A review from Melbourne communications and regulatory legal specialists
Nicholls Legal has branded the Schedule 11 Telecommunications
Legislation Amendment (Competition and Consumer Issues) Bill as
“hopelessly ineffectual” in terms of policing Telstra’s competitive
conduct and warns that if implemented may result in “several regulatory
steps backwards.”

The review conducted by Nicholls Legal principal Matthew Nicholls, a
former Regulatory & General Counsel at Primus Telecom, was
requested by the Competitive Carriers Coalition and is being widely
circulated through the government and industry. The review notes that
given the limited time to review the Bill, the immediate concerns
represent the “tip of the iceberg” in terms of the likely adverse
impact on the market as a whole.

Overall, Nicholls warns that the Bill, “if enacted in its present
terms, will be hopelessly ineffectual in terms of imposing any real
constraint on Telstra’s conduct with respect to its competitors.” He
highlights the omission of the Australian Competition and Consumer
Commission from the process and the lack of any “real penalty” imposed
on Telstra for any contravention of the operational separation regime.
He adds that the regulatory regime would be retarded by Telstra’s new
found ability to draft its own final operational separation plan (FOSP).

Key points (an extract from Nicholls Legal review):


OPERATIONAL SEPARATION PLAN:
“Given that operational separation is, conceptually, about constraining
Telstra’s ability to take advantage of its market power as a vertically
integrated carrier, it would seem to me to be inconsistent to give
Telstra primary responsibility for defining the nature and scope of
such constraint.” With the Bill providing for a period around nine
months for a “draft operational separation plan” (“DOSP”) to be
prepared, assuming there are no delays, culminating in a “final
operational separation plan” (“FOSP”). “In practice, having regard to
previous experience in similar matters, I expect it will take much
longer before we see a FOSP.”

RECTIFICATION PLAN:
Telstra requirement to prepare a document called a “draft rectification
plan” in the case that a contravention of the FOSP, under proposed
Schedule 11 to the Bill, would be a time consuming process. Nichols
warns that the Bill effectively legislates an 18 month delay at the
minimum before a FRP could come into force. “Again, assuming there are
no delays in the preparation of a DRP, it would take up to a further
nine months for the DRP to have any binding effect on Telstra. In
practice, I expect this measure will be of little or no practical
benefit, as it is open for Telstra to either vary its FOSP in the
meantime or, as is often the case with these types of matters, the
issue of concern will simply be overtaken by events by the time a DRP
becomes a “final rectification plan” (“FRP”).

LACK OF EFFECTIVE PENALTIES FOR CONTRAVENTION:
The legislation contains no specific provisions concerning enforcement
or penalties for a contravention of a FRP, other than that, “[i]f a
final rectification plan is in force, Telstra must comply with the
plan.” Compliance with a FOSP is not a condition of Telstra’s carrier
licence. “Therefore, it seems that the only penalties for
non-compliance with a FRP would be a formal warning: (note, a formal
warning carries no penalty) or a remedial direction issued by the
Commission. It would appear that Telstra would not be liable for civil
penalties under Part 31 of the TA for a contravention of the FOSP,
albeit civil penalties are the most serious remedial measure available
for a breach of a licence condition, with fines of up to $10 million.

LACK OF ACCC ROLE:
“In my view, the Commission would be the best placed authority to
provide oversight and input into these critical processes. I note the
proposed Bill contains provision for the Commission to give remedial
directions to Telstra in relation to any alleged contraventions.
However, such remedial directions would be subject to merits review by
the Australian Competition Tribunal. Historically, similar reviews by
the Tribunal have taken around two years. “

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