In this first report of the Regional Telecommunications Independent Review Committee, we recommend bold changes to telecommunications policy and legislation. The changes we propose are to ensure ongoing equitable access to broadband, mobile and fixed voice telephony and payphones across the country, and particularly for individuals and businesses in regional, rural and remote parts of Australia.

The existing legislative and regulatory arrangements for universal service are increasingly strained by the importance of mobile telephony and broadband services, the privatisation of Telstra, and the ongoing development of a competitive telecommunications market. With the significant changes likely to occur from the Australian Government’s proposed National Broadband Network (NBN) there is now an opportunity to revolutionise the availability and quality of telecommunications services in this country, including all of regional Australia.

Our proposals are based on the belief that competitive markets are best able to deliver telecommunications services. Government interventions should be limited to where this is necessary to ensure service availability. (ATUG emphasis added)

The importance of regional Australia and its industries to our overall national wellbeing underscores the importance of adequate telecommunications services to regional, rural and remote parts of Australia. Increasingly, telecommunications services are not only an end in themselves for achievement of equity, but also critical enablers in the equitable availability of other services. We therefore support a policy and regulatory environment that promotes competition, innovation, and investment in telecommunications for regional areas, supported by effective measures to protect consumers. The ultimate aim of any such approach is to establish fairness or equity for all Australians.

In accordance with the terms of reference, we reviewed the adequacy of telecommunications services in regional, rural and remote parts of Australia having regard to whether people in these areas have equitable access to significant telecommunications services that are also available in urban areas.

For the purposes of this review, we consider that:

There have been dramatic improvements in telecommunications services in regional Australia in recent years. However, we have found that these services, specifically mobile services and the availability of broadband internet access are still inadequate….

Competition in telecommunications services in regional markets is not as intense as in urban areas. Regulatory decisions about urban markets can have far-reaching impacts on regional markets.

There is limited consumer awareness of alternative telecommunications providers or complaint processes in regional Australia. The current regulatory arrangements are fragmented and do not support transparency and consumer understanding….

We recommend an ongoing commitment by the Australian Government to a set of standards that specify the services that should be available to all Australians — the ‘Communications Services Standard’ (CSS).

The CSS would allow many consumer protection measures to be incorporated into a simpler framework that provides both industry and consumers with a secure footing for their investments and expectations.

The Committee’s bold new approach requires significant policy changes such as:

How far the development of competition needs to be promoted remains a fundamental dilemma in telecommunications policy. Competition as a policy objective is merely the means to the benefits of competition — that is, cost reflective (and hence lower) prices, greater innovation and better customer responsiveness.

However, services like telecommunications have high fixed upfront costs and the promotion of competition can be at the expense of efficiency. Inefficient duplication of infrastructure can potentially result in higher costs to the community and higher prices for end-users than would occur with a single monopoly provider. This issue is likely to be more significant in areas with lower population density and is a significant issue for regional Australia.

The structure of the telecommunications industry, including the integrated nature of Telstra may be limiting the benefits of competition in regional areas….

There are arguments against structural separation. Separation may prevent a company achieving efficiencies, including economies of scope and scale. It is possible that these higher costs could be passed on to consumers in higher prices. The benefits of structural separation may be so small that they do not justify the cost incurred from the structural separation. The main benefit of structural separation is the avoidance of risk that the vertically integrated company uses its market power to the detriment of other providers and consumers. If the costs of separation are significant it may outweigh the benefits. The Committee is not aware that the relative merits of these arguments concerning structural separation have been tested through any inquiry in Australia….

It may be that the Australian Government will be satisfied by the access arrangements proposed by a proponent of the NBN without the need for structural separation. In that circumstance there would be no further change needed to industry structure. The Committee would be concerned about the potential risk of such an outcome if the proponent was able to use market power to damage competition in a way unforeseen by the Government. The significant benefit of having legislated divestiture powers as provided in the US and UK is that it provides a guarantee or option to the public against such a circumstance.

Therefore the Committee recommends that the Australian Government look into the merits of introducing legislative provisions that would provide for the forced divestiture of a business where this is in the public interest.

The Committee has the view that were the Australian Government to award the NBN to an integrated operator then it needs to recognise the existence of the risk Telstra has identified (that companies with strong horizontal market positions can use vertical integration to protect or enhance market power), and to legislate to enable separation as a remedy after the fact if the risk is ever realised. The Committee notes that such a legislative provision will act as a powerful incentive to reduce the likelihood of the risk being realised, but that the legislative provision is likely to have little or no other adverse impact on the market.

"… . the Government understands the importance of telecommunications for regional, rural and remote Australians and has made up to $400 million available for developing targeted initiatives responding to specific recommendations identified in the report.

The Government has also allocated $270.7 million to fund the Australian Broadband Guarantee to 2012 and is considering public submissions on initiatives to provide enhanced broadband to the most remote areas of the country.”