Telecommunications regulatory reform – Telstra’s separation framework

Rate this page

Like this page

Dislike this page

Thank you for your feedback.

 

On 27 February 2012, the Australian Competition and Consumer Commission (ACCC) accepted Telstra's Structural Separation Undertaking (SSU) and draft Migration Plan.

Telstra's SSU and draft Migration Plan, along with the ACCC’s ‘Assessment of Telstra's Structural Separation Undertaking and draft Migration Plan—Final Decision’, are on the ACCC website:

Under section 577AA of the Telecommunications Act 1997 (the Act), Telstra could make acceptance of an undertaking about structural separation subject to the occurrence of one or more nominated events. Telstra made acceptance of its SSU conditional on the approval of the draft migration plan by the ACCC and the minister making a declaration under subsections 577J(3) and (5) of the Act. The declaration exempts Telstra from the requirement to divest its interests in hybrid fibre-coaxial (HFC) networks and subscription television broadcasting licences.

On 6 March 2012, Telstra's SSU and Migration Plan came into force on the signing of the declaration by the minister, the Telecommunications (Voluntary Undertakings—Exemptions) Declaration 2012.

Structural separation is a major micro-economic reform

Beginning in 2009, the government embarked on a major transformation of Australia’s telecommunications industry, which focused on two key elements:

  • the construction of the National Broadband Network (NBN), which will deliver high-speed broadband to all Australians
  • structural reform of the sector.

The NBN will deliver a wholesale-only, open-access telecommunications market structure, transforming the competitive dynamics of the Australian telecommunications industry.

The Australian telecommunications market has been characterised by the presence of a strong and highly-integrated incumbent. Telstra owns the only copper network (connecting almost every house), the largest cable and mobile networks, and a 50 per cent stake in Foxtel (Australia’s largest subscription television provider).

Partly because of this integration, Telstra has maintained a dominant position in most aspects of the market, despite 14 years of open competition. It was the government’s view that Telstra’s high level of integration had hindered the development of effective competition in the sector to the detriment of residential and business end-users.

Consistent with the market structure that the NBN delivers, the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act 2010, which was passed by the parliament in November 2010, inserted a new Part 33 into the Telecommunications Act. This created a framework for Telstra to implement functional separation or to voluntarily structurally separate by submitting an SSU.

Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act

Explanatory Memorandum

Second reading speech

In addition to the new Part 33, the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Act made a number of amendments to the Telecommunications Act, the Competition and Consumer Act 2010, the Telecommunications (Consumer Protection and Service Standards) Act 1999 and the Telecommunications (Carrier Licence Charges) Act 1997. These aimed to enhance competitive outcomes in the Australian telecommunications industry and strengthen consumer safeguards. Consolidated versions of these Acts are available on the ComLaw website.

The structural separation framework

Under the Telecommunications Act, the minister was required to make a number of instruments that provided the statutory framework for Telstra to voluntarily separate its structure. These instruments were made on 23 June 2011.

Under the Act, structural separation is defined to mean that after the designated day, which is 1 July 2018 or another day specified by the minister, Telstra will not supply fixed-line services to retail customers in Australia using a telecommunications network over which Telstra is in a position to exercise control unless that network or those services have been exempted in an instrument made under Part 33. Under this definition of structural separation, there were a number of ways Telstra could have chosen to structurally separate.

Telstra has elected to separate by migrating its customer services to the NBN as that network is progressively rolled out. Most of the copper network will be disconnected and use of its HFC network would be limited to pay TV services only. This method of structural separation delivers the government’s structural reform objectives of a wholesale-only network operating across the country which is not controlled by any retail provider.

Part 33 allows Telstra to specify in its SSU that it will give the ACCC a migration plan. The migration plan deals with matters concerning the timing of, and processes involved in, the migration of customer services from Telstra’s fixed-line networks to the NBN. Once the ACCC approves a migration plan, the provisions of that plan have effect as provisions of the SSU.

Under subsection 577BB(1) of the Telecommunications Act, the Telecommunications (Migration Plan Principles) Determination 2011 sets out the mandatory elements of the migration plan. If the ACCC was satisfied that a draft migration plan submitted by Telstra complied with the migration plan principles, then the ACCC was required to approve the plan. The instrument was published on this website on 24 June 2011.

The Telecommunications (Migration Plan—Specified Matters) Instrument 2011 specifies matters that a migration plan may contain in addition to those specified under subsection 577BC(2) of the Telecommunications Act. This instrument also sets out matters that a migration plan must not contain. The instrument was published on this website on 24 June 2011.

The minister may exempt particular fixed-line services or telecommunications networks from the scope of Telstra’s SSU and Migration Plan by an instrument made under subsections 577A(20) and (21). The Telecommunications (Structural Separation—Networks and Services Exemption) Instrument (No. 1) 2011 exempted certain networks and services. The instrument was published on this website on 24 June 2011.

The practical effect of this instrument is that the SSU will apply to Telstra’s copper networks and the broadband capability of Telstra’s HFC networks in those regions where the NBN fibre rollout occurs. Telstra will be able to continue to supply services using copper and HFC in areas beyond the fibre rollout. These copper-based services will be provided from 1 July 2012 through a contract for the delivery of the Universal Service Obligation.

In deciding whether to accept an SSU, Part 33 provided that the ACCC had to have regard to several matters, including the national interest in structural reform of the telecommunications industry, the impact of structural reform on consumers and competition in telecommunications markets, and the matters set out by the minister in an instrument made under subsection 577A(7). The Telecommunications (Acceptance of Undertaking about Structural Separation—Matters) Instrument 2011 required the ACCC to have regard to certain matters—in particular, the conduct that would be authorised under section 577BA of the Telecommunications Act and improved transparency and equivalence matters. The instrument was published on this website on 24 June 2011.

Under subsections 577A(3) and (5), the ACCC must not accept an SSU unless the ACCC is satisfied that the SSU contains appropriate and effective measures for transparency and equivalence in relation to the supply by Telstra of regulated services to Telstra’s wholesale customers and Telstra’s retail business units during the period that Telstra is migrating its customer services to the NBN. In approving the SSU, the ACCC was also required to be satisfied that the SSU contains appropriate and effective measures for the ACCC to monitor Telstra’s compliance with the SSU, and for Telstra to have systems that facilitate the ACCC’s monitoring role.

Under subsections 577A(4) and subclause 71(4) of Part 9 of Schedule 1 to the Telecommunications Act, a regulated service is defined as a declared service within the meaning of Part XIC of the Competition and Consumer Act as well as those eligible services that the minister specifies in a legislative instrument. The Telecommunications (Regulated Services) Determination (No.1) 2011 has the effect of requiring transparency and equivalence measures to also be applied to wholesale ADSL Layer 2 and Telstra exchange building access services. On 14 February 2012, the ACCC declared the wholesale ADSL service. The instrument was published on this website on 24 June 2011.

All these instruments worked together to provide the statutory framework for Telstra to voluntarily structurally separate.

Public comment was invited on drafts of these instruments. The exposure drafts and public submissions received in response to them are online:

Functional separation requirements determination—extension of period instruments

It was the government's preferred outcome for Telstra to voluntarily structurally separate. The Telecommunications Act gives priority to the structural separation process over the functional separation process. This is achieved by the minister, under subclause 75(5B) of Part 9 of Schedule 1 to the Act, extending or further extending the period that is required to make the functional separation requirements determination. The extension, or the total of the extensions, cannot exceed 18 months. The minister must cause a copy of an instrument made under subclause 75(5B) to be tabled in each House of parliament.

The minister made the following extensions.

Telecommunications (Functional Separation Requirements Determination—Extension of Period) Instrument 2011 

On 25 March 2011, the minister made this instrument to extend the period within which a functional separation requirements determination must come into force to the period ending 30 June 2011. The instrument was tabled in the House of Representatives on 15 June 2011 and in the Senate on 16 June 2011.

Telecommunications (Functional Separation Requirements Determination—Further Extension of Period) Instrument 2011

On 24 June 2011, the minister made this instrument to extend the period within which a functional separation requirements determination must come into force to the period ending 31 December 2011. The instrument was tabled in both the House of Representatives and in the Senate on 4 July 2011.

Telecommunications (Functional Separation Requirements Determination—Further Extension of Period) Instrument (No. 2) 2011

On 13 December 2011, the minister made this instrument to extend the period within which a functional separation requirements determination must come into force to the period ending 31 March 2012. The instrument was tabled in both the House of Representatives and in the Senate on 7 February 2012.

Due to the Telstra SSU coming into force and ACCC approval of Telstra’s draft migration plan, in accordance with paragraphs 75(5A)(a) and 76(2)(a) of Schedule 1 to the Telecommunications Act the minister is no longer required to make a functional separation requirements determination, and Telstra is no longer required to give the minister a draft functional separation undertaking.

For more information, please email separationframework@dbcde.gov.au

 
 
 
 
Document ID: 120018 | Last modified: 10 May 2012, 3:49pm