NBN scope creep Bill defended by government

A Senate committee has recommended the Vertigan Review Bill be passed by the government, despite Telstra, Optus, Macquarie Telecom, and the Competitive Carriers Coalition (CCC) all slamming the Bill for allowing too much "scope creep" on the part of the National Broadband Network (NBN) company into other industries.

The Telecommunications Legislation Amendment (Access Regime and NBN Companies) Bill 2015 [PDF] was registered in the House of Representatives on December 2, 2015, as a result of the six reports undertaken as part of the Vertigan Review into the NBN.

Under Section 22B of the Bill, the governor-general is allowed, thanks to s101 of the NBN Companies Act, to specify circumstances under which NBN is not restricted from supplying wholesale non-communications goods and services, and undertaking investment activities.

"The statutory review noted that there could be developments that warrant modifications of the line-of-business restrictions, and a regulation-making power would allow such developments to be dealt with flexibility without needing to amend the NBN Companies Act," the explanatory memorandum for the Bill [PDF] says.

While the submissions published last month from each telco or group varied, they all agreed on one point: That the line-of-business requirement is necessary to protect the market.

"Clear, fixed boundaries around NBN Co's permitted scope of business are needed for all retail service providers (RSPs) to make the substantial investment required to retool themselves for this new model," Telstra argued.

"Investment certainty is undermined if there is a risk that NBN Co, with its advantages as a government-owned and funded entity, could encroach into areas of competitive activity."

The CCC, which is made up of several non-dominant Australian telcos, said that NBN had been formed for a specific purpose, and should not go beyond this, with Optus suggesting that adding other activities to its business would distract NBN from rolling out its network.

"NBN Co was established to specifically address a market failure relating to the provisions of last mile access for high-speed broadband services; it should remain focused on that purpose," Optus said.

Optus pointed out that NBN is "already pushing the boundaries of its remit" by reportedly looking to develop a POI backhaul service, implementing new satellite services, and developing an in-flight communications service in collaboration with airlines.

Telstra shed some light on why NBN would be looking to expand its remit, pointing towards reports that it needs new sources of revenue in order to fill the gap between government funding and the funding required to roll out its network.

The Senate Environment and Communications Legislation Committee said in its response this week that it acknowledges the industry's "concerns", but reaffirmed that the power would have limitations prohibiting NBN from supplying retail and content services.

The Department of Communications has said in its response that the regulations are necessary for "flexibility to deal with unintended consequences, should they arise, given the wide range of existing restrictions on NBN".

"The telecommunications sector is highly dynamic. Companies must be able to respond to changes in the market, and where appropriate, flexibility should be available to governments and regulators to facilitate this responsiveness," the department said.

"The difficulty for NBN Co in disposing of surplus assets is simply one known identified example; should similar examples be identified in the future the regulation-making power could be used in a public and transparent manner to deal with them, subject to usual parliamentary scrutiny."

Macquarie Telecom had acknowledged that NBN may need an extended remit to dispose of assets at the end of its rollout: "If NBN is so constrained that it is, for example, unable to dispose of earth-moving equipment or excess fibre, the restrictions are clearly excessive.

"However, the rationale for the line-of-business restrictions -- to constrain NBN from entering and undermining competitive markets -- remains a keystone element of the regime."

Assistant Secretary of the Markets Structure Branch at the Department of Communications Philip Mason added that to prevent NBN from entering retail datacentre provision, for example, through loopholes in the Bill, regulations could be drafted to emphasise that such service delivery is not permitted.

In addition to outlining NBN's line of business, the Vertigan Review Bill clarifies interactions for the facilities access regime; mandates that providers must give access to in-building cabling to competing service providers; provides an exemption for NBN's non-discrimination obligations for trials of services "to promote innovation"; allows NBN companies to dispose of surplus assets; reduces restrictions on supplying non-communications goods, services, or investments for NBN's business operations; and authorises NBN to restrict its network to certain points of interconnection and to require customers to purchase bundled NBN services in order to drive the rollout of the network, with these authorisations to cease once the NBN is built and fully operational.

The Bill also addresses several roles of the Australian Competition and Consumer Commission (ACCC), requiring the ACCC to consult with relevant parties before making interim access determinations or binding rules of conduct; to use a consistent method in making final access determinations for NBN and others; to specify its necessary and desired changes in accepting new or varied special access undertakings (SAUs); and to provide those submitting SAUs with more flexibility to respond to the changes required by the ACCC.

The draft legislation increases the probability that the ACCC can accept fixed principles provisions in new or varied SAUs, and ensures a greater consistency in SAU determinations by requiring the ACCC to have regard to its own precedents.

In its submission, Optus said the amendment seeking to ensure consistency in access determination pricing decisions went too far.

"The proposed amendments clearly go further than ensuring that an access provider is not disadvantaged as compared to NBN Co, since it also requires the ACCC to ensure that NBN Co is not disadvantaged compared to other access providers," Optus argued.

"On a cursory consideration, the proposed amendments appear fairly benign and the objective of achieving consistency in access determination does not appear unreasonable. However, it is not clear what problem these amendments are seeking to address, since no issue has arisen to date to warrant these changes."

Macquarie Telecom agreed, saying that the changes would "add red tape, risk creating further delay and complexity to an already highly bureaucratic process, and, in so doing, create further barriers to smaller stakeholders participating in these important regulatory processes." The telco labelled it "a solution in search of a problem".

While the CCC said that consulting with affected parties before making interim decisions would bog down the independent regulator and prevent it from being able to act decisively -- creating "a lawyers' picnic" and slowing down the "already laborious process" -- the department said it is merely looking to codify the ACCC's existing practices on consultation and methodology.

"The requirement for the ACCC to consult simply codifies an important element of the ACCC's processes," the department argued.

"Given that they simply provide some greater certainty that the ACCC will follow minimum procedural fairness requirements, they should neither be seen as delaying regulatory decisions nor as adding any additional red tape to access determination processes."

Optus also pointed out that the changes to ACCC variation powers of an SAU would be "counterproductive", with the CCC saying they would effectively shift discretion and flexibility from the ACCC to the monopoly owners.

In response to the criticisms about SAUs, the department said the changes are being made in response to "genuine concerns raised by NBN Co, and are intended to provide a useful discipline on the regulator".

The department is, however, considering improving "the operation of the framework, by making it clear the ACCC should focus on what is essential, but can also raise changes it considers useful or desirable".

Optus, Macquarie Telecom, and the CCC had also criticised the section lifting NBN's non-discrimination obligations under s152F in regards to pilots and trials of technology. In response to this, the Senate committee provided reassurance that "the pilot and trial mechanism is transparent and covers only legitimate pilots or trials for a limited period of time", with Mason adding that "there would be quite considerable information in the public domain as to what was happening".

"I do not think that actually qualifies as a pilot or a trial. A trial or a pilot is fundamentally about getting an idea and actually seeing if it works. This is the way the provisions would work: The ACCC has scope to say, 'We do not think that this is a bona fide pilot or trial,' and to take action," Mason said.

"It is quite clear that this is in relation to pilots and trials, and the ACCC, as the expert regulator ... can make a judgment that this is not really a pilot or a trial, but is a way for you to try to capture the market in advance, and that is not what we are about or what we want to achieve."

Telstra's final gripe about the Bill was that it lacked a merits-based review mechanism for ACCC decisions, pointing out that the government's own response [PDF] to the Vertigan Review in December 2014 had mentioned using the opportunity to insert this provision.

This was not addressed by the Senate committee, which passed the buck onto the government.

"The committee makes no findings or recommendations about these other proposals, beyond noting that they raise questions of policy for the government to contemplate outside of this inquiry," it said.

Overall, the committee said that once the "various 'housekeeping' issues" are addressed, the Bill will "encourage innovation and improve regulatory processes".

"For example, the flexibility that the Bill will provide to NBN Co to support trials and pilots of new services will encourage innovation, which will ultimately benefit consumers. Fundamentally, the telecommunications regulatory regime should provide incentives for firms to continually drive innovation for the long-term benefit of consumers," the committee said.

"In relation to the regulations that this Bill would enable, the committee notes that any regulations made will be subject to appropriate consultation and parliamentary scrutiny through the disallowance process.

"The committee recommends that the Bill be passed."

The Vertigan Review was commissioned at the end of 2013 and undertaken in 2014.