EXPLANATORY STATEMENT
Telecommunications (Consumer Protection and Service Standards) (Levy Formula Modification) Determination 2019
Made by the Minister for Communications, Cyber Safety and the Arts
Authority
The Telecommunications (Consumer Protection and Service Standards) (Levy Formula Modification) Determination 2019 (Determination) is made by the Minister for Communications, Cyber Safety and the Arts (Minister) under subsection 50(2) of the Telecommunications (Consumer Protection and Service Standards) Act 1999 (Act). This provision enables the Minister to, by legislative instrument, modify the formula for calculating the levy amount of a ‘participating person’ for an eligible levy period.
This Determination commences at the start of the day after it is registered on the Federal Register of Legislation.
Purpose
The Determination has been made for the purposes of modifying the general formula in subsection 50(1) of the Act by which a levy amount is calculated for a participating persons in an eligible levy period.
Consistent with the existing Levy Amount Formula Modification Determination 2015 (2015 Determination) (to be repealed and replaced by this instrument), the Determination provides for the calculation to be adjusted in the event that:
(a) a ‘participating person’ ceases to exist, is under external administration, is wound up or goes into receivership; or
(b) a shortfall exists in the amount of levy collected in a previous period.
The Determination also modifies the formula to provide for an increase in the levy amount to be collected from all other participating persons in the current eligible levy period. This increase is to ensure that adequate funds are available in the Public Interest Telecommunications Services Special Account (PITSSA) to ensure appropriate public interest telecommunications services are able to be provided to the Australian community.
Background
The Australian Government manages several public interest telecommunications contracts, including those that cover the delivery of essential services such as the Universal Service Obligation (USO), the National Relay Service (NRS), the Emergency Call Service (ECS) as well as arrangements to assist the migration of voice-only customers to the National Broadband Network (NBN).
Under section 14 of the Act, the Secretary of the Department of Communications and the Arts is responsible for entering into contracts, and making grants, to support the provision of public interest telecommunications services.
The contracts, grants and associated eligible administrative costs of the Commonwealth are funded from the PITSSA. The PITSSA is funded via a combination of a set annual appropriation from the Commonwealth, as well as input from the Telecommunications Industry Levy (TIL) collected from industry based on the expenditure from the PITSSA the prior financial year.
The administration of the PITSSA is governed by Part 2, Division 5 of the Act. Part 2, Division 6 of the Act sets out the provisions for the assessment, collection and recovery of an industry levy imposed under the Telecommunications (Industry Levy) Act 2012. This levy is payable by a ‘participating person’, as defined in section 44 of the Act and the Telecommunications (Participating Persons) Determination 2015.
Subsection 50(1) of the Act sets out the formula for calculating the levy amount payable by a participating person for an eligible levy period. The formula in subsection 50(1) provides that the levy amount for each participating person for an eligible levy period starting immediately after the relevant eligible revenue period will be calculated by multiplying each person’s ‘levy contribution factor’ (as calculated under section 49 of the Act) by the ‘overall levy target amount’ (which is an amount worked out under section 41 of the Act).
The formula in subsection 50(1) of the Act relies on all participating persons paying in full their respective levy amounts so that the ‘overall levy target amount’ is collected and that the target amount collected will be adequate to meet all of the PITSSA’s obligations. If a participating person does not pay the levy amount owed (because, for example, they are under external administration or if a participating person ceases to exist before its levy is assessed), there will be a shortfall in collection of the TIL for that financial year.
Subsection 50(2) of the Act sets out that the Minister may, by legislative instrument, modify the formula in subsection 50(1).
Consistent with the 2015 Determination, the Determination modifies the formula in subsection 50(1) of the Act to recover anticipated and actual shortfall in the collection of levy in the event that a participating person either enters a form of external administration under the Corporations Act 2001, or ceases to exist, before its levy is assessed, or if the full levy amount for a previous period has not been paid. Participating persons who enter into external administration will have their levy amounts calculated according to the formula in subsection 6(3) of the Determination, which is the same formula that is currently provided for in subsection 50(1) of the Act. This reflects the intention that these participating persons pay their levy amount (in whole or part) either because funds are available to them or because a distribution is received on the winding up of the relevant participating person.
The Determination further modifies the formula in subsection 50(1) of the Act to allow for an increase in the levy amount to be collected from all other participating persons in the current eligible levy period. The amount is an additional pre-determined amount ($8 million) to help offset an anticipated shortfall in PITSSA funds between those funds to be collected for the 2018-19 levy period and the costs expected to be incurred in 2019/20 financial year.
This amount is required as a single event adjustment to help meet the higher costs for the current levy period when compared to the preceding period. These higher costs are largely the result of upgrades to Australia’s ECS infrastructure. These upgrades, which have been identified over the last 12 – 18 months, will improve resilience, reliability and capability of the ECS. These enhancements are being undertaken by the Commonwealth’s ECS contractor on a ‘cost recovery’ basis, and include:
- A new Internet-Protocol based call handling platform to replace the legacy system that has now reached end of life.
- A new Triple Zero call centre in Adelaide which will provide additional redundancy and call taking capacity.
- The implementation of Advanced Mobile Location which will provide location coordinates of mobile callers to Triple Zero, as well as upgrades to the Managed Wide Area Network to facilitate the data exchanges required with this new enhancement.
These enhancements and upgrades are appropriate and required to ensure that the Emergency Call Service continues to provide the required level of protection and surety to the Australian community.
The Determination will play an important role in ensuring that the Commonwealth can continue to meet its contractual obligations and that adequate funds will be available to meet the public interest telecommunications needs of the Australian community while doing so in a manner that is efficient for industry. It applies in an equitable manner, with the obligation to pay the levy (including any levy not collected from a previous period) being distributed amongst the participating persons.
Section 40 of the Act also enables the Secretary of the Department of Communications and the Arts, at his or her discretion, to redistribute an amount from the PITSSA (where the balance is in credit and the debits for an eligible levy period have been paid) to relevant participating persons.
The Determination will repeal and replace the 2015 Determination.
Consultation
The Department conducted targeted consultation with major carriers and the Australian Communications and Media Authority (ACMA) on the Determination over a truncated period of time. Submissions were received from Vodafone, Victorian Rail Track, Pivotel and TPG Telecom Limited.
Regulatory impact
The Office of Best Practice Regulation (OBPR) advised that a regulation impact statement is not required.
Other details
The Determination is a legislative instrument for the purposes of the Legislation Act 2003.
Details of the Determination are set out at Attachment A. A Statement of Compatibility with Human Rights for the purposes of Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is set out at Attachment B.
Attachment A
Details of the Telecommunications (Consumer Protection and Service Standards) (Levy Formula Modification) Determination 2019
Section 1 – Name
Section 1 provides that the name of the Determination is the Telecommunications (Consumer Protection and Service Standards) (Levy Formula Modification) Determination 2019.
Section 2 – Commencement
Section 2 of the Determination provides that the Determination commences the day after it is registered on the Federal Register of Legislation.
Section 3 – Authority
Section 3 of the Determination provides that the Declaration is made under subsection 50(2) of the Telecommunications (Consumer Protection and Service Standards) Act 1999.
Section 4 – Definitions
Section 4 defines the terms used in the Determination.
Section 5 – Schedules
Section 5 of the Determination provides that each instrument specified in a Schedule to this instrument is amended or repealed as set out in the applicable terms. Specifically, Schedule 1 of the Determination repeals the Levy Amount Formula Modification Determination 2015.
Section 6 – Modification of the formula in subsection 50(1) of the Act
Section 6 of the Determination modifies the formula in subsection 50(1) of the Act for different classes of participating persons, and for different periods. .
The formula in subsection 50(1) of the Act has been replaced with four separate formulas to be used in determining the levy amount for:
a participating person that ceases to exist (refer to subsection 6(2));
a participating person under external administration, wound up, in receivership etc. (refer to subsection 6(3));
all other participating persons – for the current eligible levy period (refer to subsection 6(4)); and
- all other participating persons – for future eligible levy period (refer to subsection 6(5)).
Levy amount – for participating persons that cease to exist
The formula in subsection 6(2) of the Determination replaces subsection 50(1) of the Act and sets out that the amount payable by a participating person for an eligible levy period is zero, where the participating person ceases to exist before the ‘date of assessment’ (i.e. a date decided by the Australian Communications and Media Authority (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 51 of the Act for the relevant eligible levy period).
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 as they have ceased to exist.
Levy amount – for participating persons under external administration, wound up, in receivership etc.
The formula in subsection 6(3) of the Determination replaces subsection 50(1) of the Act and sets out the amount payable by a participating person for an eligible levy period, in circumstances where the participating person is a participating person for the eligible levy period and also a Chapter 5 body corporate on or before the ‘date of assessment’. This formula is the same as that which is currently provided for in subsection 50(1) of the Act.
Chapter 5 body corporate is defined within the Corporations Act 2001. It includes a body corporate that is being wound up, is in receivership or is under administration.
The Determination recognises that, in practice, only participating persons remaining fully operational at the time the levy is assessed are likely to pay their levy in full. The modified levy formula for these participating persons includes an ‘adjustment factor’ and a ‘previous levy deficit’ mechanism to ensure the overall levy target amount and any levy shortfall for a previous period is spread equitably based on each operational participating person’s share of eligible revenue. This is consistent with the approach first introduced in the Levy Debit Formula Modification Determination (No.1) 2002 and followed in the 2015 Determination.
Levy amount for all other participating persons - current eligible levy period
The formula in subsection 6(4) of the Determination replaces subsection 50(1) of the Act and sets out the amount payable by a participating person for the current eligible levy period (corresponding to the 2019-20 financial year), in circumstances where the participating person is not a Chapter 5 body corporate and still exists.
This formula introduces the concepts of an ‘adjustment factor’ and ‘previous levy deficit’ into the formula. The formula also includes a pre-determined amount of $8 million which has been calculated as sufficient to meet the deficit for the current eligible levy period (2019-20). 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 any previous levy deficit, and the pre-determined deficit identified for the current eligible period. A ‘previous levy deficit’ is the shortfall between the ‘overall levy target amounts’ for the eligible levy period immediately prior to the current eligible levy period. An ‘adjustment factor’ means the sum of the ‘overall levy target amount’ and the ‘previous levy deficit’.
Levy amount for all other participating persons - future eligible levy period
The formula in subsection 6(5) of the Determination replaces subsection 50(1) of the Act and sets out the amount payable by a participating person for a future eligible levy period, in circumstances where the participating person is not a Chapter 5 body corporate and still exists.
This formula also uses the concepts of an ‘adjustment factor’ and ‘previous levy deficit’ into the formula. 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 any previous levy deficit.
Example scenarios – levy amounts calculated under the Determination
It must be noted that these examples do not reflect the actual Eligible Levy Period. The figures used have been selected to make it easier to understand the respective formulas introduced by the Determination.
Example 1 – participating person ceases to exist – no previous levy deficit
Carrier | 2018-19 Eligible Levy Period | ||
Levy Contribution Factor | Levy Amount $100m | Levy Amount + updated contribution distribution | |
Carrier A | 60% | $60 million | $63.16 million |
Carrier B | 30% | $30 million | $31.58 million |
Carrier C | 5% | $5 million | - |
Carrier D | 5% | $5 million | $5.26 million |
Total | 100% | $100 million | $100 million |
If the overall levy target amount for the 2019-20 eligible levy period is $100 million and Carrier C ceased to exist on 1 August 2019 (on or before the ACMA’s ‘date of assessment’) then the ACMA would use the following modified formula to calculate the individual levy amount for the remaining participating persons as set out below so that they can all equally contribute, in line with their respective Levy Contribution Factors, to make up for Carrier C’s contribution.
Levy contribution factor x (Overall levy target amount + Previous levy deficit)
Adjustment factor
Carrier A: 60 x ($100 million + 0) = $63.16 million
95
Carrier B: 30 x ($100 million + 0) = $31.58 million
95
Carrier D: 5 x ($100 million + 0) = $5.26 million
95
Levy amount for carriers A + B + D = $100 million.
Example 2 – participating person unable to pay levy for previous eligible levy period – resulting in previous levy deficit
Carrier | 2018-19 Eligible Levy Period | 2019-20 Eligible Levy Period | ||
Levy Contribution Factor | Levy Amount $100m | Levy Contribution Factor | Levy Amount $100m | |
Carrier A | 60% | $60 million | 63% | $66.15 million |
Carrier B | 30% | $30 million | 32% | $33.60 million |
Carrier C | 5% | $5 million | 5% | $5.250 million |
Carrier D | 5% | Carrier D fails to contribute | N/A | N/A |
Total | 100% | $95 million (deficit of $5 million) | 100% | $105 million |
If Carrier D ceased to exist on 1 November 2019, or is otherwise unable to pay its levy for the 2019-20 eligible levy period after the ACMA’s ‘date of assessment’, then the ACMA would apply the following formula to the next eligible levy period to cover the previous levy deficit (in this example, $5 million). Again, this deficit would be equally distributed among remaining participating persons in line with their respective Levy Contribution Factors. Assuming that the next Eligible Levy Period Levy Amount is also $100 million, the ACMA will use the following formula to collect the overall levy target amount, as well as the previous levy deficit.
Levy contribution factor x (Overall levy target amount + Previous levy deficit)
Adjustment factor
Carrier A: 63 x ($100 million + $5 million) = $66.15 million
100
Carrier B: 32 x ($100 million + $5 million) = $33.60 million
100
Carrier C: 5 x ($100 million + $5 million) = $5.250 million
100
Levy amount for carriers A + B + C = $105 million
Example 3 – current eligible levy period – no previous levy deficit
The Department has identified that the overall levy target amount collected in 2018-19 will not be adequate to cover predicted expenses in 2019-20, even though all carriers contributed their full levy amount. The Department has predicted that there will be an $8 million shortfall (defined as an ‘adjustment factor’).
If the overall levy target amount for the 2018-19 eligible levy period is $100 million, and assuming there is no previous levy deficit, and none of the carriers are a Chapter 5 body corporate, or have ceased to exist, the ACMA would use the modified formula to calculate the individual levy amount for other participating persons as set out below.
Levy contribution factor x (Overall levy target amount + Previous levy deficit + $8 million)
Adjustment factor
Carrier A: 60 x ($100 million + 0 + $4.8 million) = $64.8 million
100
Carrier B: 30 x ($100 million + 0 + $2.4 million) = $32.4 million
100
Carrier C: 5 x ($100 million + 0 + $0.4 million) = $5.4 million
100
Carrier D: 5 x ($100 million + 0 + 0.4m) = $5.4 million
100
Levy amount for carriers A + B+ C + D = $108 million
In this scenario each carrier would bear the additional $8 million to reach the new Levy Amount of $108 million based on an identical Levy Contribution Factor.
Carrier | 2018-19 Eligible Levy Period | ||
Levy Contribution Factor | Levy Amount $100m | Levy Amount + identified shortfall ($8m) $108m | |
Carrier A | 60% | $60 million | $64.8 million |
Carrier B | 30% | $30 million | $32.4 million |
Carrier C | 5% | $5 million | $5.4 million |
Carrier D | 5% | $5 million | $5.4 million |
Total | 100% | $100 million | $108 million |
Attachment B
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. This provides for the calculation of levy to be adjusted in the event that a participating person ceases to exist, is under external administration, is wound up or goes into receivership; and/or a shortfall exists in the amount of levy collected in a previous period.
The Determination also modifies the formula to provide for an increase in the levy amount to be collected from all other participating persons in the current eligible levy period. This increase is to ensure that adequate funds are available ensure appropriate public interest telecommunications services are able to be provided to the Australian community.
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 2011. It does not engage any of the applicable rights or freedoms and does not raise any human rights issues.