EXPLANATORY STATEMENT
Telecommunications Universal Service Management Agency Act 2012
Levy Amount Formula Modification Determination 2013
Issued by the Authority of the Minister for Broadband, Communications and the Digital Economy
Authority
The Levy Amount Formula Modification Determination 2013 (the Determination) is made by the Minister for Broadband, Communications and the Digital Economy (the Minister) pursuant to subsection 99(8) of the Telecommunications Universal Service Management Agency Act 2012 (the Act), which provides that the Minister may modify the formula for working out the levy amount of a ‘participating person’ for the first or second eligible revenue period under the Act.
Purpose
The Determination modifies the formula by which a levy amount is calculated for a participating person in the first or second eligible revenue period to provide for the calculations to be adjusted in the event that a participating person goes into receivership, liquidation, general administration or ceases to exist.
Background
In early 2012, as part of a package of legislation to achieve continuity of key telecommunications safeguards in the transition to the National Broadband Network, the government established a new statutory agency, the Telecommunications Universal Service Management Agency (TUSMA). TUSMA has responsibility for the effective implementation and administration of service contracts or grants that deliver universal service and other public policy telecommunications outcomes.
As part of the reform package, the government consolidated the previous Universal Service Obligation (USO) and the National Relay Service (NRS) levies into a single levy to cover TUSMA’s costs (together with government funding). The levy provisions in Part 6 of the Act are broadly based on the USO levy provisions contained in Part 2 of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (the TCPSS Act).
Under the new levy scheme, a ‘participating person’ will continue to lodge eligible revenue returns with the Australian Communications and Media Authority (the ACMA) and levy payments will continue to be based on the ACMA’s assessment of each participating person’s eligible revenue.
Subsection 99(3) of the Act sets out the formula for calculating the levy amount for the first or second eligible revenue period (i.e. the 2011-2012 and 2012-2013 financial years, respectively). The levy amount is the ‘levy contribution factor’ (as calculated under section 98 of the Act) multiplied by the ‘overall levy cap amount’ (which is an amount ascertained in accordance with a written instrument made by the Minister under subsection 99(4) of the Act).
The formula for calculating the levy amount for the first or second eligible revenue periods is different from the formula that applies in subsequent eligible revenue periods because of the substantially different liabilities incurred by TUSMA during its first two years of operation. In particular, TUSMA’s liabilities in its first year of operation are substantially less than those it would ordinarily incur in an eligible levy period. If the formula for the first two eligible revenue periods was based on the overall levy target amount set under section 88 of the Act, insufficient levy would be collected to meet the substantive payments required to meet section 13 contracts and grants for the subsequent financial year.
The formula in subsection 99(3) of the Act relies on all participating persons paying in full their respective levy amounts so that the ‘overall levy cap amount’ is recovered. If a participating person does not pay the levy amount owed (because, for example, they enter some form of external administration under the Corporations Act 2001, or otherwise cease to exist before the end of the relevant eligible revenue period), there will be a shortfall in TUSMA’s funding for that financial year.
Subsection 99(8) of the Act sets out that the Minister may, by legislative instrument, modify the formula in subsection 99(3). The Explanatory Memorandum to the Telecommunications Universal Service Management Agency Bill 2011 provides the following relevant commentary:
This ability to vary the formula of a levy amount would allow the Minister to modify the means by which the overall levy amount is calculated to account for any irregularities that might otherwise adversely affect the accurate assessment of a levy amount under this clause. For example, this power could be utilised to adjust the calculations of a levy amount in the event of a participating person going into receivership, liquidation or general administration or who for any reason has ceased to exist.
The Determination provides a mechanism to automatically recover a shortfall of the overall levy cap amount, in circumstances where a participating person is unable to pay the full levy amount in the first or second eligible revenue period, due to receivership, liquidation, general administration or that the person ceases to exist. The Determination does this in an equitable manner, with the relevant shortfall being distributed amongst the remaining carriers for payment.
The Determination is consistent with the Levy Debit Formula Modification Determination (No.1) 2002 made by the Minister under subsection 20R(3) of the TCPSS Act in respect of the USO levy. This Determination similarly provides for a special formula to apply if a participating person is in receivership or liquidation or for any reason ceases to exist prior to the end of an eligible revenue period. In this context, it is important to note that the Determination ensures that the existing and well-understood regulatory mechanisms that apply to the USO levy can also be applied to the new levy. The Determination does not therefore impose new obligations on participating persons, or alter their existing obligations in any significant way.
Consultation
The ACMA was consulted in relation to the making of this Determination.
An exposure draft of this Determination was provided to carriers who were participating persons for the 2010-11 eligible revenue period, as well as those additional carriers who might be participating persons for the 2011-12 eligible revenue period. Three submissions were received, only one of which raised questions in relation to this Determination. Minor amendments were made in response to clarify the intent of the Determination.
Regulatory impact
The Office of Best Practice Regulation (the OBPR) has agreed that the regulatory changes arising from the Determination are machinery in nature and that no further regulatory impact analysis is required. The OBPR regulatory impact statement exemption number is ID 2012/14168.
Statement of compatibility with human rights
This statement of compatibility is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
The Determination modifies the formula by which a levy amount is calculated for a participating person in the first or second eligible revenue period. This modified formula provides for the calculations to be adjusted in the event that a participating person goes into receivership, liquidation, general administration or ceases to exist.
The Determination is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act. It does not engage any of the applicable rights or freedoms and does not raise any human rights issues.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Notes on sections
Section 1 - Name of Determination
Section 1 provides that the name of the Determination is the Levy Amount Formula Modification Determination 2013.
Section 2 - Commencement
Section 2 provides that the Determination commences on the day after it is registered on the Federal Register of Legislative Instruments.
Section 3 - Application
Section 3 provides that the Determination only applies in relation to the eligible levy periods for the 2012-2013 and 2013-2014 financial years.
Section 4 - Definitions
This section defines the terms used in the Determination.
Section 5 - Modification of the formula in subsection 99(3) of the Act
The formula in subsection 99(3) of the Act has been replaced with four separate formulas:
(a) levy amounts for the first or second eligible revenue period, for a participating person that ceases to exist;
(b) levy amounts for the first or second eligible revenue period, for a participating person that is an externally-administered body corporate;
(c) levy amounts for the first eligible revenue period, for participating persons where paragraphs (a) or (b) do not apply; and
(d) levy amounts for the second eligible revenue period, for participating persons where paragraphs (a) or (b) do not apply.
Levy amounts for the first or second eligible revenue period, for a participating person that ceases to exist
The formula in new subsection 99(3) sets out that the amount payable by a participating person for either the first or second eligible revenue period is zero, where the participating person ceases to exist before the end of the ‘date of assessment’ (i.e. a date determined by the ACMA, being a date which is no earlier than the end of the relevant eligible revenue period and no later than the date the ACMA issues its written assessment under section 100).
Setting the levy amount for these particular participating persons at zero avoids the administrative burden on the ACMA in pursuing these entities in circumstances where no levy amount will be recoverable.
Levy amounts for the first or second eligible revenue period, for a participating person that is an externally-administered body corporate
The formula in new subsection 99(3A) sets out the amount payable by a participating person for either the first or second eligible revenue period, where the participating person is an ‘externally-administered body corporate’. This formula is the same as that which is currently provided for in subsection 99(3) of the Act.
The term ‘externally-administered body corporate’ is defined in the Corporations Act 2001. It applies to a body corporate that is being wound up, in receivership, under administration or has executed a deed of company arrangement that has not yet terminated or has entered into a compromise or arrangement with another person the administration of which has not been concluded.
Unlike participating persons that have ceased to exist, it remains viable that a levy amount will be recoverable from a participating person that is under external administration.
Levy amounts for the first eligible revenue period, for a participating person that is not an externally-administered body corporate
The formula in new subsection 99(3B) sets out the amount payable by a participating person in the first eligible revenue period (i.e. the 2012-2013 financial year), where the participating person is not an externally-administered body corporate.
This formula introduces the concept of an ‘adjustment factor’ to mean the sum of the levy contribution factors for that eligible revenue period for all participating persons other than those that are an externally-administered body corporate or otherwise have ceased to exist. The effect of this modified formula is that those participating persons to which it applies will be required to pay a higher levy amount in order to cover a portion of the levy amount owed by participating person(s) to whom the new subsection 99(3A) applies.
Example
The Minister sets out that the overall levy cap amount for the 2011-2012 financial year is $200 million (under subsection 99(4) of the Act).
Carrier X is a participating person under the Determination. It has a ‘levy contribution factor’ of 0.015 (calculated under section 98 of the Act). If no carriers were wound up during the 2011-12 financial year, the levy amount payable by Carrier X would be calculated as follows:
0.015 x $200 million = $3 million
1
The ‘adjustment factor’ is 1, as this is the sum of the levy contribution factors, where all participating persons remain in operation.
However, Carriers Y and Z were wound up in the 2011-2012 financial year. These two carriers have a combined levy contribution factor of 0.25. If this occurs, the ‘adjustment factor’ for the purposes of the formula in subsection 99(3B) is 0.75 (i.e. the sum of the levy contribution factors for all participating persons in operation minus 0.25).
Dividing each remaining participating persons’ levy contribution factor by the adjustment factor ensures that the shortfall in levy contributions is made up on an equitable basis, with the remaining participating persons paying an extra amount proportional to their eligible revenue (which is used by the ACMA to calculate the levy contribution factor under section 98 of the Act).
In these circumstances, the formula operates to increase the levy amount payable by Carrier X, as follows:
0.015 x $200 million = $4 million
0.75
Levy amounts for the second eligible revenue period, for a participating person that is not an externally-administered body corporate
The formula in new subsection 99(3C) sets out the amount payable by a participating person in the second eligible revenue period (i.e. the 2013-2014 financial year), where the participating person is not in external administration. This is the same formula as applies in new subsection 99(3B) except that it includes in the calculation an amount for the previous levy deficit. This has the effect of further increasing the amount payable by a participating person that is not an externally-administered body corporate for the second eligible revenue period.
Experience under the TCPSS Act regime has shown that in any given year, a number of carriers will either fail to pay the levy amount owed, or will significantly delay payment. Inclusion of the previous levy deficit in calculating the levy amount owed ensures that previous shortfalls are also captured, in addition to the liabilities of carriers that have ceased to exist.
Different formulas have been used for the first and second eligible revenue periods for non-externally administered participating persons because in the first eligible revenue period the ‘previous levy deficit’ would have been incurred under the previous USO levy regime and are not recoverable under the new format. Any such deficits will have been recorded as shortfalls for the purposes of the USO Special Account under the TCPSS Act as compared to the TUSMA Special Account established under the Act.
Section 87 of the Act will apply in circumstances where a carrier pays a levy amount under subsection 99(3C) and the levy deficit is subsequently reduced (for example, where a participating person in external administration subsequently pays an amount which reduces the levy deficit for the purposes of the formula in subsection 99(3C)). Section 87 of the Act provides that TUSMA may redistribute an amount from the Telecommunications Universal Service Special Account (where the balance is in credit and the debits for an eligible levy period have been paid) to relevant participating persons.
Example
For the 2012-2013 financial year there is an overall levy cap amount of $200 million. There have been no carriers wound up during the 2012-2013 financial year.
Following on from the above example, Carrier X would ordinarily be liable to pay a levy of $3 million where there are no carriers wound up and no deficit from the previous year. However, a levy deficit of $30 million was carried over from the 2011-2012 financial year. The formula in new subsection 99(3C) operates to increase the levy amount payable by Carrier X, as follows:
0.015 x ($200 million + $30 million) = $3.45 million
1
If Carriers Y and Z were wound up in the 2012-2013 financial year (using the same assumptions as in the example above), the formula in new subsection 99(3B) operates to increase the levy amount payable by Carrier X, as follows:
0.015 x ($200 million + $30 million) = $4.6 million
0.75