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Telco competition law to be repealed

The government has decided to remove telecommunications-specific anti-competition laws because it is 'confident' that general competition rules will control the telco market.
Written by Corinne Reichert, Contributor

The Australian government has announced that it will introduce legislation that repeals the telecommunications anti-competitive conduct laws due both to a strengthening of the general misuse of market powers law and to significant changes in the telco sector since the laws were introduced in 1997.

The laws, contained under Part XIB of the Competition and Consumer Act 2010, will be replaced by the amendments being made to the general misuse of market power laws under Section 46 of the same Act due to overlap.

"With some key elements of the Part XIB rules now being reflected in the proposed changes to section 46, it is an appropriate time to repeal the Part XIB rules and streamline regulation for the sector," Communications Minister Mitch Fifield said in a statement.

Fifield further claimed that Part XIB was "always intended to be transitional" and was meant to supplement competition law until the general law could be strengthened in future.

"The telecommunications sector has changed significantly in the past 20 years, and competition is much further advanced than it was at that time," Fifield added.

"The government is confident that broader competition law will be effective in preventing anti-competitive conduct in the telecommunications sector."

The government also said that the decision to remove Part XIB is bolstered by the fact that the Australian Competition and Consumer Commission (ACCC) has its own regulatory mechanisms to control the telco sector under Part XIC, and because Telstra's structural separation undertaking (SSU) for the National Broadband Network (NBN) rollout will regulate its behaviour over the next five years.

Telstra welcomed the government's decision, calling it a "positive example of regulatory reform".

"We believe that if reforms recommended by the Harper Review -- changing Section 46 of Australia's competition law -- go ahead, these aspects of Part XIB are no longer necessary," a Telstra spokesperson said.

"The ACCC supports this view."

The Competitive Carriers Coalition (CCC), made up of Australia's non-dominant telcos, immediately slammed the government's decision, saying it would "gut protections from anti-competitive conduct by Telstra".

"It would appear we have returned to the bad old days when the government acted as though Telstra was the telecommunications industry, and other opinions could be ignored," CCC chairman and Macquarie Telecom's national executive for industry and policy Matt Healy said in a statement.

"It is an attitude that has resulted in Australia becoming a case study among OECD nations in exploited consumers and weak competition."

The government had put out the call for submissions on removing the telco-specific anti-competitive conduct laws in September.

"The Turnbull government is inviting submissions on the ongoing operation of telecommunications conduct regulation following the release of proposed changes to general competition law," Fifield said at the time.

"Part XIB of the Act was introduced in 1997 to support the transition to open competition in the telecommunications sector. With the proposed changes to Section 46, there is a need to consider the operation of the telecommunications-specific arrangements in Part XIB."

The CCC said nearly every telco excepting Telstra argued against the removal of Part XIB in their submissions to the government on the matter.

Optus' submission [PDF] stated that there would be "merit" in retaining Part XIB in the face of a strengthened s46, as the telco sector has "unique characteristics that provides a higher risk of anti-competitive conduct than is likely to be present in other industries".

"Notwithstanding the development of competition, sections of the communications market remain highly concentrated and there are number of bottlenecks that can provide a source of market power," Optus said.

"Further, there are strong interdependencies between firms within the communications market to enable end-to-end services to end-users. This means that the actions of one firm can have broad implications for other firms and the competitive process."

Optus added that it would be "premature" to repeal Part XIB during the NBN rollout, as the nationwide fixed-line network will likely effect the market's structure in as yet uncertain ways.

"Retaining Part XIB will provide continued competition safeguards as the market adjusts to these structural changes and their final impact can be assessed with greater surety," Optus concluded.

Vodafone Australia's submission [PDF] similarly argued that Part XIB remains "an essential feature" of telco competition.

"XIB has been amended and refined several times over the years to take account of specific dynamics and issues in the telecommunications industry," Vodafone pointed out.

"This continual refinement should not be ignored and unwound merely because (important) changes are being made to the generic misuse of market power provisions."

Vodafone added that while the ACCC has not used the Part XIB powers in recent history, it has needed them to intervene "at several key points in the development of the industry", and its existence changes Telstra's incentives.

The CCC's own submission [PDF] said that Part XIB should be retained with only a minor amendment, replacing a purpose test with an effects test in order to remove duplication with s46.

NBN's submission [PDF] stated that while Part XIB should in general be retained, Section 151AJ(2), which contained the telco-specific misuse of market power provision should be repealed, "as it will no longer have utility".

However, the ACCC and Telstra both supported the removal of Part XIB: Telstra's submission argued that Part XIB is "already extremely onerous", and that the strengthening of s46 would make it "even more onerous".

"Because the new section 46 will flow through to Part XIB, carriers and CSPs should not face the compounding risk brought about by changing Section 46 and then be obliged to discharge the onus of proof in court and face the threat of disproportionate fines under Part XIB," Telstra argued.

"The compounding uncertainty and risk that this creates will impact carriers' and CSPs' decision-making. Carriers and CSPs are more likely to adopt lower-risk strategies, resulting in adverse impacts on competition and consumers."

The ACCC's submission [PDF] said that removing Part XIB will "assist in promoting the principle of universality of competition law across the economy and remove unnecessary overlap".

Telstra, Vodafone, and Optus did not respond to a request for comment as of the time of publication.

Updated at 5pm AEDT, November 24: Added comment from Telstra on the decision.

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