operate the following infrastructure:

• switches;
  
  
• internet protocol routers or servers;
  
  
• subscriber management and billing systems;
  
  
• capacity leased from carriers (eg, domestic leased circuits); or
  
  
• indefeasible rights of use in international cable systems landing in Australia.

Application procedure
Applying for a carrier licence is straightforward. Applications are made to the ACA, and a one-off licence fee of A$10,000 is payable.

There are no restrictions on foreign ownership of carriers and companies incorporated in foreign jurisdictions can apply for carrier licences.

There is a small annual fee payable as a contribution towards the operation costs of the industry regulators. This fee is assessed on the basis of market share.

Special rights and obligations
As carriers are the primary providers of the underlying telecommunications infrastructure, they have a limited set of special regulatory rights compared to carriage service providers. These rights include the following:

• to co-locate facilities with other carriers where this is 'reasonable'. This allows an interconnecting carrier to establish a point of interconnection within the exchange building of Telstra (or other existing carriers) or to locate terminal and back-haul facilities within a cable landing station of an existing carrier;
  
  
• to co-locate radio communications transmitters on existing transmission towers or to co-locate cables in existing ducts where this is 'technically feasible'. This imposes a more strict obligation to share than a general co-location obligation; and
  
  
• to receive network planning information from other carriers.

Carriers are required to contribute to the costs of the Universal Service Obligation (USO), which requires the ubiquitous provision of telephony services throughout Australia and, as a result of recent amendments, the ubiquitous provision of higher-speed date services. Telstra currently is the sole provider of the USO, but the government is planning to auction the USO obligation, split by geographic region and by voice and date service type, in an effort to reduce USO costs.

The USO contribution is assessed on the basis of a carrier's share of the total revenue pool of a broad range of specified telecommunications services.

Service providers
Unlike in most other countries, in Australia 'service providers' are a more important regulatory classification than 'carriers'. Service providers can offer any value added or basic communications service. Most of the regulatory rights and obligations attach to carriage service providers, and not to carriers. A carriage service provider, as discussed below, has the same regulatory rights of access and interconnection as a carrier.

There are no licensing or registration requirements for service providers. An operator wishing to provide telecommunications services in Australia, not using any infrastructure of its own, can simply set up business without having to apply for any type of telecommunications licence.

The Telecommunications Act automatically applies a set of class rights and obligations to carriage service providers known as the Service Provider Rules. These rules mainly apply when a carriage service provider supplies a standard telephone service. The Service Provider Rules provide that:

• a carriage service provider supplying a standard telephone service must make directory assistance and operator services available to each end user of its standard telephone service;
  
  
• a carriage service provider can meet its directory assistance and operator service obligations by requesting another carriage service provider which supplies standard telephone services to supply those services on its behalf. Two carriage service providers are to negotiate the terms and conditions of supply. If they fail to agree, the dispute is to be resolved by an arbitrator jointly appointed by them, or if they cannot agree on an arbitrator, by the ACCC;
  
  
• a carriage service provider supplying a standard telephone service must provide end users of that services with itemized billing, except in relation to standard fixed-network local calls which can be included in a bill as a lump sum (aggregating all the charges for local calls); and
  
  
• each carriage service provider supplying a carriage service which uses a public number must provide directory information to the Integrated Public Number Database (IPND). The IPND is intended as a neutral industry numbering database holding all of Australia's public numbers. Any operator, for a charge to cover the IPND costs, can download public numbering information from the IPND. Emergency services also use the IPND to support their emergency call centres. The information that is to be supplied to the IPND includes the telephone number, the customer name and the address.

Access and Interconnection

Seeking access
Who has the right to seek access on regulated terms? There is no distinction between the access rights of carriers or of service providers. A switchless reseller has equivalent regulatory rights to seek access from Telstra as does a facilities-based carrier, such as Optus or Vodafone. However, there may be differences in practice between the price and non-price terms and conditions of access based on reasonable factors such as volume, geographic spread of points of interconnection, term of supply and network configuration.

Providing access
Who is required to provide access on regulated terms and conditions? Just as there is no distinction between carriers and service providers as access seekers, there is also no distinction in the obligations of carriers and carriage service providers to provide access on a regulated basis. This means, for example, that a large carriage service provider which operates a voice or data network based on capacity leased from a carrier may be required to provide access to its switched or leased capacity.

Access regulation applies not only to the former monopoly carrier, or carriers with substantial market power, but to all carriers and carriage service providers irrespective of their market share or power.

Provision of services
What services must be supplied on a regulated basis? The Telecommunications Act does not list the access and wholesale services that must be provided on a regulated basis. Rather, the regulated access regime, including any requirement for cost-based pricing, applies only to those access and wholesale services which have been 'declared' by the ACCC. Services may be declared by the ACCC if, after holding a public inquiry, the ACCC considers that declaration would promote the long-term interests of their users (the LITE test).

Access and wholesale services that have not been declared are supplied on a fully commercial basis. There are no mandated arbitration processes or regulatory remedies, other than the competition safeguards.

The main declared services are as follows:

• domestic PSTN originating and terminating access, which allows access seekers to supply long-distance services over the local networks of Telstra, Optus and other providers of local exchange services;
  
  
• GSM terminating access, which allows access seekers to supply fixed-to-mobile or mobile-to-mobile services (including inbound international calls to Australian mobile telephones);
  
  
• GSM originating access, which allows access seekers to supply special services, such as 1900 information services to subscribers connected to mobile networks of other operators;
  
  
• transmission capacity of two or more megabits per second on all routes, except between Sydney and Melbourne which must be negotiated on a commercial basis outside the access regime;
  
  
• digital-data transmission-capacity access;
  
  
• conditioned local-loop service (a non-switched lease line over local network infrastructure);
  
  
• carriage services over cable television networks for supply of subscription broadcasting services, including use of the set-top box and the conditional access system;
  
  
• copper local unbundling; and
  
  
• local call resale.

The ACCC has decided not to declare transmission capacity between Sydney and Melbourne, because there is likely to be vigorous competition in the supply of capacity on that route between at least four providers (ie, Telstra, Optus, PowerTel and AAPT). Also, the ACCC will not declare national roaming services on GSM networks, because the existing three national networks (Telstra, Optus and Vodafone) are likely to compete to supply wholesale roaming services as they have excess capacity. International switched and leased capacity also is not a declared service because of the level of competition and diversity of capacity.

Obligations of declared services
What are the consequences of a service being declared? A carrier or carriage service provider that supplies a declared service will be automatically subject to a set of mandatory supply terms, known as the Standard Access Obligations (SAOs). The SAOs will apply to a carrier or carriage service provider even if it only uses the declared service internally to support other telecommunications services.

The SAOs require the access provider to:

• supply the declared service to any access seeker which requests the service;
  
  
• take all reasonable steps to ensure that the technical and operational quality of the declared service and interconnection between the access provider's and the access seeker's network is equivalent to that which the access provider supplies to itself;
  
  
• avoid using any information provided by an access seeker on a confidential basis for any purpose other than supplying the access service. (For example, information supplied by an access seeker about its customers cannot be used by the access provider to market its own competing services to those customers); and
  
  
• supply the access seeker with wholesale billing information required by the access seeker to bill its own customers, such as billing name and address information, call duration and time, and the wholesale charges for the access service.

An access provider who breaches the SAOs can be sued by an affected access seeker and damages can be awarded by a court, including for loss of profit.

Access providers can file Access Undertakings with the ACCC for approval. These undertakings are not mandatory, but if approved, the ACCC cannot subsequently make any arbitration determination in a dispute involving the access provider that is inconsistent with its Access Undertaking.

Charges for declared services
The ACCC has adopted a 'total service long-run incremental costs' (TSLRIC) approach for determining charges for declared services, which is broadly similar to the approach of the Federal Communications Commission in the United States. TSLRIC is a forward-looking cost methodology, which means that the costs of the access provider are calculated on the basis of a theoretical new entrant building a network using the best available technology compatible with the existing design of the access provider's network. TSLRIC includes a normal commercial return and a contribution to the common costs which have some relationship to the declared service (eg, company headquarter costs are excluded).

TSLRIC, however, may not apply to all declared services. The ACCC is considering whether declared services (eg, GSM termination) provided by non-dominant operators should be charged in accordance with the TSLRIC rules that apply to Telstra. The ACCC's external economic advisers have recommended charges should be set at marginal cost, but this has proved very controversial and the ACCC seems likely to adopt a more pragmatic approach (eg, retail minus avoidable costs).

Settling access disputes
If an access seeker and an access provider cannot agree on a commercial arrangement, either party may request the ACCC to arbitrate the access dispute, and the ACCC's decision is legally binding. While the ACCC has broad powers to determine price and non-price terms and conditions for the supply of declared services, the ACCC cannot make arbitration decisions that:

• prevent another access seeker who already has access to the declared service from obtaining sufficient capacity to meet its reasonably anticipated requirements;
  
  
• prevent the access provider from obtaining sufficient capacity to meet its own reasonably anticipated requirements;
  
  
• override any existing contractual obligations of the access provider;
  
  
• require an access provider, at its own cost, to extend its network or expand capacity; or
  
  
• are inconsistent with an Access Undertaking of the access provider which was previously approved by the ACCC.

Arbitrations by the ACCC can take six months or more because Australia's legal system gives the access seeker and the access provider extensive rights to be heard and to comment on each other's arguments. However, the ACCC has the power to make interim determinations. The access seeker can veto an interim determination if it considers the interim determination to be unacceptable (eg, because the interim price is too high).

Numbering and Customer Access

Numbering
The ACA is responsible for the national numbering plan.

An annual numbering charge that is applied to most numbers (apart from ordinary geographic or local numbers) is collected by the ACA from the carriage service provider who holds the number on May 22. The methodology used to calculate the annual charge is based on the length of the number, with the amount being increased or decreased by a factor of 10 for each single digit reduction or increase in the length of a number.

The ACA, in accordance with directions from the ACCC, has required carriers and carriage service providers to implement:

• local number portability for single-line customers. Local number portability was required between Optus and Telstra from May 1 1998. The implementation of local number portability was required by May 1 1998, but exemptions granted to various participants meant that implementation between all networks did not occur until November 30 1999;
  
  
• local number portability for multi-line (eg, business) customers. This was required by May 1 1998, but again implementation did not occur until November 30 1999; and
  
  
• portability for non-geographic services from November 16 2000.

The ACA has initially required local number portability to be introduced by a 'call forwarding' approach. However, the ACA has indicated that it will require an 'intelligent network' solution from early 2000, although it seems likely that this date will be pushed back.

Because the ACCC considers that local number portability is in the interest of consumers (because it encourages competition), the ACCC has decided that each carrier or carriage service provider should meet all of the costs of local number portability within its network.

Pre-selection
Pre-selectable services are national long-distance services, international services and fixed-to-mobile services. These services are pre-selectable only as a 'single basket', which means that the customer has to select one supplier for all of these services. However, the ACA has power to require 'multi-basket' pre-selection that would allow customers to select different carriers for some or each of these services. It seems likely that international services will be separately pre-selectable within the next two to three years.

Competition Safeguards

Dealing with anti-competitive conduct
The ACCC has telecommunications-specific powers to deal with any competitive behaviour in telecommunications markets. These powers have proved to be less effective than originally anticipated and the telecommunications legislation was recently amended to give the ACCC enhanced powers.

A statutory Competition Rule prohibits a carrier or service provider with a substantial degree of market power (an SMP operator) in a telecommunications market from taking advantage of that power with the effect or likely effect of substantially lessening competition. Unlike under Australia's general competition law, it is not necessary to prove that the SMP operator had an anti-competitive purpose or intention. Also, the cumulative anti-competitive effect of the SMP operator's activities/actions may be considered.

If the ACCC has reason to believe that the Competition Rule has been breached, it may issue a notice to the SMP operator. Competition notices do not require the SMP operator to cease the conduct that the ACCC considers to be in breach of the Competition Rule. Rather, competition notices have the following effect:

• the ACCC or any affected party (eg, a competitor) can bring court proceedings (eg, an injunction) to stop the conduct described in the notice;
  
  
• if an SMP operator continues to engage in the conduct described in the notice, the court can award damages and impose fines back-dated to the date of the competition notice. (The maximum fine is A$10 million plus A$1 million for each day of non-compliance); and
  
  
• the notice itself is evidence of the particulars in the notice. This means that the ACCC or the affected party does not bear the usual burden of proving a breach of the Competition Rule. Rather, the SMP operator has the burden of proving that there was no breach.

If a competitor believes that an SMP operator has breached the Competition Rule, it does not have to wait for the ACCC to issue a competition notice. An affected competitor can bring its own injunctive proceedings to enforce the Competition Rule, but it will bear the onus of proving that there has been a breach.

Disclosure requirements
The ACCC also has extensive powers to gather information in order to help it monitor competition and arbitrate access disputes. The ACCC may make record-keeping rules in accordance with which a carrier or carriage service provider must keep its accounts and other documentation. All carriers and carriage service providers are subject to the record-keeping rules, including new entrants, unless they are specifically exempted. The ACCC also has powers to require publication of information that is collected and supplied in accordance with the record-keeping rules.

For further information on this topic please contact Peter Waters at Gilbert & Tobin by telephone (+61 2 9367 3000) or by fax (+61 2 9367 3111) or by e-mail ([email protected]).