EXPLANATORY STATEMENT
Telecommunications (Consumer Protection and Service Standards) Act 1999
Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002
(Amendment No.1 of 2005)
Issued by the authority of the Minister for Communications Information Technology and the Arts
OVERVIEW
The purpose of the Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002 (Amendment No. 1 of 2005) (the Determination) is to extend the operation of the Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002 (the original Determination) until 31 December 2006. The Determination also allows for the continued operation of some clauses of the Determination until 30 June 2006, in the event that a succeeding determination does not contain a contrary intention.
Background
Under the Telecommunications (Consumer Protection and Service Standards) Act 1999 (the Act), the Minister has certain powers to regulate the charges set by Telstra for its retail services. The original Determination was made under the following sections of the Act:
- Subsection 154(1), which provides that the Minister may determine that specified Telstra charges are subject to price control arrangements;
- Paragraph 155 (1)(a), which provides that the Minister may determine price-cap arrangements and other price control arrangements that are to be applied in relation to a Telstra charge that is subject to price control arrangements;
- Paragraph 155(1)(b), which provides that the Minister may determine principles in accordance with which Telstra is to make alterations to a charge that is subject to price control arrangements; and
- Subsection 157(1), which provides that the Minster may determine that the specified Telstra charges are subject to notification and disallowance.
Price controls have been imposed on Telstra since 1989 with the aims of passing productivity gains on to consumers via lower prices where this cannot be achieved through effective competitive pressure; and to meet equity objectives.
The key features of the price controls in the original Determination are:
(a) residential and business line rental charges are in one ‘basket’ and Telstra is allowed to increase the price on these services at the rate of Consumer Price Index (‘CPI’) + 4% per annum;
(b) national long distance, international, fixed to mobile and local calls are in another ‘basket’ with a price cap on these services of CPI – 4.5% per annum. This means that Telstra is entitled to change the individual prices of these services as long as the aggregate price of all the services in the basket declines by - 4.5 per cent annually in real terms; and
(c) Telstra is only permitted to increase line rental charges if the ACCC is satisfied that Telstra continues to offer and market a range of measures targeted at low-income consumers.
The original Determination, except as provided for by clauses 20 and 27 of the original Determination, expires on 30 June 2005.
Extension of the operation of the original Determination
The purpose of the Determination is to extend the operation of the original Determination for a further six month period (until 31 December 2005) with effect from 1 July 2005. The Determination does this by amending the original Determination under subsection 154(1), paragraphs 155(1)(a) and 155(1)(b) and subsection 157(1) of the Act and subsection 33(3) of the Acts Interpretation Act 1901 (AIA). Subsection 33(3) of the AIA has the effect that the Minister’s powers to make the original Determination under the Act include the power to amend the original Determination, provided that this power is exercised in the like manner and subject to the conditions specified in subsection 154(1), paragraphs 155(1)(a) and 155(1)(b) and subsection 157(1) of the Act.
The effect of the Determination is that, until 31 December 2005:
(a) the Telstra services that are subject to price control arrangements in accordance with the original Determination will continue to be subject to those controls;
(b) the price-cap and price-control arrangements that apply to these services will continue to apply;
(c) the principles specified in the original Determination in relation to alterations to carrier charges that are subject to price-control arrangements will continue to apply; and
(d) the Telstra charges that are specified to be subject to notification and disallowance in the original Determination.
The Determination therefore makes amendments to the original Determination so that the original Determination applies to a six-month period rather than a financial year. For this reason, the Determination makes a number of amendments to the original Determination to refer to ‘the relevant period’ (being the period from 1 July 2005 until 31 December 2005) instead of a financial year where appropriate. In addition, to maintain the equivalent effect of the price caps over a six month period, the Determination amends a number of the attributes of the price controls as provided for by the original Determination. These changes include:
- halving the price-cap to apply to each basket of services;
- adjusting the assessment of the CPI;
- adjusting the time frames for the assessment of the local call pricing parity scheme;
- continuing Telstra’s current inability to be able to carry-in unrealised credits into the six month extended duration of the price controls; and
- removing Telstra’s ability to defer its price cap obligations.
Clause 27 of the Determination allows for some clauses of the original Determination, as amended, to apply after 31 December until 30 June 2006, subject to any contrary intention in a succeeding determination.
Consultation
As a consequence of the commencement of the Legislative Instruments Act 2003 (LIA) and the repeal of section 46A of the Acts Interpretation Act 1901 on 1 January 2005, the original Determination is a legislative instrument for the purposes of the LIA (see LIA s.6(1)(d)). This means that the Determination is also a legislative instrument for the purposes of the LIA and must therefore be tabled in the Parliament and is subject to Parliamentary disallowance.
The Australian Competition and Consumer Commission (ACCC) and Telstra were consulted about the Determination. Further consultation on the Determination was considered unnecessary due to its minor and machinery nature (see paragraph 18(2)(a) of the LIA).
Details of the accompanying Determination are provided in the Attachment.
ATTACHMENT
Clause 1 - Name of Determination
Clause 1 provides that the accompanying Determination is the Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002 (Amendment No.1 of 2005).
Clause 2 - Commencement
Clause 2 provides that the accompanying Determination commences on 1 July 2005.
Clause 3 – Amendment of the Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002
Clause 3 provides that Schedule 1 to the accompanying Determination amends the Telstra Carrier Charges – Price Control Arrangements, Notification and Disallowance Determination No. 1 of 2002.
Schedule 1 – Amendments
Item 1 – Clause 3
Clause 3 of the original Determination provides that, subject to clauses 20 and 27, the Determination expires on 30 June 2005. Item 1 amends clause 3 so that, subject to clauses 20 and 27 (as amended by items 19 and 20 of this Determination), the original Determination will expire on 31 December 2005.
Item 2 – Subclause 5(1) (paragraph (a) of the definition of CPI number)
Clause 2 amends the definition of ‘CPI number’ so that CPI will be determined by reference to the 2004/2005 financial year. Currently, the definition refers to the financial year immediately preceding the financial year in which a price-cap applies. The amendment to the definition reflects that the original Determination, as amended, will apply to the relevant period, rather than a financial year.
Item 3 – Subclause 5(1) (after the definition of first basket of services)
Item 3 adds a new definition of ‘following relevant period’ in the original Determination which is the period commencing at the beginning of 1 January 2006 and concluding at the end of 30 June 2006. This definition would be relevant if the original Determination, as amended, continues to have effect as provided for by clause 27 (see item 20).
Item 4 – Subclause 5(1) (definition of price-cap year)
Item 4 deletes the definition of ‘price cap year’. This definition is no longer an appropriate concept as the original Determination, amended, will apply to a six month period and has effectively been replaced by the concept of the ‘relevant period’ (see item 5).
Item 5 – Subclause 5(1) (after the definition of public payphone)
Item 5 adds the definition ‘relevant period’ to subclause 5(1) of the original Determination. This is the period commencing at the beginning of 1 July 2005, and concluding at the end of 31 December 2005. This is the period over which the price caps will apply as a result of the amendments to the original Determination.
Item 6 – Subclause 5(3)
Item 6 amends subclause 5(3) of the original Determination so that the value of CPI will be halved in calculating the appropriate price cap for the relevant period where the formula involves a ‘CPI –’ calculation. This is to maintain the equivalent effect of the price controls over the relevant period (as opposed to their effect in relation to a financial year).
Item 7 – Subclause 5(4)
Item 7 amends subclause 5(4) of the original Determination so that the value of CPI will be halved in calculating the appropriate price cap for the relevant period where the formula involves a ‘CPI +’ calculation. This is to maintain the equivalent effect of the price controls over the relevant period (as opposed to their effect in relation to a financial year).
Item 8 – Clause 9
The effect of item 8 is to change the period over which the price caps are to apply, from the twelve month financial year, as is the case under the original Determination, to the six month relevant period. This would not affect the price-caps that applied to the financial years that were covered by the original Determination because the amendment in item 8 would only apply from 1 July 2005.
Item 9 – Subclause 10(1)
Item 9 changes the period over which a price movement is calculated for the three baskets of services to reflect the change from using the twelve month financial year to the use of the six month relevant period.
Item 10 – Subclause (10)(2)
Item 10 amends subclause 10(2) so that the value of a price movement in a financial year may continue to be determined in accordance with the methodology developed by the ACCC under subclause 10(2) in the original Determination (which would be relevant to the calculation of a price movement for the first, second and third basket of services in the relevant period). Item 10 would also allow the value of a price movement in relation to the relevant period to be determined in accordance with a methodology developed by the ACCC under subclause 10(2) (which would be relevant if the original Determination, as amended, continues to apply in the following relevant period (ie until 30 June 2006)). The ACCC would therefore be able to amend an existing methodology developed under subclause 10(2) or develop a new methodology.
Item 11 – Clause 11
Item 11 amends clause 11 of the original Determination to provide for the correction of the price-cap that applies to the relevant period where there has been an error in calculating the price movement of a basket of services in the 2004/2005 financial year. The permitted error margin of 0.3 percentage points will continue to apply.
Item 12 – Subclause 13(4)
Item 12 inserts new subclause 13(4). The effect of item 12 is to change the period over which price changes under the local call pricing parity scheme are assessed. The scheme requires parity between the ‘first-mentioned average price’ which are untimed local calls provided to residential/charity customers in non-metropolitan areas and the ‘second-mentioned average price’ which are untimed local calls provided to residential/charity customers in metropolitan areas.
Under new subclause 13(4), the period for calculating the ‘first-mentioned average price’ will be the relevant period (1 July to 31 December 2005) instead of a financial year. Similarly, the period for calculating the ‘second-mentioned average price’ will be the financial year immediately preceding the relevant period (ie the 2004/2005 financial year) instead of the financial year preceding the financial year for calculating the first-mentioned average price.
Item 13 – Subclause 13(6)
Item 13 inserts new subclause 13(6). The effect of item 13 is to change the period over which price changes under the local call pricing parity scheme are assessed. The scheme requires parity between the ‘first-mentioned average price’ which are untimed local calls provided to business customers in non-metropolitan areas and the ‘second-mentioned average price’ which are untimed local calls provided to business customers in metropolitan areas.
Under new subclause 13(6), the period for calculating the ‘first-mentioned average price’ will be the relevant period (1 July to 31 December 2005) instead of a financial year. Similarly, the period for calculating the ‘second-mentioned average price’ will be the financial year immediately preceding the relevant period (ie the 2004/2005 financial year) instead of the financial year preceding the financial year for calculating the first-mentioned average price.
Item 14 – Subclause 13(13)
Item 14 inserts new subclause 13(13). The effect of item 14 is to require Telstra, in the event that parts of the original Determination (as amended) continue to apply after 31 December 2005 in accordance with clause 27, to make up for any failure to meet the ‘local call pricing parity scheme’ requirement for residential/charity customers in non-metropolitan areas during the relevant period in the following relevant period (ie the period from 1 January 2006 to 30 June 2006).
Item 15 – Subclause 13(14)
Item 15 inserts new subclause 13(14). The effect of item 15 is to require Telstra, in the event that parts of the original Determination (as amended) continue to apply after 31 December 2005 in accordance with clause 27, to make up for any failure to meet the ‘local call pricing parity scheme’ requirement for business customers in non-metropolitan areas during the relevant period in the following relevant period (ie the period from 1 January 2006 to 30 June 2006).
Item 16 – Clause 16
Item16 deletes clause 16 of the original Determination. Clause 16 allowed Telstra to elect to defer its price-cap obligations in a particular financial year to the following financial year but subclause 16(2) provided that such an election could not be made in respect of the 2004/2005 financial year.
Under the original Determination, as amended, Telstra will not be able to defer its price cap obligations in the relevant period to a later time. As the original Determination (as amended) only covers one relevant period, it is not appropriate for Telstra to be able to defer a price cap beyond the expiration of the price control period.
Item 17 – Clause 17
Item 17 inserts new clause 17. New subclause 17(1) preserves the requirement in clause 17 of the original Determination for Telstra to report to the ACCC within 3 months of the end of the 2004/2005 financial year in relation to its compliance with the price-cap that applied to that year in accordance with the terms of the original Determination as in force immediately before 1 July 2005. Subclause 17(2) requires Telstra to report to the ACCC, within 3 months of the end of the relevant period, on compliance with the price-cap that applies in that period.
Item 18 – Clauses 18 and 19
Item 18 deletes clauses 18 and 19 of the original Determination because these provisions are redundant. Clause 18 allows Telstra to carry-in unrealised credit (arising from not charging the maximum prices possible in accordance with the price-cap for a financial year) into the following financial year. Subclause 18(2) provides that this does not apply to the 2004/2005 financial year. The effect of item 18 is to prevent Telstra from carrying-over any credits in respect of the 2004/2005 financial year, or any other year, to the price-cap that applies to the relevant period.
Clause 19 dealt with the carryover of credits for the 2002/2003 financial year and therefore no on-going operation.
Item 19 – Clause 20
Item 19 inserts new clause 20 into the original Determination. New clause 20 provides that the price cap for the first and third baskets of services will be amended in the following relevant period if, following reconciliation, the value of the price movement during the relevant period is determined to be greater that the price cap for that period.
Item 20 – Part 6
Item 20 amends the heading to Part 6 of the original Determination, and clause 27 in Part 6, to reflect the extension of the original Determination to cover the relevant period, and possibly the following relevant period. New clause 20 provides that in the absence of a future determination to the contrary, clauses 8, 9, 10, 13, 14 and 15 of the Determination (ie the original Determination, as amended) will continue to apply into the following relevant period and provides for the interpretation of clauses 9 and 10 in that event.
Clause 21 – Schedule (Row 1 of column 3 of the table)
Item 21 amends the price cap listed in Row 1 of column 3 of the table in the Schedule to the original Determination (which applies to the first basket of services as defined in subclause 5(1) changing it from CPI - 4.5 to CPI/2 - 2.25. This reflects that the price-cap applies to a six-month period rather than a 12 month period.
Clause 22 – Schedule (Row 2 of column 3 of the table)
Item 22 amends the price cap listed in Row 2 of column 3 of the table in the Schedule to the original Determination (which applies to the second basket of services as defined in subclause 5(1)) changing it from CPI + 4.0 to CPI/2 + 2.0. This reflects that the price-cap applies to a six-month period rather than a 12 month period.