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ACCC reports Telecommunications competitive safeguards for 2012– 13

Changes in the prices paid for telecommunications services in Australia 2012–13

This publication contains two reports: Report 1 Telecommunications competitive safeguards for 2012−13 Report 2 Changes in prices paid for telecommunications services in Australia, 2012−13 ISBN 978 1 921973 99 4 Australian Competition and Consumer Commission 23 Marcus Clarke Street, Canberra, Australian Capital Territory, 2601 © Commonwealth of Australia 2014 This work is copyright. In addition to any use permitted under the Copyright Act 1968, all material contained within this work is provided under a Creative Commons Attribution 3.0 Australia licence, with the exception of:  the Commonwealth Coat of Arms  the ACCC and AER logos  any illustration, diagram, photograph or graphic over which the Australian Competition and Consumer Commission does not hold copyright, but which may be part of or contained within this publication. The details of the relevant licence conditions are available on the Creative Commons website, as is the full legal code for the CC BY 3.0 AU licence. Requests and inquiries concerning reproduction and rights should be addressed to the Director, Corporate Communications, ACCC, GPO Box 3131, Canberra ACT 2601, or [email protected]. Important notice The information in this publication is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. Because it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern. The ACCC has made every reasonable effort to provide current and accurate information, but it does not make any guarantees regarding the accuracy, currency or completeness of that information. Parties who wish to re-publish or otherwise use the information in this publication must check this information for currency and accuracy prior to publication. This should be done prior to each publication edition, as ACCC guidance and relevant transitional legislation frequently change. Any queries parties have should be addressed to the Director, Corporate Communications, ACCC, GPO Box 3131, Canberra ACT 2601, or [email protected]. ACCC 02/14_814 www.accc.gov.au Telecommunications competitive safeguards for 2012–13

Report to the Minister for Communications List of shortened forms

2G second generation mobile communications 3G third generation mobile communications 4G fourth generation mobile communications ABS Australian Bureau of Statistics ACCAN Australian Communications Consumer Action Network ACCC Australian Competition and Consumer Commission ACL Australian Consumer Law ACMA Australian Communications and Media Authority AD access determination ADSL asymmetric digital subscriber line ALRC Australian Law Reform Commission AMTA Australian Mobile Telecommunications Association ASIC Australian Securities and Investments Commission BBM Building Block Model BCS basic carriage service BROC binding rule of conduct CAN customer access network CBD central business district CCA Competition and Consumer Act 2010 (replaced the Trade Practices Act 1974) CPI consumer price index CSP carriage service provider DSL digital subscriber line DSLAM digital subscriber line access multiplexer DTCS domestic transmission capacity service ESA exchange service area EU European Union FAD final access determination FLSM Fixed Line Services Model GB gigabyte GHz gigahertz GSM global system for mobile communications HFC hybrid fibre coaxial IP internet protocol IPTV internet protocol television ISP internet service provider LBAS local bitstream access service LCS local carriage service LSS line sharing service LTE long term evolution Mbps megabits per second MHz megahertz MNO mobile network operator MTAS mobile terminating access service MVNO mobile virtual network operator NBN National Broadband Network NBN Co National Broadband Network Co Limited OECD Organisation for Economic Cooperation and Development OTT over-the-top POIs points of interconnection PSTN public switched telephone network PSTN OA PSTN originating access PSTN TA PSTN terminating access RAF regulatory accounting framework RKR record keeping rule SAU special access undertaking SFAA standard form of access agreement SSU structural separation undertaking SIOs services in operation SMS short messaging service TB terabyte TCP Telecommunications Consumer Protection Code TIO Telecommunications Industry Ombudsman TPA Trade Practices Act 1974 (now the Competition and Consumer Act 2010) ULLS unconditioned local loop service VHA Vodafone Hutchison Australia VoIP voice over internet protocol VoLTE voice over LTE WBA Wholesale Broadband Agreement WLR wholesale line rental Executive Summary

Developments in the telecommunications sector

Competition is driving consumer benefits in the sector The benefits of competition can be readily seen in Australia’s telecommunications sector. Since the industry was opened to competition we have seen:  dramatic price reductions, with consumers paying 47 per cent less for fixed voice services and 52 per cent less for mobile services than in 1997–98, after adjusting for inflation1  significant increases in investment to improve infrastructure and meet growing consumer demand  technological changes and innovations, including the increasing use of smart phones and tablets and roll out of faster networks  consumers and businesses enthusiastically taking up new devices and services, and  telecommunications companies competing to win and keep customers. The Australian Competition and Consumer Commission (ACCC) has played an important role in promoting competition during this time. In particular, we opened access to Telstra’s fixed line networks, including the unbundling of Telstra’s local loop. As a result, about 20 per cent of fixed line services are now provided using unbundled lines. The industry has been in a period of long transition, and will continue to evolve as the National Broadband Network (NBN) is rolled out. While we have a regulatory role to ensure the smooth transition to the NBN, we will also continue to regulate legacy networks to promote competition and bring long-term benefits to consumers.

Market trends and developments in 2012–13

Mobile and wireless devices were more popular than ever There were more than twice as many mobile services than landline services in use in Australia in June 2013.2 Mobile call minutes also overtook landline call minutes for the second consecutive year. Wireless broadband was the most popular type of internet connection, accounting for 50 per cent of all internet connections in June 2013.3 While mobile and wireless services were very popular, for many consumers these services remained complementary to landline services, particularly in the case of broadband.

Consumer demand for data continued to increase dramatically Consumers downloaded 59 per cent more data over the internet than last year. Some 96 per cent of this data was downloaded via a fixed line internet connection.4 Consumers also downloaded 97 per cent more data via mobile handsets than last year, although this only made up a small proportion of all data downloaded.5

International mobile roaming charges remained an area of concern International mobile roaming charges remain high and continue to be a source of concern for consumers and governments. This has attracted recent attention in Australia and internationally.

State of competition in telecommunications markets in 2012–13 Competition in telecommunications markets has delivered new infrastructure, better networks, and improved service quality. While there are encouraging signs that competition in telecommunications markets is continuing to deliver benefits, regulation remains important to ensure that competition in the sector meets the long-term interests of the community.

1 ACCC, Changes in the prices paid for telecommunications services in Australia 2012–13, p. 6. 2 Australian Communications and Media Authority, Communications Report 2012–13, p. 8. 3 Australian Bureau of Statistics, Internet Activity Australia (8153.0), 30 June 2013. 4 Ibid. 5 Ibid. Price competition was less vigorous, but other factors became more important Retail price competition was generally less vigorous this year than it has been in the past, particularly in the mobile sector. Mobile operators adjusted their pricing by keeping retail price points at about the same level but changing the included value components of some plans. This can make it difficult for consumers to assess whether they are getting the same value or whether they would be better off with a different plan or service provider. Prices did fall for fixed line services, however, the decrease in prices was less than in the previous year. The largest change was made to international calls from a landline telephone and calls to mobiles from a landline telephone, which fell by 21 per cent and 12 per cent respectively.6 The reduction in the price of calls to mobiles from a landline telephone was consistent with our 2011 decision on the domestic mobile terminating access service (MTAS) which saw a fall in the wholesale access price. Telecommunications companies are competing to win customers on the basis of other non-price factors, such as network quality and customer service. This is encouraging and we welcome industry initiatives to improve service, particularly after many years of high levels of consumer complaints about these issues.

Telecommunications companies compete for market share Telstra remained the largest provider of telecommunications services in Australia, although other providers in the market are competing strongly for market share. Telstra remained the largest provider of landline services, but other companies are offering consumers a choice of services, at different price points and with different attributes. There has been some consolidation in the fixed broadband market which is now dominated by five major players following the M2 Group’s acquisition of Dodo and Eftel. Of these companies, Telstra holds the largest market share of 42 per cent, followed by Optus with 15 per cent and iiNet with 14 per cent. Telstra increased its market share in the mobile and wireless markets in 2012–13. This is likely due to its ability to differentiate itself based on a number of factors such as network performance and being the first 4G operator in Australia. Mobile resellers also grew their market share and continued to offer consumers attractive deals on 2G, 3G and 4G networks.

Strong investment in telecommunications infrastructure The NBN is the most significant fixed line infrastructure development in Australia. Mobile network operators all invested significantly in their 4G and 3G networks during the year to meet consumer demand for mobile and wireless data services. Telstra, Optus and TPG also purchased additional spectrum in the digital dividend auction which they are likely to use to boost their mobile networks.

Telecommunications complaints fell significantly Consumers made fewer complaints about their telecommunications services in 2012–13 than in recent years. Complaints to the ACCC about telecommunications fell 30 per cent during the year and complaints to the Telecommunications Industry Ombudsman (TIO) fell to the lowest level in five years.7 It appears that new regulations, some ACCC enforcement action and competition in the industry are encouraging operators to focus on issues such as service quality and customer satisfaction. This is particularly pleasing given the concerns expressed about the very high level of complaints in this sector in recent years.

Fixed broadband services were relatively expensive in Australia Australian consumers tend to pay more than most other countries for fixed broadband, possibly due to our geography and a lack of alternative providers of wholesale fixed line services. Alternatively, wireless broadband appears to be relatively less expensive in Australia compared to some other countries.

ACCC activities in 2012–13

Our activities in the telecommunications market In this dynamic environment, it is important to make sure that there are effective safeguards in place to protect against the exercise of market power, to promote competition and to deliver benefits to consumers.

6 ACCC, Changes in the prices paid for telecommunications services in Australia 2012–13, p. 6. 7 Telecommunications Industry Ombudsman, TIO Annual Report 2012–13, p. 27. We have an important role in promoting competition in the telecommunications sector. Some of our key activities in the telecommunications sector include: 1. Protecting competition and consumers 2. Engaging with industry and consumers 3. Promoting a competitive industry structure 4. Regulating access to network infrastructure

Protecting competition and consumers During the year we conducted 20 major investigations into potential contraventions of competition and consumer laws. We took action against several telecommunications providers for misleading representations, misleading advertising, unfair contract terms and acting unconscionably. These cases are important as these types of conduct may cause harm to consumers and to competitors who are doing the right thing. Some examples include action against:  EDirect Pty Ltd for engaging in telemarketing of mobile services to customers from remote and regional communities who had no mobile network coverage where they live  ByteCard Pty Ltd for including unfair contract terms in its standard form consumer contract, and  TPG Internet Pty Ltd for misleading advertisements about its unlimited ADSL2+ product.

Engaging with industry and consumers We worked closely with industry, government and a range of consumer groups to identify and respond to potential issues in the sector. This year we:  engaged with key stakeholders to identify and address potential issues regarding the transition to the NBN. This included working closely with Communications Alliance, Australian Communications Consumer Action Network (ACCAN) and the TIO  published materials about selecting mobile plans and the services we regulate to strengthen consumer awareness and improve information available for consumers  worked with 50 other consumer protection agencies to identify smart phone and tablet apps that may mislead young children into making unauthorised in-app purchases  worked with the Australian Securities and Investments Commission (ASIC) and some other agencies to develop electronic resources to help students navigate the costs of mobile phones, and  worked with the Australian and New Zealand governments to address the high costs of mobile roaming and improve outcomes for consumers.

Promoting a competitive industry structure The structural separation of Telstra is a fundamental change to the structure of the telecommunications industry. We have an important role in ensuring that Telstra is complying with its structural separation undertaking (SSU) and migration plan. This includes:  responding to reported breaches of the SSU and possible breaches of Telstra’s overarching equivalence commitment  approving variations to the SSU and migration plan  reporting to the Minister on Telstra’s compliance with the SSU, and  establishing a wholesale customer forum to engage with industry and resolve potential issues arising under the SSU. Some tangible benefits were realised in relation to the interim equivalence and transparency measures that Telstra committed to in its SSU. This includes improvements in Telstra’s security practices relating to wholesale customer information and its equivalent handling of basic telephone faults.

Regulating access to telecommunications network infrastructure We regulate access to a number of wholesale telecommunications services to promote competition in the industry and to benefit the long-term interests of consumers. Access regulation reduces the barriers for competing operators to enter and compete in downstream markets. It also encourages existing and new operators to invest in new infrastructure. During the reporting period we:  accepted a special access undertaking (SAU) from NBN Co. This will form a key part of the regulatory framework that governs the price and other terms upon which NBN Co will supply services to telecommunications companies up to 2040. The SAU will have a significant influence within the communications industry for many years, ensuring regulatory certainty for industry and effective retail competition.  set price and non-price terms and conditions of access to the wholesale asymmetric digital subscriber line (ADSL) service and the local bitstream access service for the first time. These decisions foster competition by providing access seekers with the ability to access Telstra’s national ADSL network and other superfast networks on reasonable terms. The wholesale ADSL decision also addressed concerns about potential anti- competitive price discrimination by Telstra in the wholesale ADSL market.  commenced three inquiries into the future regulation of a number of telecommunications services. These included the domestic mobile terminating access service, the fixed line services and transmission services.  updated the Facilities Access Code to ensure timely access to facilities, and  arbitrated 13 access disputes.

Future regulation—promoting competition during the transition from legacy networks to the NBN During recent years, major changes in the Australian telecommunications industry have impacted competition and investment in the sector. This includes the introduction of the NBN, structural reform and changing consumer preferences. We are in a long period of transition and the industry is continuing to evolve. Significant changes in the industry include technological developments, changes in consumer demand and preferences, policy settings, and industry consolidation. In this environment, ensuring competitive access to legacy networks and overseeing Telstra’s structural separation will remain a key priority for us for a number of years. The move to a wholesale-only NBN will remove some of the barriers to competition that have existed in the regulation of legacy networks. However, the NBN will still be a monopoly and regulation will be required to ensure prices, access and service quality lead to competitive outcomes. Our key focus during this transitional period is to promote competition in wholesale and retail markets and to encourage economically efficient investment. By lowering barriers to entry, making sure access arrangements are reasonable and monitoring levels of effective competition, we can target regulation where it will have a positive impact in the market and deliver long-term benefits to consumers.

Report outline

More information on these key messages is available in chapter 1, which provides an introduction and overview of the entire report. Chapter 2 examines competition in Australian telecommunications markets and includes information on trends in service take-up and usage, infrastructure investment, market concentration and price changes. We also look at the types of matters that concern consumers and some international comparisons. Chapters 3 to 9 outline our broad competition, consumer and regulatory roles, as provided for under key legislation:  Chapters 3 and 4 examine our role in administering competition and consumer laws, including key investigations and court cases.  Chapter 5 includes information about our monitoring and reporting functions.  Chapter 6 outlines the framework for the telecommunications access regime and our role in regulating access to telecommunications services.  Chapter 7 outlines our role in regulating access to the NBN and other superfast telecommunications networks.  Chapter 8 deals with Telstra’s structural separation and our other key roles under the Telecommunications Act 1997.  Chapter 9 outlines our responsibilities under the Radiocommunications Act 1992. 1 Introduction and overview

The ACCC plays a central role in promoting and safeguarding competition in the telecommunications sector. Competitive markets lead to lower prices, better quality, greater efficiency and more choice, all of which are in the long-term interests of consumers. In Australia, there is a regulatory framework that supports the development of a competitive telecommunications market in a number of ways. This framework includes regulation, as well as competition and consumer protection laws. On the regulatory side, we promote competition by regulating access to certain telecommunications services. We do this by ‘declaring’ a service, after which the service must be supplied on request to other providers for use in their own services which they supply to the market. We also set access terms that balance the interests of infrastructure owners, users and the broader public. Regulating access is intended to achieve any-to-any connectivity, encourage efficient investment in, and use of, infrastructure and promote competition for the long- term interests of consumers and businesses. We are also responsible for investigating anti-competitive conduct and alleged breaches of the Australian Consumer Law; assessing telecommunications mergers and authorisations; and protecting consumers through our education and consumer engagement activities. In this report, we examine the competitive safeguards within the Australian telecommunications industry for the 2012–13 financial year.8 We have also included significant developments between then and December 2013. The report covers the key trends, our activities in the sector and competitive developments in the industry. 1.1 The communications consumer

1.1.1 Consumer preferences continue to evolve A number of notable consumer trends and changes in competition continued in 2012–13.

Mobile and wireless services are still rising in popularity As at June 2013 there were twice as many mobile services than fixed line services in use in Australia. The number of mobile-only Australians is also increasing, with currently 21 per cent of the population aged 18 and over (3.7 million) now mobile-only for voice services.9 This is an increase of 18 per cent from the previous year. While many consumers now prefer to use their mobile phone instead of a fixed line phone, mobile services continue to remain complementary to fixed line phones. Recent data from the Australian Communications and Media Authority (ACMA) shows that 79 per cent of the adult population still have a fixed line phone in their home.10 Consumers increasingly used their mobile phones for data rather than just voice calls. While mobile subscriber growth rates are slowing, data services have continued to grow at a significant rate.

Wireless broadband services also continued to increase in popularity According to the Australian Bureau of Statistics (ABS), mobile wireless broadband is the most widely used internet technology in Australia, accounting for 50 per cent of all connections.11 Fibre is currently the fastest growing type of internet connection in Australia in percentage terms, however, it still only accounts for around 1 per cent of all internet connections.12

Consumer demand for data has increased dramatically Consistent with previous years, consumers are still downloading significant amounts of data, with the volume of data downloaded via the internet increasing by 59 per cent over the last year.13 Consumers also preferred to use fixed line networks for data-intense activities (such as downloading videos) and use wireless connections for convenience for other activities. Convergence is increasingly apparent through smartphone and tablet take-up. More and more consumers are using over-the-top (OTT) voice and messaging applications, which can provide cheaper alternatives to traditional

8 Subsection 151CL(1) of the Competition and Consumer Act 2010. 9 Australian Communications and Media Authority, Communications Report 2012–13, p. 19. 10 Ibid. 11 Australian Bureau of Statistics, Internet Activity Australia (8153.0), June 2013. 12 Ibid. 13 Ibid. telephone services. However, the market for these services is in its early stages, even if growing rapidly. The use of mobile voice over internet protocol (VoIP) is growing but is still small compared to the use of traditional mobile voice services.

Communications services remain complementary Overall, most communications services are complementary, with consumers using multiple services and devices to meet their different communication needs. Recent ACMA data shows that 62 per cent of consumers used five or more separate communication services in the six months to May 2013, whereas only four per cent of consumers used one service.14 Communication service providers are responding to this trend by offering consumers services that may be used through multiple devices. For example, Foxtel offers its subscribers the ability to watch live and catch-up television through certain portable devices, such as an iPad.

1.1.2 Protecting consumers During 2012–13 we actively employed a number of strategies to engage with, and protect, telecommunications consumers. This included:  investigating alleged breaches of competition and consumer laws  taking enforcement action  engaging with key stakeholders in a range of forums  publishing consumer information, and  monitoring new developments and emerging issues.

Prioritising consumer protection We continued to prioritise our work in consumer protection in the telecommunications industry under the Competition and Consumer Act 2010 and Australian Consumer Law. In 2012–13 we undertook 20 major investigations in the telecommunications sector. Several of these investigations resulted in court action, which achieved important outcomes for consumers and competition. We took action against several telecommunications providers for misleading representations, misleading advertising, unfair contract terms and acting unconscionably. These cases are important as these types of conduct may cause harm to consumers and to competitors who abide by the law.

Engaging with consumers, industry and government We worked to protect consumers and improve the market by engaging with key stakeholders through consumer consultative committees, roundtable meetings and participating in a number of formal and informal working groups. Engagement with consumer groups, industry, and government stakeholders allows us to identify and address potential issues in the telecommunications sector. For example, the ACCC is currently working with a number of stakeholders to protect consumers during the migration to the NBN. In particular, we are collaborating with industry and consumer stakeholders to develop education for consumers, discuss key issues and ensure that appropriate protections are in place for the migration of ‘special’ services (such as medical alarms) to the NBN.

Engaging with international agencies We engaged with our international counterparts on telecommunications issues. In September 2013 we participated in an international effort with 50 consumer protection agencies to identify smartphone and tablet apps that may mislead young children into making unauthorised in-app purchases. We are engaging with platform operators, such as Apple and Google, to improve education and protect consumers using these apps. We have also publicly urged app developers and platform operators to take steps to address concerns held both in Australia and overseas about app based games.15

14 Australian Communications and Media Authority, Communications Report 2012–13, p. 20. 15 ACCC, ACCC urges app industry to adopt new principles following ‘sweep’ of children’s game apps, http://www.accc.gov.au/media- release/accc-urges-app-industry-to-adopt-new-principles-following-%E2%80%98sweep%E2%80%99-of-children%E2%80%99s-game- apps. Promoting consumer awareness through information To strengthen consumer awareness and improve information for consumers, we recently published new education materials. During the year we worked with other agencies, including ASIC, to develop a series of multimedia classroom activities for students about mobile phones. In December 2013 we published information about selecting a mobile plan and managing mobile data allowances.16 We also published several factsheets about regulated telecommunications services including the fixed line, mobile and transmission services. These are intended to help our broader audience understand the impact of our decisions to regulate these services and how our review of regulation affects consumers and businesses.

Monitoring new developments In this dynamic, complex and rapidly evolving sector, we are closely monitoring new developments and potential issues. For example, we are monitoring emerging issues such as the development of new and innovative ways to deliver content services and the introduction of network management practices. We are also consulting on a possible program for monitoring and reporting broadband performance in Australia. We will continue to monitor developments and issues to protect consumers and promote competition in telecommunications industry. 1.2 Communications markets

1.2.1 State of competition in the fixed line markets The fixed line markets remained in transition, and this is likely to continue for a number of years. Competition remained steady during 2012–13, with slight changes to market shares and an overall decrease in retail prices.

Market shares for fixed voice services While Telstra remains the largest provider of retail fixed voice services, it lost 3 per cent of its retail market share in 2012–13, dropping to 63 per cent. Optus maintained its position as the second largest provider and holds an 11 per cent market share. Other providers (such as AAPT, iiNet, M2, Macquarie Telecom, TPG and Verizon) hold a combined market share of 26 per cent. Further, Telstra retail services continue to be the main service provided over its copper network. However, 2012– 13 saw slight rises in Telstra wholesale and unconditioned local loop services (ULLS), each increasing to around 14 per cent.

Retail market shares for fixed broadband There are now five major fixed broadband companies following acquisitions by the M2 Group of Dodo and Eftel throughout the reporting period. The five main companies are Telstra, Optus, iiNet, TPG and the M2 Group. Together, these five providers accounted for more than 86 per cent of fixed broadband subscribers as at June 2013. Telstra retained its position as the largest provider of fixed broadband, with a 42 per cent market share. Optus is the second largest provider and holds a 15 per cent market share, closely followed by iiNet who hold a 14 per cent market share.

Retail price competition Price competition in the fixed voice services retail market has remained fairly stable during 2012−13, with average prices decreasing by 3.2 per cent after adjusting for inflation. There was limited retail price movement for basic line rental access, local and national long-distance calls. However, there was a dramatic reduction in international and fixed-to-mobile call rates. The reduction in the price of fixed-to-mobile calls was consistent with our mobile terminating access service (MTAS) decision in 2011 which has seen a fall in the wholesale access price. Retail prices for fixed line internet services continued to decrease, however, at a slower rate than in recent years. While there has been a continued slowing in price reductions in fixed and mobile markets, carriers continue to compete on the basis of price and other factors such as network and service quality, which are becoming

16 ACCC, Consumers: Internet and Phone, December 2013, http://www.accc.gov.au/consumers/internet - phone . important considerations for many consumers. Further, bundling of services has also continued to be a key customer acquisition and retention strategy for all operators.

Fixed line investments The NBN remains the most significant infrastructure development in this market. There are about 58 retail service providers offering NBN retail services as the NBN fibre network continues to roll out.17 This includes the recent entry of some lower priced providers such as TPG and Dodo, which previously took a ‘wait and see’ approach to developing NBN retail plans. NBN Co has also announced a range of wholesale services to the market. As consumers are migrated to the NBN, it is expected that issues will arise in relation to legacy services, choosing a preferred provider and the migration of ‘special’ services that may not work on the NBN. We are working with government and a range of industry stakeholders to ensure appropriate consumer protections are in place during the transition. Access seeker investment in Telstra exchange equipment in new areas is continuing to slow, with a growth rate of 1 per cent during 2012–13. These investments may continue to decline as access seekers have completed their infrastructure investments in the major metropolitan areas and due to the NBN.

Decrease in fixed voice subscriptions Consistent with previous years, fixed line subscriptions and the number of call minutes initiated on a fixed line phone continued to decline. Despite these decreases, the majority of Australians continued to use their mobile phone to complement rather than replace their fixed line service. Further, the combination of data allowances and pricing levels still limit the ability of wireless and mobile services to become full substitutes for fixed line services. In particular, consumers tend to use fixed line connections to download data-intensive content (such as video). Mobile and wireless connections are typically used for convenience and less data-intensive content.

1.2.2 Regulating fixed services in the long-term interests of consumers During 2012–13 we continued to regulate a number of fixed line services to support the long-term interests of consumers. While the fixed line markets are transitioning to the NBN, most Australians continue to be serviced via Telstra’s copper network. Regulation of these services remains important to ensure competition is promoted during the migration to the NBN.

Setting terms of access to wholesale ADSL In May 2013 we set price and non-price terms and conditions of access to the wholesale ADSL service for the first time. These terms are set out in the wholesale ADSL final access determination (FAD). Under the FAD, wholesale ADSL prices decreased by around 15 per cent compared to the average commercial prices that were being charged prior to the ACCC regulating the service from February 2012. Regulating this service and setting terms and conditions of access addressed concerns about potential anti- competitive price discrimination by Telstra in the wholesale ADSL market. This decision fosters competition by allowing service providers to access Telstra’s national ADSL network on reasonable terms and will help to ensure that consumers have a choice of broadband services.

Inquiries into the future regulation of fixed line and transmission services In July 2013 we commenced the Fixed Services Review which examined the access regulation for fixed line telecommunication services. At the same time we commenced a review of the regulated transmission service. The regulation of these legacy services continues to be important for promoting a competitive market. These significant reviews examine the evolving nature of competition and the implications of key changes to the sector since the services were last declared in 2009. These changes include the introduction of the NBN, the increasing use of data and changes in technology. We have invited industry and broader stakeholder submissions on a range of issues and in December 2013 we released a draft decision for each inquiry. We expect to make a final decision about the future regulation of these services in 2014.

Regulating access to telecommunications facilities Access to telecommunications facilities on reasonable terms and conditions continues to be essential for the development of competitive services in this market. On 18 September 2013 the ACCC varied the Facilities

17 Australian Communications and Media Authority, Communications Report 2012–13, p. 33. Access Code to ensure it continues to be a useful tool for industry when negotiating access to certain telecommunications facilities. The Facilities Access Code governs how access to facilities owned by carriers is provided to other carriers seeking to install their equipment on or in those facilities. Importantly, the revised Facilities Access Code provides that a carrier must comply with certain timeframes when they receive a request for access to their facilities. This will ensure that requests for access are treated in a timely manner.

1.2.3 State of competition in the mobile services market During 2012–13 we saw a number of developments in the mobile services market including further changes in retail mobile market shares, slight changes in retail prices, and strong investment in infrastructure.

Retail mobile market shares Telstra again strengthened its position, increasing its retail mobile market share from 41 per cent to 43 per cent. Optus and Vodaphone Hutchison Australia (VHA) experienced slight decreases in their retail mobile market share, to 28 per cent and 20 per cent respectively. Similarly, Telstra, Optus and VHA continue to be the three main providers of wireless broadband services. Telstra increased its market share to 58 per cent, an increase of 5 per cent during the reporting period. However, Optus and VHA experienced declines in their market shares, by 2 and 3 per cent respectively. Telstra’s strong position is likely based on its ability to differentiate itself on other factors (including perceived network performance), and its position as the first 4G provider in Australia. Mobile virtual network operators (MVNOs) continue to hold a relatively low retail market share of 8 per cent. 2012–13 saw some changes in this market, with mobile network operators changing strategy and increasingly using their own brands rather than MVNO brands. For example, VHA closed its Crazy Johns and ‘3’ brands, while Optus terminated its wholesale agreement with Woolworths and ceased operating with Boost Mobile and Telechoice as its preferred MVNOs. Some players have also exited the market, including Kogan Mobile, following its wholesale supplier going into administration.

Retail price competition Price competition in the retail mobile market continued to be less vigorous than in the past. Average prices for mobile services rose by less than the general level of inflation over the year. All mobile network operators have kept retail price points at around the same level, while changing the ‘included value’ components of some plans.

Mobile operators are increasingly competing on non-price terms Mobile network operators are increasingly competing on network quality, coverage and on customer service rather than just price. This may be driven by increased consumer demand for data and preferences for network quality over other factors. This has encouraged further investment, with mobile network operators continuing to invest to improve their networks. All operators now offer 4G services and are planning to further increase their 4G coverage by the end of 2013.

1.2.4 Regulating mobile services in the long-term interests of consumers With consumers increasingly relying on mobile services, we are working to ensure that mobile services are competitive for consumers. There have been a number of important regulatory developments that occurred in the sector during the current period, including the auctioning of radiofrequency spectrum and the development of service provider rules by the ACMA regarding better transparency about mobile roaming charges. We have been monitoring these developments and their effect on the market and liaising with other regulatory agencies. We also commenced a review into the regulation of the MTAS.

Monitoring the outcomes of the digital dividend auction On 7 May 2013 the ACMA announced the results of the spectrum auction for reallocating radiofrequency spectrum in the 700 MHz and 2.5 GHz bands. Optus, Telstra and TPG all secured spectrum in the auction, at a total cost of $1.964 billion. While the spectrum will not be available until the beginning of 2015, it is expected that Telstra and Optus will use their 700 MHz spectrum to extend and improve coverage in their new 4G networks, particularly in regional areas. It is likely that Telstra and Optus will use their 2.5 GHz spectrum to provide extra capacity in central business district (CBD) and metropolitan areas to offer wireless broadband services. TPG’s acquisition may increase competition in wireless broadband services. We will monitor the outcomes of the spectrum auction, which over time may increase competition by improving existing networks and supporting further mobile services and applications.

Inquiry into the future regulation of mobile terminating access Also in May, we commenced an inquiry into whether to extend, vary, revoke, or make a new declaration for the MTAS. The MTAS is a wholesale service that mobile network operators offer other carriers so that calls on different networks can be connected. The service was last declared in 2009 and there have been several changes in the mobiles industry since this time. We are considering the impact of market changes, whether the MTAS should continue to be regulated to allow consumers to connect with other networks, and whether SMS termination should also be regulated. We released a draft decision in December 2013 and we expect to make a final decision in early 2014.

International roaming is an area of concern The very high cost of international mobile roaming services and the detriment to consumers and business customers have been the subject of much attention in Australia and other parts of the world in 2012–13. In February 2013 the previous Australian Government and the New Zealand Government agreed to consider coordinated action to address high roaming charges between the two countries and released a joint report on trans-Tasman roaming. The report concluded that despite a decline in wholesale charges and margins for trans- Tasman mobile roaming services since 2009, charges remain high and will likely continue to remain high for the foreseeable future. In July 2013 the ACMA released a new International Mobile Roaming standard which was phased in from September 2013. The standard sets a number of new rules intended to reduce bill shock and provide clear information about roaming charges when travelling overseas. We are closely monitoring this issue and working with key stakeholders, including the Australian and New Zealand governments, to address high roaming charges to improve outcomes for consumers.

1.2.5 Industry structural changes With the rollout of the NBN underway, our regulatory processes have focussed on ensuring competition is maintained in the long transition to the NBN. This involved making a number of significant decisions, including:  accepting NBN Co’s special access undertaking (SAU)  overseeing Telstra’s structural separation undertaking (SSU) and migration plan  setting terms and conditions of access to bitstream services provided over non-NBN superfast networks, and  publishing the final list of points of interconnection (POIs) for the NBN.

NBN Co’s special access undertaking In December 2013 we accepted NBN Co’s SAU, which forms part of the regulatory framework for access to services provided over NBN Co’s fibre, wireless and satellite networks until June 2040. It sets out terms of access and includes a role for the ACCC in setting and reviewing access prices. The SAU will have a significant influence within the communications industry for many years, ensuring regulatory certainty for industry and effective retail competition.

Telstra’s structural separation undertaking and migration plan Telstra’s SSU and migration plan are delivering tangible benefits and delivering significantly better outcomes than were realised under the previous operational separation arrangements. However, Telstra has faced some challenges in implementing the SSU’s interim equivalence and transparency obligations, particularly the obligation to protect wholesale customer information. In this regard, we are closely overseeing Telstra’s ongoing systems remediation program to remove the visibility of wholesale customer information in systems used by Telstra Retail staff. We also responded to several possible breaches of the overarching equivalence commitment reported by Telstra. We are currently preparing a report to the Minister on Telstra’s compliance with the SSU and migration plan for the 2012–13 period. In June 2013 we approved two minor variations to Telstra’s SSU which represent modest incremental improvements to the interim equivalence and transparency measures. Further, we also approved a number of minor variations to the migration plan, which are intended to minimise service disruptions for consumers during the migration to the NBN.

Regulating non-NBN superfast networks As part of the ‘level playing field requirements’, we must regulate designated superfast networks that are capable of delivering the same service outcomes as the NBN. This ensures that services provided over these networks are offered on a similar basis to those provided over the NBN. In October 2012 we made a final access determination for the local bitstream access service (LBAS), which is an access service provided over non-NBN superfast networks. The determination provides a base set of wholesale price and non-price terms and conditions of access to the LBAS. We decided to set the price for the local bitstream access service by benchmarking against NBN Co’s price in its Wholesale Broadband Agreement.

Establishing points of interconnection for the NBN In late 2012 we engaged in an extensive consultation process with stakeholders to determine the final list of POIs for the NBN, ensuring the number and location of POIs is in the best interests of consumers. In November 2012 we published the final list of POIs, which will define the network boundary of the NBN. We determined the location of the POIs in consultation with NBN Co, using competition criteria to assess whether a particular POI location would have competitive backhaul available for use by retail service providers. In February 2013 we also commenced a review of the policies and procedures regarding the identification of POIs, finding that the process undertaken was effective for identifying POI locations. We prepared a report on the review which was provided to the Minister and tabled in Parliament in December 2013. 2 Competition in telecommunications markets

This chapter outlines the current state of competition in the telecommunications industry. We examine trends in service take-up and usage, infrastructure investment, market concentration and price changes in order to assess the state of competition. We also look at the types of matters that are concerning consumers. Finally, we consider some international comparisons to show how Australia compares with the rest of the world. With increasing convergence and the trend towards bundling of telecommunications services, it is becoming more difficult to draw clear boundaries between different types of services. For the purposes of this chapter, we considered general consumer trends then separated our analysis into the fixed line sector and the mobile and wireless sector:  Section 2.1 examines trends in service take-up and usage  Section 2.2 assesses competition in the fixed line markets  Section 2.3 assesses competition in the mobile and wireless markets  Section 2.4 discusses telecommunications complaints, and  Section 2.5 considers some international comparisons. 2.1 Trends in service take-up and usage

Key points Trends in the take-up and usage of telecommunications services that have emerged in recent years continued in 2012–13. These include:  Mobile and wireless devices are more popular than ever, and many consumers now prefer to use their mobile phone rather than a landline telephone. 18  Consumers continue to download more and more data, preferring fixed line networks for data-intensive activities and mobile and wireless connections for convenience.  OTT services are also becoming more common, but they are yet to be an effective alternative to traditional telecommunications services.

2.1.1 Mobile phones continue to be more popular than landline phones As at June 2013 there were more than twice as many mobile phone services than landline phone services in use in Australia. As shown in figure 2.1, this trend is consistent with previous years, although the number of mobile services continues to plateau.

18 Data sent using Wi-Fi networks in homes and offices is considered to be fixed line data rather than wireless data because the underlying broadband connection (for example, DSL connection) is via a fixed line. Figure 2.1 Comparison of mobile and landline services in operation

Source: ACMA Communications Reports Landline subscriptions declined again over the year, falling from 10.44 million in 2011–12 to 10.32 million in 2012–13.19 According to the ACMA, about 3.7 million adults had a mobile phone but no fixed line phone in June 2013, which is an increase of 18 per cent from the previous year.20 Over the past five years, the number of adults with a mobile but no fixed line telephone has increased by 140 per cent. Most of these people were under the age of 35, living in metropolitan areas and/or resided in low income areas. In contrast, only 3 per cent of people over the age of 65 had a mobile phone and no fixed line phone at the end of 2012.21 Many consumers are also using their mobile phones rather than a landline to make their voice calls. Figure 2.2 shows that the number of call minutes from mobile devices exceeded call minutes from landline phones for the second consecutive year.22 Figure 2.2 Comparison of mobile and landline service usage

Source: ACCC RAF RKR Reports for Telstra, Optus and VHA. Figure 2.2 shows that there is a clear trend emerging, with the number of call minutes for fixed line phones falling each year from 61.2 billion call minutes in June 2008 to 25.6 billion call minutes in June 2013. At the same time, mobile call minutes have been steadily increasing, although not at the same rate. The total number of call minutes has trended downwards in recent years, due to the decline in usage of fixed voice services.

19 Australian Communications and Media Authority, Communications Report 2012–13, p. 18. 20 Australian Communications and Media Authority, Communications Report 2012–13, p. 19. 21 Australian Communications and Media Authority, Research Snapshot—Australians cut the cord, 5 July 2013. 22 This chart is based on data collected from RAF RKR reporting companies—Telstra, Optus and VHA. The numbers vary from those published in prior year reports because AAPT and Primus were previously required to provide call minute data under the RAF RKR. The service usage trends in figure 2.2 are consistent with research that suggests Australians prefer their mobile phone to a fixed line phone as their main communication service.23 Factors contributing to this shift include access to improved and affordable technology, upgraded networks, changes to mobile phone plans, and convergence of technologies which allow consumers to access multiple cmmunications and media services from a single mobile phone.24

2.1.2 Wireless continues to be the most common internet access technology Many consumers also use mobile phones to access the internet. With the popularity of smartphones continuing to grow, the number of customers with access to the internet via a mobile handset increased 21 per cent over the year.25 However, internet access via a mobile handset appears to be complementary to other forms of internet connection. In December 2012 less than 3 per cent of the adult population were using their mobile for voice and internet services as a complete substitute for fixed line services.26 The majority of internet activity occurs over other platforms, in particular via DSL and mobile wireless27 connections. In June 2013 there were 12.36 million internet subscribers (excluding mobile handset subscribers) in Australia, an increase of 3 per cent from June 2012.28 This growth rate is slower than the high rates of 10 per cent and 15 per cent experienced in the previous two years, indicating that the market may be starting to reach saturation. Figure 2.3 shows the number of internet subscribers by access technology, including mobile wireless (excluding mobile handsets), DSL, fibre, dial up and other access technologies. The other category includes hybrid fibre- coaxial (HFC), satellite and fixed wireless services. Mobile wireless broadband was again the most prevalent internet technology used in Australia in 2012–13, accounting for 50 per cent of all internet connections (other than those from a mobile handset).29 DSL remained the next most popular internet access technology, while dial up internet continued to decline in importance. Figure 2.3 Internet subscribers by access technology

Source: ABS, Internet Activity Australia (8153.0), June 2013. Mobile wireless and DSL had the largest increase in internet subscriber numbers over the year. With the NBN rollout progressing, fibre was the fastest growing type of internet connection in percentage terms, but it still only accounts for 1 per cent of all internet connections. The growth of both fixed and wireless internet subscriptions over the year suggests that wireless devices are largely complementary to fixed line internet services. Further, wireless connections tend to be provided on an individual basis, whereas fixed line connections tend to service a household or business. This contributes to the larger number of wireless subscriptions.

23 Australian Communications and Media Authority, Communications Report 2012–13, p. 21. 24 Australian Communications and Media Authority, Research Snapshot—Australians cut the cord, 5 July 2013. 25 Australian Bureau of Statistics, Internet Activity Australia (8153.0), June 2013. 26 Australian Communications and Media Authority, Research Snapshot—Australians cut the cord, 5 July 2013. 27 Mobile wireless services refer to services provided via data-card, dongle, USB modem or tablet SIM card. Unless otherwise specified, references to wireless services exclude data services provided via mobile handsets such as smart phones. 28 Australian Bureau of Statistics, Internet Activity Australia (8153.0), June 2013. Note the subscriber statistics measure the number of ‘subscriber lines’ rather than the number of ‘users’. Therefore, counts of subscribers are not the same as counts of people or organisations with internet access. 29 Australian Bureau of Statistics, Internet Activity Australia (8153.0), June 2013. 2.1.3 Consumers are downloading significantly more data Consumers continue to download more and more data. The total volume of data downloaded via the internet (excluding from mobile handsets) for the June 2013 quarter increased 59 per cent compared to the June 2012 quarter. The volume of data downloaded by mobile handsets increased even more dramatically, escalating by 97 per cent from 9943 terabytes in the June quarter of 2012 to 19 636 terabytes in the same quarter in 2013.30 The increase in data downloaded by both mobile devices and fixed line services provides further evidence that the services are largely complementary, with fixed line services still preferred for bandwidth intensive content such as video. Data downloaded by fixed broadband accounted for 96 per cent of total internet downloads during the year, or 93 per cent when mobile handsets are also considered.31 Figure 2.4 shows the volume of data downloaded by fixed broadband compared to wireless broadband and mobile handsets. Figure 2.4 Volume of data downloaded by access connection type

Source: ABS, Internet Activity Australia (8153.0), June 2013. Technologies that enable faster internet and the availability of higher quality content are contributing to this growth. Nearly eight million internet subscribers, or about 63 per cent, now have access to advertised download speeds of greater than 8 Mbps, and a growing proportion of these have access to advertised speeds of more than 24 Mbps.32 More people are also undertaking data intensive activities such as streaming or downloading video and audio content, and accessing professional online video content services such as catch-up TV, internet protocol TV (IPTV) and video-on-demand.33

30 Australian Bureau of Statistics, Internet Activity Australia (8153.0), 30 June 2013. 31 Australian Bureau of Statistics, Internet Activity Australia (8153.0), 30 June 2013. 32 ABS, Internet Activity Australia (8153.0), June 2013. For the purposes of the ABS data, download speed is the equivalent to the advertised or theoretical maximum data transfer rate. This can differ from actual speeds experienced by internet users, which can vary based on factors such as the modem, the distance from the node or exchange and the level of internet traffic. The ACCC is consulting on a possible program that would monitor the speeds actually experienced by consumers as discussed in chapter 5 of this report. 33 Australian Communications and Media Authority, Communications Report 2012–13, p. 44. Emerging issue: audio-visual content delivery Australians are consuming more audio-visual content online than ever before. Much of this content is being delivered using internet protocol (IP) over fixed and mobile networks. The availability of higher speed internet at more competitive prices has encouraged and enabled significant growth in user demand for viewing content online. Many Australians now spend significant amounts of their time online for entertainment. The number of Australian adults accessing a commercial or free-to-air online video content service has increased by around 52 per cent, from 5.16 million in the six months to May 2012 to 7.86 million in the six months to May 2013.34 Some content services consumed in Australia utilising IP can be characterised as OTT services. OTT delivery is used for both IPTV subscription services offered by internet service providers (for example, Fetch TV, Foxtel, T-box) and catch-up television services offered by free-to-air television broadcasters (for example, ABC iView), which are usually available free of charge. Research undertaken by the ACMA shows that in the six months to May 2013, 6.69 million Australians used a catch-up television service, compared to 1.94 million using video-on-demand services35 and 1.38 million using IPTV services. 36 A combination of factors, including extensive broadband penetration and high take-up of devices such as tablets, are creating opportunities for new market participants and are prompting content providers, both traditional broadcasters and the established online players, to develop and diversify their existing products. These providers are also using content delivery networks and other technologies, such as video compression and adaptive streaming, to meet growing demand for content services and to provide a high quality of service. The above developments demonstrate that emerging and established content providers are finding innovative and cost-effective ways to deliver IP based content services to meet end users’ growing and changing patterns of content consumption. The ACCC will continue to observe developments in online audio-visual content services to ensure that consumers continue to benefit from enhanced opportunities to access a wide variety of content services.

2.1.4 Mobile network quality is becoming more important for consumers One of the key reasons for the growth of data consumed on mobile and wireless networks is the continued adoption of smartphones and tablets. These devices are also capable of more data-intensive functions, with evidence suggesting that smartphones typically consume 35 times more data than other phones.37 With more consumers accessing the internet from mobile devices, factors such as mobile network reliability, coverage and data rates are all becoming increasingly important for consumers. This is reflected in the number of customer complaints, with network coverage remaining the main area of mobile phone complaints in recent years.38 Further information about complaints is outlined in section 2.4. The demand for improved network quality is also driving significant investment by all mobile network operators to ensure their networks can cope with increasing consumer demand for mobile data and to improve service reliability. Acknowledging that network quality and performance are now key differentiators for consumers, mobile operators are focusing the marketing of their mobile services on network coverage and capacity instead of price.

2.1.5 More people are using over-the-top services Customers are becoming savvier when it comes to using their communications devices and some segments of the community are embracing the use of OTT services. OTT VoIP services allow customers to use their internet or data service to communicate with their family and friends, often at a lower cost than the traditional fixed line telephone. The number of OTT VoIP users in Australia increased by 6 per cent during 2012–13 to reach 4.59 million people.39 This was largely attributable to very strong growth in the use of mobile phone and tablet OTT VoIP services, which increased by 73 per cent and 150 per cent respectively.40 However, this rapid growth is starting

34 Australian Communications and Media Authority, Communications Report 2012–13, p. 46. 35 Video-on-demand services (such as Quickflix and FOXTEL On Demand) are non-linear services that allow consumers to select and watch video content ‘on demand’. This contrasts with linear services (for example, traditional televisions services) which send a continuous stream of content at the discretion of the sending party. 36 Australian Communications and Media Authority, Communications Report 2012–13, p. 46. 37 OECD, Communications Outlook 2013, p. 292. Examples of other types of phones could be a feature phone which is a mobile phone that is not considered as a smartphone due to it lacking in several features but nevertheless, has additional functions over and above standard mobile services. It is intended for customers who want a lower-price phone without all the features of a smartphone. 38 Telecommunications Industry Ombudsman, TIO Annual Report 2012–13, p. 27. 39 Australian Communications and Media Authority, Communications Report 2012–13, p. 4. 40 Ibid, p. 22. from a low base. The number of people accessing OTT VoIP via computers or laptops also grew, but at a much slower rate. The growth of OTT VoIP via mobile phones is related to the rapid uptake of smartphones and tablets which allow consumers to download mobile applications that provide OTT voice and messaging services. While growing rapidly, the market for OTT voice and messaging services is still in the early stages. OTT services may be providing some competitive pressure in telecommunications markets, but they are not yet effective substitutes for traditional telecommunications services. In particular, ‘best efforts’ VoIP services are not effective substitutes for traditional voice services in terms of quality of service or any-to-any connectivity. It appears that the majority of OTT VoIP consumers use these services in addition to their fixed line or mobile service. In the six months to May 2013 93 per cent of Australian adults used a mobile phone for voice calls, 84 per cent sent a text from a mobile phone and 76 per cent used a fixed line telephone at home. This compares with just 45 per cent of adults who used an internet telephony service.41

Emerging issue: the rise of chat applications The rise of messaging or ‘chat’ applications is changing the way some consumers make calls or send text messages. This change has predominantly occurred due to the increased use and availability of smartphones and tablets. These applications operate using the data capacity of a consumer’s internet service, so they are generally cheaper to use than traditional voice and messaging services. Popular chat applications include Whatsapp, BlackBerry Messenger, Viber, Nimbuzz, Apple’s iMessage, Facebook Messenger and Kakao Talk. Some commentators estimate that about 19 billion chat messages were sent daily in 2012 using these applications worldwide. At this point in time in Australia, despite their emerging popularity, there are a number of differences between messaging applications and SMS which means they may not be an effective substitute for all consumers. Messaging applications require a smartphone with a data connection, and both the sender and receiver must use the same application. In contrast, SMS can be sent and received by any person with a mobile phone service. The quality of service for voice calls may also differ because chat applications operate over data networks on a ‘best efforts’ basis rather than through a dedicated voice connection. In Australia, the competitive constraint imposed by chat applications is currently limited because they are not perfect substitutes for traditional telecommunications services. However, we have seen some changes in the market that may be related to the rise of OTT services. For example, there have been changes to some higher value mobile plans to include unlimited or lower cost SMS and voice calls. Some telecommunications providers are also trying to overcome the ‘OTT effect’ (customers using OTT services to make calls and send messages rather than traditional voice and messaging services) by more closely aligning the price of mobile services with data usage, 42 and/or bundling voice services with internet access to reduce the incentive to use alternative services.43

2.2 Competition in the fixed line markets

Key points  The fixed line markets remain in a lengthy period of transition. While the NBN continues to be the most significant infrastructure development, the majority of customers continue to receive services via Telstra’s copper network.  Regulation has encouraged competition in the retail markets, but the wholesale markets remained highly concentrated. Regulation of the legacy fixed line networks will remain important to ensure competition during the transition to the NBN.  Price competition has led to further reductions in the retail prices of fixed line services, in particular the prices of international calls and fixed-to-mobile calls have fallen dramatically (by 21 and 12 per cent, respectively).

41 Ibid, p. 20. 42 Global Markets Research, Equities: Mobile competitive environment, 11 September 2013, p. 1. 43 Telstra, Telstra Investor Day, slide presentation, October 2012, viewed 17 October 2013, http://www.telstra.com.au/abouttelstra/download/document/tls858-investor-day-31-october-2012.pdf. 2.2.1 Fixed line infrastructure developments Telstra operates the only national customer access network, which is used to provide the majority of fixed voice and internet services in Australia. Most of the remaining fixed line services are provided by Telstra’s HFC network, Optus’ HFC network and smaller fibre networks. On current trends, this appears unlikely to change significantly until services are migrated across to the NBN.

The NBN continues to be the most significant infrastructure development The most significant infrastructure development in the fixed line market continues to be the rollout of the NBN. As at 30 June 2013 there were 234 799 premises passed or covered by the NBN.44 This includes premises passed by fibre in both built-up areas (brownfields) and new developments (greenfields), as well as premises covered by the NBN fixed wireless network.45 Of these, about 15 per cent of the premises had been activated, while 55 724 premises were not yet serviceable. A further 34 640 premises had an activated satellite service, taking the total number of premises with an activated NBN service to 70 100. Table 2.1 shows the NBN rollout figures from June 2011 to June 2013. Table 2.1 NBN rollout

Service type Description June 2011 June 2012 June 2013

Fibre Premises passed 10 575 33 023 207 543

Premises activated 620 3 867 33 586

Premises not yet – 55 724 serviceable46 –

Wireless Premises covered – 8 885 27 256

Premises activated – 91 1 874

Satellite Premises activated 166 9 578 34 640

Total (fibre & 10 575 234 799 wireless) Premises passed/covered 41 908

Total (all service types) Premises activated 786 13 536 70 100

Source: NBN Co Weekly progress report

Access seeker investment in Telstra exchange equipment continues to slow in new areas Another important area of fixed line investment was the installation of digital subscriber line access multiplexer (DSLAM) equipment in Telstra exchanges.47 Over the past few years, Telstra’s competitors have been increasingly using their own DSLAM equipment to provide DSL broadband services via Telstra’s copper access network. However, access seekers have been investing less to extend the reach of their DSLAM coverage in the past couple of years, instead focussing on providing more services in the CBD and metro areas. In 2012–13 access seeker investment in Telstra exchange building equipment in new areas slowed to a growth rate of 1 per cent. This is likely to be to be attributed to a natural slowing of investment in new areas as the larger access seekers complete their DSLAM rollouts in major metropolitan areas. Some access seekers may also be slowing investment in copper based assets in anticipation of the NBN. Figure 2.5 shows the extent to which Telstra faces competition in areas of differing population density. For each Band, the chart shows the proportion of exchange serving areas where Telstra or access seekers have at least one DSLAM installed.

44 NBN Co, Weekly progress report, viewed 31 October 2013, http://www.nbnco.com.au/content/dam/nbnco/documents/nbnco-weekly- progress-report-week-ending-271013.pdf. NBN Co has recently revised the way it reports the status of the rollout, therefore the reported figures will differ from the Telecommunications Competitive Safeguards report for 2011–12. 45 This includes premises that are not yet serviceable (service class 0) but excludes satellite services. 46 These premises have been passed by NBN fibre but are not yet serviceable. 47 DSLAM refers to access seekers’ own equipment that can be installed directly in Telstra’s local telephone exchange. By using their own DSLAM infrastructure, access seekers can differentiate their services, potentially offering higher bandwidth data communications and voice services than they could by simply re-selling Telstra’s wholesale service offerings. Figure 2.5 Telstra and access seeker DSLAM coverage

Source: ACCC Telstra Customer Access Network RKR Notes: The figures above refer to the percentage of exchange service areas with a DSLAM presence by Telstra and access seekers, rather than the number of services in operation. It does not consider how many DSLAMs each access seeker has in a particular exchange service area, just whether there is an access seeker presence. As shown in figure 2.5, Telstra continues to have the most extensive network of DSLAMs and therefore the ability to offer DSL services over the largest geographic footprint. Both Telstra and access seekers have DSLAM equipment installed in all Band 1 (CBD) exchange service areas and most Band 2 (metropolitan) areas. However, Telstra has much more extensive coverage in Band 3 (regional and rural areas) and Band 4 (remote areas with a small population). Access seekers tend to invest mainly in Bands 1 and 2 due to the higher number of potential customers and lower backhaul costs.

2.2.2 Fixed line market shares remain relatively stable While there has been more competition in retail markets in recent years, the wholesale fixed line markets remained highly concentrated during 2012–13. Telstra has maintained the largest number of subscribers for both voice and broadband services, and continues to be the largest wholesale provider of fixed line services.

Telstra faces increasing competition in the retail fixed voice market Fixed voice services (or landline voice services) are those provided over a dedicated access line on a fixed network, plus the provision of various calling functions. These include line rental, local calls, national long-distance calls, international calls and calls from fixed line phones to mobiles. Figure 2.6 depicts operators’ market shares of total retail fixed voice services, based on the number of subscribers. Telstra remains the largest provider of retail fixed voice services with a market share of 63 per cent. However, following the trend of recent years, Telstra lost 3 per cent of the market to other competitors in 2012–13. Carriers depicted in the ‘other’ category include AAPT, iiNet, Macquarie Telecom, Primus, TPG and Verizon, among others.48 Optus has maintained a steady market share of 11 per cent over the last three years. Figure 2.6 Retail fixed voice service market shares

48 The ACCC is unable to disaggregate the ‘other’ category further due to data limitations. Source: Data obtained from the ACCC Division 12 RKR for Telstra and Optus and data obtained from the ACMA Communications Report 2012–13 for the ‘other’ category. Notes: Market share calculations are based on the number of subscribers.

Minor changes to retail fixed broadband market shares There are five major internet service providers operating in the retail market for fixed broadband services in Australia—Telstra, Optus, iiNet, TPG and the M2 Group (which owns Primus). Together, these five providers accounted for more than 86 per cent of fixed broadband (DSL and HFC cable) subscribers as at June 2013. They have been gaining market share from the smaller providers in recent years, by attracting new customers and through industry consolidation. However, this appears to have slowed in 2012–13, with less consolidation activity occurring during the year. The M2 Group undertook the only major acquisitions during the reporting period, acquiring both Dodo and Eftel in May 2013.49 iiNet also continued its acquisition strategy, announcing its intention to acquire Adam Internet in August 2013.50 The number of fixed broadband subscribers continued to grow, increasing by 3 per cent over the year.51 Figure 2.7 shows the retail broadband market shares for the fixed broadband (DSL and HFC cable) services for the four largest providers. Telstra retained its position as the largest provider of fixed broadband in Australia, with a 42 per cent market share in 2012–13. Other market shares have also remained stable over the year, with Optus experiencing a slight decline to the benefit of TPG and Telstra. Figure 2.7 Retail fixed broadband market shares

Source: ACCC Division 12 RKR Reports & ABS, Internet Activity Australia (8153.0), June 2013.

49 M2 Telecommunications, ASX Media Release: M2 Completes acquisition of Dodo, 1 May 2013. http://m2.com.au/GetPdf.axd?id=406589. 50 iiNet, ASX Media Release: Completion of Adam Internet Acquisition, 30 August 2013. http://www.asx.com.au/asxpdf/20130830/pdf/42j1nl2hpzmnm5.pdf . 51 ACCC, Division 12 RKR Reports, June 2013. Notes: Market share calculations are based on the number of subscribers. Totals do not add to 100 per cent in all years due to rounding.

The use of ULLS to supply fixed line services continues to grow While retail market share is a useful measure of competition, the degree of competition in the market for fixed line services also depends on how those services are supplied. The vast majority of fixed line services are provided using Telstra’s copper customer access network.52 This is unlikely to change significantly until services are migrated to the NBN. Telstra’s customer access network is used by Telstra to provide retail telephone services directly to customers. Telstra also provides wholesale telephone services to other retail service providers, or allows them direct access to the copper line so that they can install their own equipment and provide voice and internet services (via the unconditioned local loop service (ULLS)). Table 2.2 shows the proportion of each service type provided over Telstra’s copper network. Table 2.2 Types of voice service provided over Telstra’s customer access network

Type of service June 2009 June 2010 June 2011 June 2012 June 2013

Telstra retail 80% 78% 76% 75% 72%

Telstra wholesale 13% 13% 13% 13% 14%

ULLS 7% 9% 11% 12% 14%

Source: Telstra’s annual report. Table 2.2 shows that Telstra retail services are still the main voice service provided over Telstra’s customer access network, despite a further decline in 2012–13. The reduction in Telstra retail services is a result of a continued shift towards ULLS. The number of services provided via ULLS has increased again in 2012–13 to overtake wholesale services for the first time. The number of wholesale voice services also increased slightly in 2012–13, which is the first increase in five years.53

Telstra is by far the largest supplier of DSL services in rural and regional areas The supply of DSL services remained highly concentrated in 2012–13, with Telstra continuing to be the most significant provider of wholesale services. Approximately 62 per cent of all DSL services in operation (SIOs) in June 2013 were supplied from Telstra DSLAMs.54 This figure includes wholesale ADSL services provided by Telstra to other retail service providers. Figure 2.8 shows that competition varies between geographic areas. Access seekers have a greater presence in CBD and metropolitan areas and have been able to secure a reasonable share of total DSL services in these areas using the ULLS and line sharing service (LSS).55 Around 69 per cent of total DSL services in Band 1 and nearly 50 per cent in Band 2 are provided by access seekers using ULLS and LSS. However, Telstra continues to be the main supplier of DSL in regional and rural areas because it has more significant DSLAM coverage in those areas, as shown in figure 2.5 above. Figure 2.8 Access seekers’ ULLS and LSS SIOs as a percentage of total DSL SIOs

52 The remainder are provided using other networks such as Optus’ HFC network or TransACT’s (now part of the iiNet Group) fibre network. 53 Telstra, Telstra full year results and operations review, 30 June 2013. 54 ACCC, Telstra CAN RKR quarterly snapshots, June 2013. 55 The line sharing service allows access seekers to provide broadband services to customers via access to the higher frequency part of the copper line. Source: ACCC CAN RKR Reports

2.2.3 Competition has led to a modest fall in prices The ACCC reports on retail price changes for voice services in Changes in the prices paid for telecommunications services in Australia 2012–13.56 The report shows that average prices are falling for both fixed voice and internet services.57 In 2012–13 average real prices58 for fixed voice services declined by 3.2 per cent. This is slightly less than the decline in 2011–12, where a 4.9 per cent decline was registered. Retail basic access prices (i.e. line rental) increased by 0.7 per cent this year, as opposed to a decrease of 1.4 per cent in 2011–12. Overall, prices decreased slightly for local calls (2.2 per cent) and for national long-distance calls (2.7 per cent) but decreased significantly for international calls and fixed-to-mobile calls (21.2 and 11.7 per cent respectively). The overall decline in fixed voice prices is attributable to call charges falling faster than basic access charges. The average real price paid for all types of internet services fell by 0.9 per cent during 2012–13.59 This is the smallest reduction in prices for more than five years, down from a 2.7 per cent decrease in 2011–12. This is likely to be attributable in part to an increase in the prices paid for wireless broadband services, as discussed in section 2.3. The prices paid for fixed broadband fell during the year, with the price paid for DSL services falling 2.2 per cent and the price for cable internet services falling 1.8 per cent. The price paid for dial up internet services increased slightly by 1.3 per cent in 2012–13, after significant price reductions in recent years. The prices of fixed line services have generally fallen over the 2012–13 reporting period. While the price reductions have been modest for most services, it appears that price remains an important consideration for consumers and therefore, an important source of competition. The ACMA found that service reliability and price were the two most important factors considered by consumers when selecting an internet service provider. Price was also the main reason for customers changing their home internet service provider, with 49 per cent of survey respondents stating that they switched providers because they were offered a cheaper service by another provider.60

56 ACCC, Changes in the prices paid for telecommunications services in Australia 2012–13, www.accc.gov.au. 57 The average prices have been adjusted for inflation, however the methodology for estimating prices does not take into account changes in service quality or functionality. 58 Real prices are nominal prices that have been adjusted for the effects of inflation using the Australian Bureau of Statistics Consumer Price Index (CPI). The CPI increased by 2.4 per cent in 2012–13. 59 This includes wireless broadband. 60 Australian Communications and Media Authority, Communications Report 2012–13, p. 31. In addition to monitoring competition in fixed line and mobile markets, the ACCC closely monitors competition in transmission markets, including transmission prices. Monitoring competition in this market is important, as transmission services are a fundamental part of most telecommunications services in Australia. The following case study briefly describes transmission services, competition in this market and the ACCC’s role in regulating transmission services.

Case study: competition in transmission markets Transmission services are wholesale services which underlie virtually every other telecommunication service. The term ‘transmission’ refers to high capacity data links that are used by telecommunication providers to carry large volumes of voice, data, video or other communications over long distances. Transmission services are primarily used to carry data between two locations. For example, to carry data between the head offices of large corporations in different cities, or to aggregate a large number of smaller services (such as all the internet traffic in a local area) to transport these services as one stream to their destination. Transmission services are mainly optical fibre-based, but in some cases microwave, satellite and copper lines can be used. Because of the large investments required to build transmission networks, many routes (particularly in regional areas), are only serviced by one or two providers. Routes which lack competition are regulated under the domestic transmission capacity service (DTCS) to ensure the availability of transmission services at reasonable prices. Since initial regulation in 1997, additional investment by new infrastructure providers has increased competition in some areas. Consequently, the ACCC has removed regulation in those areas and along some specified routes. Increased data use by consumers, businesses, and government sectors means that demand for transmission services continues to grow significantly. Telstra remains the dominant supplier of transmission services, with Optus the second largest provider. Recent investments have been made by Pipe Networks (owned by TPG) which doubled its network coverage in metropolitan areas. The Commonwealth Government has also provided funding to Nextgen ($250 million) to roll out transmission infrastructure under the Regional Backbone Blackspots Program. In 2012 the ACCC released the first regulated DTCS prices in the DTCS FAD. Since then, ACCC price monitoring activities have identified a fall in prices on competitive routes, although transmission prices remain variable. The ACCC is currently conducting a public inquiry into the declaration of the DTCS. As part of this inquiry, the ACCC is assessing the state of competition on all DTCS routes, including routes previously deregulated. The ACCC will finalise its decision on whether to continue to declare the DTCS in 2014. Also during 2014, the ACCC will commence a review of the DTCS FAD and reconsider regulated prices for the service, which will be an important project.

2.3 Competition in the mobile and wireless markets

Key points  Recent developments in the mobile and wireless markets have been driven by increasing consumer demand for data and improved network quality.  To further improve their networks, all three network operators made significant investments during the reporting period.  Telstra remained the largest carrier in both markets and further increased its retail market share in 2012-13.  Price competition remained fairly flat in the mobile and wireless markets, with average prices for mobile services rising by less than the general level of inflation.  There have been some changes to advertised mobile plans. For example, some carriers reduced their fees for excess data usage and international roaming charges, while also increasing the effective price of data consumption on some of their mobile plans. 2.3.1 Carriers invest heavily in mobile networks The Australian mobile market consists of three mobile network operators—Telstra, Optus and VHA. All three operators provide national coverage of 2G and 3G services to provide voice, SMS and data services. In addition, they now all operate 4G/LTE networks in select cities (or parts of cities) to provide enhanced data services. Competition and surging consumer demand have spurred all three mobile network operators to invest significantly in infrastructure during the year. This investment has resulted in continued expansion of 3G and 4G radio access infrastructure (for example, mobile sites) and supporting infrastructure such as mobile backhaul and core network upgrades. These developments are part of long term ongoing investment and consumers will continue to benefit from expanded coverage and higher capacity mobile services.

Case study: 4G mobile networks Mobile networks have changed considerably since being introduced in the 1980s, with the latest technological evolution referred to as the fourth generation (4G). The three Australian mobile networks use 4G technology called Long Term Evolution (LTE) to provide highly advanced mobile broadband data services. Because 4G is a data-only service, voice calls are still carried on 2G or 3G mobile networks and probably will be for several years until Voice over LTE (VoLTE) technology is introduced. The use of 4G enables significantly faster data transfer rates and lower latency compared to older 3G technologies. These improvements are due to better radio efficiency alongside advanced antennas and signal coding. Currently, the mobile operators are reusing spectrum used for 2G mobile services to provide 4G, but this will change when the digital dividend spectrum becomes available in 2015. The digital dividend spectrum is discussed further in chapter 9.

All three major mobile carriers now operate 4G networks This past year saw the further expansion of Telstra’s 4G network, and the launch of 4G networks by Optus and VHA in select cities. These networks enable significantly faster data transfer rates and lower latency than older networks. Following these investments, there were 3.88 million 4G services in operation by the end of June 2013.61 This represents a 918 per cent increase in take-up of 4G services since June 2012, with customers taking up 4G services as they became available by Telstra and Optus.62 Ovum forecasts that the number of 4G services in operation will overtake 3G services by 2015.63

61 Australian Communications and Media Authority, Communications Report 2012–13, p. 10. 62 This calculation is based on the total number of Telstra and Optus 4G subscribers at the end of June 2013. This calculation does not include VHA 4G subscribers because VHA began supplying 4G services after June 2013. 63 Ovum, Australian Mobile Market Statistics and Analyser: 1H 2013, 27 September 2013. Table 2.3 4G networks in Australia

Operator 4G Network Launch Coverage

Telstra September 2011 At June 2013, 66 per cent of population, including all capital cities and 100 regional and suburban areas. Plans to increase coverage to 85 per cent by December 2013.64

Optus September 2012 At June 2013, six capital cities and several regional areas.65 In May 2013, launched a dual-band 4G network trial in Canberra using spectrum it obtained via its acquisition of Vividwireless.66 Plans to increase coverage to over 70 per cent of metropolitan population by mid-2014.67

VHA July 2013 At launch, parts of five capital cities and several regional areas.68 Plans to triple its 4G coverage by the end of 2013.69

Source: Annual reports and media releases from carriers.

Telstra, Optus and TPG purchased spectrum during the year In April 2013 the ACMA auctioned radiofrequency spectrum in the 700 MHz and 2.5 GHz bands (the ‘digital dividend’ auction). As discussed in chapter 9, Telstra and Optus will likely use the spectrum purchased to extend their 4G networks in regional areas and provide additional capacity for 4G and wireless broadband in metropolitan areas. As part of the digital dividend auction, TPG acquired a small slice of the 2.5 GHz spectrum. In September 2013 TPG announced that it will roll out its own wireless broadband network in Australian capital cities using its acquired spectrum.70 TPG currently supplies mobile broadband services using the Optus mobile network. While the spectrum licences for the reallocated spectrum will not commence until late 2014 and 2015, the introduction of new services using the spectrum will further boost existing networks and will support an even wider variety of mobile applications and services in the next few years.

Investment in 3G networks continues While all three network operators have now launched 4G networks, they all continued to invest strongly in their 3G networks during the reporting period. Telstra invested over $1.2 billion on its mobile network to improve coverage and capacity, across both 4G and 3G networks.71 Optus and VHA also invested significantly to expand coverage of their 3G networks72 and to roll out more high-speed technology and services.73

64 Telstra, Telstra Annual Report 2013, 7 August 2013, p. 6. 65 Optus, Network evolution continues, viewed 12 November 2013, http://www.optus.com.au/network/mobile/evolution . 66 Optus, Optus to roll out Australia’s first multi-band 4G network, media release, 20 May 2013, https://www.optus.com.au/aboutoptus/About+Optus/Media+Centre/Media+Releases/2013/Optus+to+roll+out+Australias+first+multi- band+4G+network . 67 SingTel Optus, SingTel Annual Report 2013, p. 13. 68 VHA, Vodafone flies into the future, media release, 10 July 2013, http://www.vodafone.com.au/doc/VodafoneFliesIntoTheFutureWith4G.pdf . 69 ibid. 70 TPG, ASX Media Release, 7 May 2013, http://www.asx.com.au/asxpdf/20130507/pdf/42fr0c06rvfkch.pdf . 71 Telstra, Telstra Annual Report 2013, 7 August 2013, p. 6. 72 Optus upgraded its 3G network and expanded coverage to 98 per cent of the population by deploying 900 MHz 3G equipment at over 1000 regional and capital city sites. See Optus, Optus strengthens 3G networks and launched 4G business services, media release, 31 July 2012, http://www.optus.com.au/aboutoptus/About+Optus/Media+Centre/Media+Releases/2012/Optus+strengthens+3G+network+and+lau nches+4G+business+services . 73 VHA rolled out high-speed 3G technology to select metropolitan areas and launched HD Voice for customers with compatible mobile handsets. See VHA, Vodafone outlines plans to give customers improved coverage, better reliability and higher speed Vodafone 3G+ and 4G services, media release, 26 June 2012, h ttp://www.vodafone.com.au/doc/vo dafone_network_release_coverage_improvements_3g_4g_260612.pdf ; VHA, Vodafone introduces current edge HD voice technology, media release, 25 June 2013, h ttp://www.v odafone.com.au/doc/VodafoneIntroducesCutting-EdgeHDVoiceTechnology.pdf . Optus and VHA utilise network sharing arrangements In recent years, VHA and Optus have entered into network sharing arrangements to improve the coverage and capacity of their respective networks and reduce investment costs. These network sharing arrangements continued in 2012–13. Network sharing arrangements allow different carriers to share or jointly own various aspects of their networks, including base station locations (for example, masts, power supplies and antennas) and occasionally spectrum and electronics. The importance of network performance to many consumers, and the high cost of network investment, has created incentives for Optus and VHA to enter into network sharing arrangements to compete with Telstra. In August 2013 VHA began its regional mobile roaming agreement with Optus, which added over 1200 regional sites to the VHA coverage area.74 The roaming agreement is part of the revised joint venture arrangements between VHA and Optus that includes expanded site-sharing.

2.3.2 Telstra increased its retail market share for mobile services and wireless broadband As at June 2013 Telstra was the main retail provider of both mobile services and wireless broadband services, while VHA continued to lose customers. Telstra’s strong position is likely due to its ability to differentiate itself based on perceived network performance, which is becoming an important consideration for consumers. The analysis of mobile retail market shares in this section is based on mobile handset services, which includes both voice and data services accessed by a mobile phone. The analysis of wireless broadband services retail market shares is performed separately. For the purposes of this analysis, wireless services refer to services provided via data-card, dongle, USB modem or tablet SIM card. The ACCC also reports on the retail market shares of the three mobile network operators (Telstra, Optus and VHA) and other carriers in aggregate.75

Mobile network operators compete for mobile market share The three mobile network operators—Telstra, Optus and VHA—account for about 92 per cent of subscribers in the retail mobiles market. Telstra increased its market share for retail mobile services in 2012–13 to reach 43 per cent. As shown in figure 2.9, Telstra’s market share has increased by 3 percentage points over the past two years.76 Figure 2.9 Retail market share for mobile handset services

Source: ACCC Division 12 RKR and data from carriers Notes: Market share calculations are based on the number of subscribers. Totals do not add to 100 per cent in all years due to rounding. Telstra’s gains in this area are primarily a result of customer churn from VHA.77 Telstra’s continual gains in the mobile market likely reflect its marketing strategy to position itself as a supplier of superior mobile services in terms of network coverage and capacity. This appears to have resonated with a growing proportion of consumers who value network quality. To compete with Telstra, both Optus and VHA have been investing significantly in their networks.

74 VHA, Vodafone flicks the switch on 1200 new regional network sites, media release, 6 August 2013, http://www. vodafone.com.au/doc/VodafoneFlicksTheSwitchOn1200RegionalSites.pdf . 75 In comparison, in the ACMA’s Communications Report 2012–13, the ACMA calculates mobile market shares based on the total numbers of wholesale and retail mobile services and wireless broadband services supplied by Telstra, Optus and VHA. The ACMA does not report separately on the retail market shares of other carriers. 76 The market shares for June 2012 differ to those reported in the ACCC’s 2011–12 report. The ACCC has adopted a different methodology for calculating market shares for this report. 77 ACCC, Division 12 RKR Reports, June 2013. Additional data was obtained from carriers by request. The other players in the retail mobile market are MVNOs. These operators do not own mobile networks but instead purchase wholesale access from the three mobile network operators and resell mobile services to retail consumers. While there are around 50 MVNOs in Australia, their market share is fairly small at around 8 per cent.78

Case study: mobile virtual network operators Despite holding a small market share, MVNOs provide consumers with an alternative to the major mobile providers. They offer attractive services to particular segments of the market, for example by offering more flexibility and/or lower prices than the mobile network operators. MVNOs purchase wholesale wireless communication services from mobile network operators (MNOs) and resell them in the retail market. MVNOs do not own mobile network infrastructure, such as physical towers and radio spectrum, but often provide their own customer service, billing support systems, marketing and sales personnel. All three MNOs (Telstra, Optus and VHA) provide wholesale access to their 2G and 3G networks. This allows them to utilise network capacity more efficiently and earn incremental revenue. Optus is by far the largest supplier of wholesale mobile services with 72 per cent of the market, followed by VHA with 18 per cent and Telstra with 10 per cent. 79 There is also an emerging market for wholesale 4G mobile services, with a number of MVNOs now retailing Optus’ 4G services. 80 MVNOs seek to differentiate their services in order to compete. This can involve targeting niche segments of the market, proposing innovative pricing structures, offering value added services or employing new business models. For example, Amaysim introduced BYO mobile unlimited plans as an alternative to lock-in 24 months contracts. Live Connected offers ‘sliding plans’ where customers who exceed their monthly limits are moved up to a higher plan for the rest of the month. Yatango uses social media as a way to differentiate by requiring customers to sign up through Facebook. Yatango also offers an online platform that allows users to customise plans on an individual basis. The number of MVNOs operating in Australia fluctuated over the year. 81 MVNOs that exited the market since 30 June 2013 include low cost providers ispONE, Kogan Mobile and Savvytel. MNOs also indicated a change in strategy, with VHA shutting down its Crazy Johns and ‘3’ brands, while Optus terminated its wholesale agreement with Woolworths. While MVNOs are not currently regulated in Australia, the ACCC closely monitors developments in this market. MVNOs only hold a small market share at present, but they may have a positive impact on consumer choice and the efficient use of mobile networks.

Telstra makes rapid gains in the wireless broadband market As in the retail mobile market, the three main providers in the Australian retail wireless broadband market are Telstra, Optus and VHA. However, as shown in figure 2.10, about 16 per cent of the market is supplied by other carriers, which is an increase of 1 per cent in the recent period. These carriers include Dodo, iiNet, Primus and TPG, among others. Telstra increased its market share by 5 per cent in the reporting period. Both Optus and VHA lost market share, losing 2 per cent and 3 per cent respectively. Telstra has an even higher market share in the wireless broadband market than in the mobile market, at almost 60 per cent. Because the wireless broadband market only supplies data services, data rates and network quality and reliability play an even stronger role than in the mobile market. Similar to gains in the mobile market, Telstra’s strength in this area most likely reflects its ability to differentiate the quality of its network from those of its competitors, as well as being the first carrier to offer wireless broadband over a 4G network. Figure 2.10 Retail market share for wireless broadband services

78 These figures exclude Virgin Mobile which is a wholly-owned subsidiary of Optus. Optus’ market share includes Virgin Mobile subscribers. 79 Ovum, Australian Mobile Market Statistics and Analyser: 1H 2013, 27 September 2013. 80 iiNet, iiNet introduces speedy 4G Mobile for all, media release, 6 June 2013, http://www.iinet.net.au/about/mediacentre/releases/2013-06- 06-iinet-introduces-speedy-4g-mobile-for-all.pdf; Exetel, Residential Mobile Voice Plans, viewed on 31 October 2013, http://www.exetel.com.au/residential-mobile-plans_4G.php#3G plans . 81 The retail market shares are calculated as at 30 June 2013 and therefore will not reflect some of the recent exits of MVNOs that occurred after that time. Source: ACCC Division 12 RKR; ABS, Internet Activity Australia (8153.0), June 2013. Notes: Market share calculations are based on the number of subscribers. Totals do not add to 100 per cent in all years due to rounding.

2.3.3 Price competition is less vigorous as other factors become important sources of competition The ACCC reports on retail price changes for mobile services in chapter 5 of Changes in the prices paid for telecommunications services in Australia 2012–13. As noted in this chapter, mobile prices reflect an average of prices faced by consumers for all mobile services (including voice and data). While the ACCC does not report on prices provided for particular services on specific networks, the average prices reported provide an indication of the level of price competition in the market. The average real price82 for retail mobile services declined slightly in 2012–13, with prices falling by 1.2 per cent. On the other hand, the average real price for retail wireless broadband services rose slightly by 1.8 per cent in 2012–13. These price movements were consistent with previous years, and reflect a general plateauing of price reductions. Most mobile plans are ‘included value’ plans, offering customers a certain amount of voice calls, text messages and data for a particular price.83 During 2012–13, the headline price points for mobile plans did not change significantly, but the amount of included value was adjusted for some plans. In particular, mobile network operators appear to be rebalancing some of their plans to reduce the data allowance at some price points. Mobile network operators are also making changes to ancillary charges, such as excess data usage and international roaming fees, to attract and retain customers. Generally speaking, the use of ‘included value’ and ancillary charges has made it difficult for consumers to compare mobile plans.84 However, recently Optus changed the way it charged for voice calls on its post-paid plans; now offering its customers a number of call minutes rather than a dollar amount of calls.85 This may make it easier for consumers to understand how many voice calls they can make on an Optus mobile plan. As discussed in section 2.1.4, data allowances, network quality and other non-price factors have also become increasingly important points of differentiation for consumers looking to choose a carrier and plan. These observations are supported by the general plateauing of prices in recent years. MVNOs continue to provide choice for consumers, typically targeting lower spend customers. However, MVNOs have a limited impact on price competition. It appears that mobile retail price competition is less intense as the market matures and network operators seek to differentiate their services on the basis of network quality instead of price.

82 Real prices are nominal prices that have been adjusted for the effects of inflation using the Australian Bureau of Statistics Consumer Price Index (CPI). The CPI increased by 2.4 per cent in 2012–13. 83 As an example, a customer is directly charged $50 per month for a mobile plan. This plan includes a nominal credit of $500 for voice calls and SMS, and 1GB worth of data. 84 ACCC, Unfair contract terms: industry review outcomes, 14 March 2013, p. 13. http://www.accc.gov.au/publications/unfair-contract-terms . 85 Optus, It’s My SIM, My Plan and My Choice, media release, 25 June 2013, http://www.optus.com.au/aboutoptus/About+Optus/Media+Centre/Media+Releases/2013/It%27s+My+SIM %2C+My+Plan+and+My+Choice . Network management practices Network congestion can occur when the volume of traffic on a particular network approaches its dimensioned capacity. When this occurs, traffic packets on the network may be slowed or lost and the services used by consumers can become degraded. The volume of traffic on telecommunications networks is growing as consumers increasingly access data intensive services, such as audio visual content as discussed in section 2.1.3. For fixed networks, this includes greater demand for content streaming services such as YouTube or an internet service provider’s own content services. For mobile networks, widespread take up of tablets and smartphones has led to increasing use of mobile data. Congestion may occur at regular peak usage periods, such as early mornings, lunchtimes and particularly, evenings. Network operators can generally seek to meet the challenge of rising usage in three ways:  alleviating capacity constraints by investing to expand network capacity  managing the flow of traffic over their networks, for example to ensure that time critical traffic is prioritised, or using other techniques to manage the impact of heavy usage on the network, and/or  implementing pricing arrangements that provide consumers with clearer price signals about usage of the network at peak times. Network operators may use a mix of the above tools to improve network performance for their end-users and meet their growing demand for data. The ACCC encourages network operators to provide clear, accessible and meaningful information to consumers about how their networks are likely to perform. This will ensure that consumers can select the most appropriate products for their needs. It is also important that any steps taken to manage congestion are not implemented in a manner that is detrimental to consumers or competition. We will continue to monitor market developments as network operators respond to the growing consumer demand for data and new services.

2.4 Telecommunications complaints

Key points  Customers made fewer complaints about their telecommunications services in 2012–13 than in recent years. In particular: – ACCC complaints fell by 30 per cent, and – TIO complaints fell to the lowest level in five years.  New regulations and competition in the industry appear to be encouraging operators to focus more on service quality and customer satisfaction.  The reduction in complaints is encouraging, but more work needs to be done to address the very high level of complaints in recent years.

2.4.1 Complaints to the ACCC are down 30 per cent The ACCC received 3056 complaints and inquiries about the telecommunications industry in 2012–13, 30 per cent less than the previous year. About 23 per cent of these were referred to a more appropriate body, in particular the Telecommunications Industry Ombudsman (TIO). The ACCC conducted 19 major investigations into consumer protection issues in the telecommunications industry during 2012–13, the same number as the previous year. Eleven of these investigations were on foot at the start of the reporting period. Further details regarding these investigations are provided in chapter 4 of this report.

2.4.2 TIO complaints fall to the lowest level in five years The TIO deals with residential and small business customers who have an isolated complaint about their telephone or internet service. Figure 2.11 shows that in 2012–13, the TIO received the lowest number of complaints for five years. Figure 2.11 Number of complaints received by the TIO

Source: TIO Annual Report 2012–13. The TIO recorded 158 652 new complaints in 2012–13, a decrease of 18 per cent from last year.86 The main complaints made by customers related to customer service, billing and payments, and faults. However, complaints about billing and payments decreased 17 per cent in the year due to fewer complaints about disputed bills, internet usage charges and termination fees. Customer service complaints also fell significantly, with 14 per cent fewer complaints about inadequate help, incorrect information and consumer requests that were not actioned.87 While the total number of TIO complaints is decreasing, it still remains high compared to earlier in the 2000s. This may be a result of increasingly complex services and plans in recent years compared to a decade ago. While the downward trend is positive, more work is required to reduce the number of complaints further.

New TCP Code is an important initiative to help address ‘bill shock’ There are a number of factors contributing to the reduction in complaints, including the work of regulators such as the ACCC and the ACMA, the work of consumer interest groups, and improvements by the mobile operators themselves. In particular, the new Telecommunications Consumer Protections (TCP) Code, which was phased in from September 2012, appears to go some way to addressing key areas of ‘bill shock’. In 2011–12 there was a rapid increase in the number of complaints about mobile phone services, including financial over-commitment due to inadequate spend management tools, consumers disputing the total of their bill, internet usage charges and disputed roaming charges.88 The TCP Code seeks to address these issues by introducing better spend management tools, making it easier for consumers to compare through unit pricing and critical information summaries, and improving complaints handling processes.89 These measures appear to be working, with mobile complaints falling by nearly 26 per cent over the year. The TIO also noted that providers are improving their customer service and complaint handling processes as a business priority, indicating that competition in the market is driving further benefits for consumers.90 The TCP Code is described further in chapter 4 of this report.

Mobile services are still the main source of complaints While the number of mobile complaints fell during the year, mobile services still accounted for the largest proportion of complaints. Table 2.4 shows that there were relatively less complaints about fixed line services than mobile services, likely reflecting the relative maturity of the market and less complex plans. Complaints about internet services increased slightly during the year, largely due to severe weather events which caused service disruptions and delays to repairs and connections.91 Table 2.4 TIO Complaints received by service type

Type of service 2009–10 2010–11 2011–12 2012–13

86 Telecommunications Industry Ombudsman, TIO Annual Report 2012–13, p. 27. 87 Ibid, p. 27. 88 Ibid, p. 26. 89 Communications Alliance, Industry Code: Telecommunications Consumer Protections Code (C628:2012), September 2012, http://www.commsalliance.com.au/Documents/all/codes/c628. 90 Telecommunications Industry Ombudsman, TIO Annual Report 2012–13, p. 27. 91 Ibid. Mobile 44% 57% 63% 58%

Fixed voice 28% 23% 19% 21%

Internet 25% 19% 16% 20%

Mobile premium services 2% 1% 1% 1%

Total complaints 167 772 197 682 193 702 158 652

Source: TIO Annual Report 2012–13. Note: Totals do not add to 100 per cent in all years due to rounding. Mobile coverage was the main cause of mobile phone complaints during the year, with 25 770 consumers making a complaint about coverage. These complaints related to a lack of mobile reception, poor voice quality, calls ending unexpectedly, and the inability to make/receive calls or SMS, or to access the internet. The large number of complaints about mobile coverage is consistent with our findings that network quality is becoming an increasingly important consideration for consumers. While coverage accounted for 28 per cent of new mobile complaints during the year, there was a 13 per cent reduction in the number of complaints about coverage from the previous year.92 2.5 International comparisons

Key points  Similar trends in relation to the take-up of new services, the changing preferences of consumers and pressure on existing networks are being experienced in many overseas markets.  Australians tend to pay more for fixed broadband than most other countries, but relatively less for wireless broadband.  The high cost of international mobile roaming services is a key policy and regulatory issue.

This section of the report explores how take-up and investment in mobile and broadband technologies in Australia compares internationally, and looks at developments in key issues such as international mobile roaming and superfast broadband policies.93

2.5.1 Service take-up and usage Over the past few years, the Organisation for Economic Co-operation and Development (OECD) reports that mobile subscriptions and revenues have increased internationally in aggregate, while fixed line connections and revenues have decreased.94 Similar to Australia, this suggests a trend towards fixed to mobile substitution. However, while some countries consider mobile networks to be substitutable for fixed networks (for regulatory purposes), most countries still consider the technologies to be complementary. Figure 2.12 sets out the take-up rates of telephone, mobile and broadband services in select countries. These figures are from June 2012 and are reported as the number of subscriptions per 100 people (or ‘penetration rate’).

92 Telecommunications Industry Ombudsman, TIO Annual Report 2012–13, p. 27. 93 The information in this section is sourced from international agencies, such as the OECD, and reports from international communications regulators. The estimates for take-up in Australia may differ from those reported earlier in this report because they come from different sources and reporting methodologies. 94 OECD, Communications Outlook 2013, July 2013, pp. 67–69. Figure 2.12 Subscriptions per 100 people, select countries, June 2012

Source: OECD, International Telecommunications Union. Figure 2.13 expands on these figures and provides a break down of the take-up of different broadband technologies in select countries, as reported in July 2013. Figure 2.13 Broadband technologies in select countries

Source: OECD Figure 2.13 shows that broadband is delivered via a combination of different technologies around the world, with the majority of broadband subscriptions delivered by DSL, cable and wireless broadband. To date widespread use of fibre technology has only been implemented in developed Asian countries such as Japan and South Korea. As set out in table 2.5 below, investment in superfast broadband is a priority for many developed countries, with many governments establishing aspirational targets for increased broadband coverage and increased data rates. To deliver these broadband targets, many governments are adopting approaches to stimulate investment in superfast technologies, including through private investment, public investment or a combination of the two.95 Table 2.5 Superfast broadband targets in select countries

Region Broadband targets

95 For example, in Australia and Singapore, the government is directly investing in fibre technologies to provide superfast broadband services, while in New Zealand the government has sought the aid of private investment to create a national superfast network. In Europe and the UK, superfast broadband upgrades are being made primarily through private investment by incumbent networks and new entrants, accompanied by government regulation and some limited government funding. European Union By 2020, 30 Mbps download speeds available to all European citizens and at least 50 per cent of households have access above 100 Mbps.

United Kingdom By 2017, superfast broadband to 95 per cent of the UK, with minimum download speeds of 24 Mbps.

New Zealand By 2020, ultra-fast broadband to 75 per cent of the population. By 2015, 80 per cent of rural households to have download speeds of at least 5 Mbps, with the remainder to achieve speeds of at least 1 Mbps.

Scandinavia Between 2015 and 2020, 90 to 100 per cent of premises to have access to 100 Mbps download speeds.

United States By 2020, every household should have access to actual download speeds of 4 Mbps and actual upload speeds of 1 Mbps.

Canada By 2015, all Canadians to have access to actual download speeds of 5 Mbps and actual upload speed of 1 Mbps.

Source: Government and regulator reports and OECD.

2.5.2 Comparison of international broadband prices The OECD reports on the retail prices of fixed broadband services around the world. Figure 2.14 reproduces some of this information to provide an indication of how the Australian fixed broadband market compares internationally in relation to price. These figures do not account for differences in technologies and data rates, or whether broadband is bundled with other services (such as voice services and television). However, it provides an indication of the relative affordability of fixed line services around the world. Figure 2.14 Fixed broadband subscriptions price range, September 2012

Source: OECD. Notes: These figures are reported in US dollars and adjusted for purchasing power parity (rather than reported in absolute dollars). Figure 2.14 shows that while there are a range of prices for fixed broadband services in Australia, fixed broadband in Australia tends to be more expensive than most other countries. This may be attributable, at least in part, to Australia’s large geographical area and low population density compared to countries such as Japan, Korea or the United Kingdom. Prices for wireless broadband subscriptions appear to be at the lower end of the price range in Australia, as shown in figure 2.15. Wireless broadband appears to be relatively more affordable than fixed broadband in most countries, including Australia. This is likely a reflection of the plans available for wireless broadband services, which typically offer significantly smaller data allowances than fixed broadband plans.96 In Australia, wireless broadband offers the cheapest entry point for consumers who are not concerned about data allowances, however, fixed broadband plans may provide better value for money for consumers who require higher download volumes. Figure 2.15 Wireless broadband subscriptions price range, September 2012

Source: OECD. Notes: These figures are reported in US dollars and adjusted for purchasing power parity (rather than reported in absolute dollars).

2.5.3 International mobile roaming policies The high costs of international mobile roaming services and the detriment to consumers who incur those costs have attracted recent attention not only in Australia, but also from policy makers and regulators internationally. The OECD recently reported that, while international roaming prices have experienced decreases, extremely high prices remain relative to domestic services for some international routes, especially for data services.97 Addressing high international roaming charges is difficult because individual countries do not have jurisdiction to regulate retail or wholesale roaming charges in other countries. Therefore, addressing high roaming charges typically requires agreements and co-ordinated action between regulators and governments in different countries. In a number of countries, such as the United States, Mexico, Switzerland and South Korea, national governments have recently introduced (or plan to introduce) rules that require mobile carriers to better inform consumers about the costs of international roaming.98 However, these rules do not impose any price caps on roaming services. In February 2012 the OECD published an OECD Council Recommendation on International Mobile Roaming Services, which set out a list of recommendations that countries can consider to address roaming prices and improve competition. The report recommended that OECD countries increase awareness and transparency of roaming services, facilitate trans-national networks and agreements, and implement price regulation if necessary.99 In February 2013 the previous Australian Government and the New Zealand Government agreed to consider coordinated action to address high roaming charges between the two countries. Other trans-national roaming initiatives include joint market investigations by the Gulf Co-operation Council and the Association of South East Asian Nations, and agreements between Finland, Poland and Russia.100 The European Union (EU) has adopted a multi-country roaming agreement. Because the EU Parliament has the authority to regulate communications policy and services across EU member states, it can more directly address high roaming charges than other non-EU countries such as Australia. Of particular importance, in July 2012 the European Union began imposing wholesale and retail price caps on voice, SMS and data roaming services.101

96 The OECD reports on the prices of wireless broadband services by comparing services with different data allowances (between 250MB and 10GB) for laptops and tablets. The price ranges per country reported in this table generally reflect differences in data allowances. See pp. 219–29 of OECD, Communications Outlook 2013, July 2013. 97 OECD, Communications Outlook 2013, July 2013, p. 54. 98 OECD, Communications Outlook 2013, July 2013, Table 2.12. 99 OECD, Committee for Information, Computer and Communications Policy, recommendation, 16 February 2012. 100 OECD, Communications Outlook 2013, July 2013, p. 54. 101 Ibid. Many governments and international regulators are currently considering various options to address the high costs of international mobile roaming services. However, these considerations are at an early stage and a coordinated and consistent approach internationally may be difficult given jurisdictional and geographic barriers.

Case study: international mobile roaming In February 2013 the previous Australian Government and the New Zealand Government released a joint report that looked into the wholesale charges, margins and level of competition for roaming services between Australia and New Zealand (‘trans-Tasman’). This report found that, while prices have declined since 2009, they remain high and will likely remain high for the foreseeable future. 102 In September 2013 the ACMA began phasing in a new international mobile roaming standard. 103 This new standard requires mobile operators to, among other things, inform Australian consumers upon arrival overseas about the charges for using roaming services in that country, and to enable consumers to cease using roaming services at any time while overseas. This standard was developed at the request of the then Minister. The objective of the standard is to increase transparency to consumers about the costs of using international mobile roaming services while overseas. This will allow consumers to prevent ‘bill shock’ and to allow them to better manage the cost of using roaming services. 104 Subsequent to the release of the standard, Telstra, 105 Optus106 and VHA107 announced new international mobile roaming plans for Australians consumers travelling abroad. These plans reduce the charges faced by customers to use voice, text and internet services in a number of countries (including US, UK , New Zealand and Europe).

102 Department of Broadband, Communications and the Digital Economy and Ministry of Business, Innovation and Employment (Joint Report), Trans-Tasman Roaming Final Report, February 2013, pp. 6–7. 103 ACMA, Telecommunications (International Mobile Roaming) Industry Standard 2013, 27 June 2013. 104 ACMA, New tools to combat oversees mobile bill shock, media release, 3 July 2013. 105 Telstra, Telstra cuts the costs of roaming by up to 80 per cent, media release, 23 September 2013, http://exchange.telstra.com.au/2013/09/23/telstra-cuts-the-cost-of-roaming-by-up-to-80-per-cent/ . 106 Optus, New plans from Optus take the sting out of international travel, media release, 21 August 2013, http://www.optus.com.au/aboutoptus/About+Optus/Media+Centre/Media+Releases/2013/New+plans+from+Optus+take+the+sting+out+of+ international+travel . 107 VHA, Vodafone moves to end international roaming rort, media release, 31 July 2013, http://www.vodafone.com.au/doc/GAMECHANGERVodafoneMovesToEndInternationalRoamingRort.pdf . 3 Anti-competitive conduct provisions

Key points  We protect competition in telecommunications sector by investigation and taking action against potential anti-competitive conduct.  We undertook one investigation into alleged anti-competitive conduct during the reporting period.  We also assessed applications for exemption orders, authorisation applications and third line forcing notifications.

3.1 Overview This chapter describes the ACCC’s activities in 2012–13 dealing with anti-competitive behaviour under both the general provisions (set out in Part IV of the Competition and Consumer Act 2010 (CCA) and telecommunications specific provisions of the CCA (set out in Part XIB of the CCA). The primary purpose of Part XIB of the CCA is to protect competition in telecommunications markets by preventing operators with substantial market power from engaging in anti-competitive conduct by the misuse of that power. This prohibition, also known as the ‘competition rule’, applies to a carrier, carriage service provider (CSP) or content service provider. Part XIB operates in addition to the general regime set out in Part IV of the CCA, which protects competition in the market generally. There are two circumstances where a carrier, CSP or content service provider would be considered to have contravened the competition rule.108 The first is where a carrier or CSP takes advantage of a substantial degree of market power in a telecommunications market with the effect, or likely effect, of substantially lessening competition in that or any other telecommunications market. The second is where a carrier or CSP engages in conduct relating to a telecommunications market that contravenes the general anti-competitive conduct provisions in Part IV of the CCA. These provisions include contracts, arrangements or understandings that restrict dealings or affect competition, covenants affecting competition, misuse of market power, exclusive dealing and resale price maintenance.109 Our role in this area includes investigating cases of alleged anti-competitive conduct under Part IV or Part XIB of the CCA, as well as assessing applications for exemption orders, authorisation applications and third line forcing notifications. 3.2 Investigations conducted in 2012–13 The ACCC undertook one investigation into alleged anti-competitive conduct under the Part IV and Part XIB provisions of the CCA during the reporting period. The ACCC concluded this investigation on the basis that there was insufficient evidence to substantiate the alleged conduct and no further action was required. The ACCC has been called upon to investigate alleged anti-competitive conduct in respect of wholesale ADSL services on a number of occasions in the past. In February 2012 the ACCC declared a wholesale ADSL service, bringing it under the Part XIC regime and enabling direct regulation of access terms for the first time. This can be expected to resolve one of the major sources of alleged anti-competitive conduct—although in rapidly changing and evolving markets the rationale for the Part XIB enforcement mechanisms continues to hold true. 3.3 Exemption orders from competition rule A carrier or CSP can apply to the ACCC for an order which specifies that a form of conduct will not be a contravention of the competition rule and in breach of Part XIB of the CCA in specific circumstances. The ACCC may grant an exemption order if it is satisfied that:  the resulting public benefit outweighs any public detriment of lessened competition arising from the conduct, or  the conduct is not anti-competitive and therefore, will not breach the competition rule.

108 Sections 151AJ and 151AK of the CCA. 109 Refer to sections 45, 45B, 46, 47 and 48 of the Competition and Consumer Act 2010. In considering the public benefits, the ACCC may consider the needs of the disadvantaged, charitable or community purposes. To date, the ACCC has not received any formal application for an exemption order. 3.4 Authorisation applications Under Part VII of the CCA, the ACCC can grant statutory protection for potential breaches of the competition provisions of the CCA (except for misuse of market power) if it is satisfied the conduct delivers a net public benefit. Authorisation applications for mergers are dealt with by the Australian Competition Tribunal rather than the ACCC. In 2012–13 the ACCC did not consider any new telecommunications-related authorisation applications. However, it finalised one application from NBN Co that was on foot from the previous year. In January 2012 NBN Co lodged applications seeking authorisation of certain provisions of an agreement with Optus to migrate Optus’ HFC subscribers to the NBN and decommission certain parts of its HFC network. In July 2012 the ACCC issued a determination granting authorisation for 20 years. In granting the authorisation the ACCC was of the view that, on balance, the public benefits outweigh the likely public detriment. The ACCC’s determination includes a detailed statement of reasons for granting authorisation. This authorisation was also reported on in the Telecommunications Competitive Safeguards Report for 2011–12.110 3.5 Third line forcing notifications Third line forcing is a specific form of exclusive dealing prohibited by the CCA. It is not subject to the substantial lessening of competition test and is prohibited no matter what its effect is on competition. It involves the supply of goods or services on condition that the purchaser buys goods or services from a particular third party, or a refusal to supply because the purchaser will not agree to that condition. Third line forcing conduct can be notified under Part VII of the CCA and authorised by the ACCC on public benefit grounds. Subsections 47(6) and 47(7) of the CCA make third line forcing a per se breach of the CCA unless it relates to products or services provided by a related body corporate. The ACCC received a number of third line forcing notifications from participants in the telecommunications industry in 2012–13. For example, the ACCC received notifications about:  Greater Union, Birch Carroll & Coyle and Village Cinemas offering discounts on certain cinema tickets and candy bar items on condition that the customer had acquired services from Telstra or was a Telstra employee or contractor111, and  Telstra offering discounts on telecommunications services on condition that the customer was a member of the Seventh Day Adventist Church.112 All notifications were allowed to stand on public benefit grounds.

110 Refer to pages 7 and 32 of the ACCC Telecommunications Competitive Safeguards Report 2011–12. 111 ACCC, The Greater Union Organisation Pty Ltd & Ors—Notifications—N96558—N96560, http://registers.accc.gov.au/content/index.phtml/itemId/1102251/fromItemId/1107038. 112 ACCC, Telstra Corporation Limited—Notification—N96665, http://registers.accc.gov.au/content/index.phtml/itemId/1106510/fromItemId/1107038. 4 Consumer safeguard provisions

Key points  We protect competition and consumers by investigating and taking action against potential breaches of the Australian Consumer Law. This year we took action against several telecommunications providers for misleading representations, unfair contract terms and acting unconscionably.  This work is important as anti-competitive conduct may cause harm to consumers and to competitors who abide by the law.  This year we also worked with telecommunications providers to improve terms in standard contracts and we contributed to several industry processes to improve outcomes for consumers and competition.

4.1 Overview This chapter outlines the ACCC’s investigations into potential breaches of the consumer protection provisions contained in the Australian Consumer Law (ACL). Investigating and taking action against breaches of the ACL is an important tool used to encourage compliance with the law, promote competition and fair trading by business, and provide protection to consumers. These safeguards are administered in accordance with the ACCC Compliance and Enforcement Policy.113 This policy sets out principles adopted by the ACCC to achieve compliance with the law. It also outlines our enforcement powers, functions, priorities, strategies and regime. While the ACL does not contain specific telecommunications consumer protection provisions, there are two general consumer protection provisions that are the focus of the ACCC’s work in this area. Section 18 of the ACL prohibits a corporation in trade or commerce from engaging in misleading or deceptive conduct or conduct that is likely to mislead or deceive. Section 29 of the ACL prohibits a corporation in trade or commerce from making false or misleading representations in connection with the promotion or supply of goods or services. The ACCC’s enforcement and compliance work in the telecommunications sector is informed by engagement with a number of organisations and a range of information sources. This includes contacts and complaints to the ACCC’s Infocentre, complaints from traders within the sector, information from the TIO, as well as engagement with other regulators and representative groups including Choice and ACCAN. The ACCC also engages with a number of international consumer protection agencies. In 2012–13 the ACCC registered a total of 3056 complaints and inquiries about the telecommunications industry. This was 30 per cent less than the previous year. About 23 per cent of contacts raised concerns that were referred to more appropriate bodies, such as the TIO (see section 2.4 for further information). A complainant may be referred to the TIO if the complainant is a small business or residential customer who has an isolated complaint about their telephone or internet service. This includes complaints about billing or faults. 4.2 Key investigations for 2012–13 The ACCC undertook 19 major investigations in the telecommunications sector under the ACL during 2012–13, the same as the previous year. Eleven of these investigations were on foot at the start of the reporting period. The major ACCC investigations conducted during 2012−13 include:  EDirect Pty Ltd: On 6 September 2012 the Federal Court ordered EDirect (which traded as VIPtel Mobile) pay a $2.5 million penalty for contraventions of the ACL. EDirect engaged in telemarketing with 350 customers from remote and regional communities across Australia who had no mobile network coverage where they live. The Court found that the company, through its call centre staff, made representations that they had verified there was mobile coverage at customers’ nominated addresses when in fact it had not verified the coverage, and at those addresses there was no coverage. This was not the first time the company had engaged in similar conduct. In 2008 the Federal Court found that EDirect Pty Ltd had contravened the Trade Practices Act 1974 (Cth) (TPA) for telemarketing phone services into areas with no coverage.  CNT Corp Pty Ltd: In October 2012 the ACCC accepted court enforceable undertakings from CNT Corp and the company paid three infringement notices totalling $19 800. CNT Corp allegedly offered to supply

113 A copy of the ACCC Compliance and Enforcement Policy is available on our website: http://www.accc.gov.au/about-us/australian- competition-consumer-commission/compliance-enforcement-policy . wholesale fibre to the premises broadband internet services with data rates that were not supported by the network due to insufficient transmission capacity. CNT Corp admitted that it is likely to have contravened the ACL by representing that its services could deliver the specified data rates when this was not the case and by misrepresenting the level of transmission capacity provisioned.  ByteCard Pty Limited: In April 2013 the ACCC instituted proceedings against ByteCard (trading as Netspeed Internet Communications) in relation to the unfair contract terms provisions of the ACL. The proceedings succeeded in having a number of clauses in ByteCard’s standard form consumer contract declared void. The case is discussed further in the case study in section 4.3 below.  Excite Mobile Pty Ltd: On 18 April 2013 the Federal Court found that Excite Mobile sales and debt collection practices had contravened the TPA (the predecessor to the CCA and ACL). The court found Excite Mobile had made false and misleading statements about the operation of their cap contracts and the coverage of their products to customers across Australia. Of particular significance, was the Court’s finding that the sales method of Excite Mobile amounted to unconscionable conduct. The Court also found that Excite Mobile acted unconscionably and used undue coercion when attempting to obtain payment for mobile phone services. On 29 November 2013 the Court ordered that Excite Mobile pay penalties totalling $555 000 and that Excite Mobile’s two directors pay penalties of $55 000 and $45 000 respectively. Further, the Court disqualified the directors from managing a corporation for a period of three years and two and a half years respectively. An employee who was involved in the conduct was also ordered to pay a penalty of $3500.  iiNet Limited: In June 2013 iiNet paid an infringement notice for $102 000 regarding an advertisement for its naked DSL service which was displayed on the rear of a bus in metropolitan Sydney. The advertisement featured the total minimum price of its naked DSL product in small print. Under the ACL, advertisements that feature a part price of a service must also prominently state the quantifiable total minimum price for that service.  Utel Networks Pty Ltd: In June 2013 Utel Networks paid three infringement notices totalling $19 800 and provided a court enforceable undertaking to the ACCC. Following complaints referred to the ACCC by the TIO, the ACCC alleged that Utel Network’s telemarketers misrepresented that it was associated with the customer’s existing telecommunications provider and that the customer’s service would not change upon being transferred to Utel. Utel Networks also failed to provide consumers with an agreement that clearly informed consumers of their cooling off rights.  Startel Communication Co Pty Ltd: In July 2013 the ACCC instituted proceedings against Startel under the unsolicited consumer agreement provisions of the ACL. These sections of the ACL create obligations to: inform customers of their cooling off rights, provide consumers with certain documents, and prevent companies from supplying goods or accepting payments under unsolicited consumer agreements for at least 10 days. The ACCC has alleged Startel contravened these sections during the telemarketing and sale of mobile phone services to consumers. This matter is ongoing.  TPG Internet Pty Ltd: In December 2013 the High Court of Australia allowed an appeal by the ACCC in relation to TPG’s Unlimited ADSL2+ advertisements. The High Court overturned the Full Federal Court’s findings that the advertisements which TPG had revised after ACCC intervention, as well as TPG’s initial online, print and radio advertisements, were not misleading. The High Court held that the Full Court erred in finding that the home telephone bundling requirement and set up charges were adequately disclosed and consumers would have known that internet services were commonly bundled with telephony services. The High Court also found that there was no appellable error in the trial judge’s approach to finding that the advertisements were misleading. The High Court overturned the Full Court’s order that TPG pay total penalties of $50 000 in respect of its misleading initial television advertisements and its failure to prominently display the single price in its initial advertisements. The High Court considered that the $2 million penalty ordered by the trial judge was within the appropriate range and should be reinstated. 4.3 Review of unfair contract terms in the telecommunications industry The unfair contract terms regime applies to standard form consumer contracts. The ACL provides a court with the power to declare a contractual term void if it is unfair. A term is unfair if:  it would cause significant imbalance in the parties’ rights and obligations arising under the contract  it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, and  it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon. During 2012–13 the ACCC reviewed standard form consumer contracts in the telecommunications industry. This formed part of the ACCC’s broader review into unfair contract terms. The ACCC reviewed and analysed consumer contracts in other industries that generated significant consumer complaints and detriment, including the airline, fitness and vehicle rental industries. The ACCC engaged with businesses directly to highlight concerns and improve contract terms, where contracts were identified as potentially unfair or raising broader concerns. A number of businesses deleted, amended or made structural changes to contract terms in response to the ACCC’s concerns. In March 2013 the ACCC released a report noting the outcomes of its industry reviews. The report identified a number of problematic terms in standard form consumer contracts.114 The report will also assist businesses, their advisors and industry representatives to analyse their own standard form of contracts and proactively work to resolve any issues of concern. While positive steps have been taken by some members of industry, contracts in the telecommunications industry continue to attract the ACCC’s attention due to their length and complexity. Also in 2013 the ACCC instituted its first action in relation to the unfair contract terms provisions of the ACL. This is outlined in the case study below.

Case study: ByteCard Pty Limited ByteCard Pty Limited (trading as Netspeed Internet Communications) is an internet service provider that offers internet connectivity, domain registration, web hosting and web design services. Following a complaint received from the ACCAN, the ACCC investigated several clauses in ByteCard’s standard form consumer contract that it considered may be unfair. These terms:  enabled ByteCard to unilaterally change the price of their services under existing contracts without providing the customer any right to terminate,  required the consumer to indemnify ByteCard in a wide range of circumstances, even where the contract had not been breached and even when loss or damage was caused by ByteCard’s breach of the contract, and  enabled ByteCard to unilaterally terminate the contract at any time with or without a reason. In July 2013 the Federal Court declared by consent that these terms in ByteCard’s standard form consumer contract were unfair, and therefore void under section 23 of the ACL. The terms were considered unfair as they created a significant imbalance between the parties rights and obligations, were not reasonably necessary to protect ByteCard’s legitimate interests, and if applied or relied upon by ByteCard they would cause detriment to a customer. The Orders by the Court mean that ByteCard cannot rely on these terms to unilaterally vary, or terminate the contract, or exclude it from certain liability. Therefore ByteCard’s contract can continue to operate as if the contract did not contain the void terms. This is a significant case as it is the first pursued by the ACCC exclusively relating to the unfair contract terms provisions of the ACL. The ACCC considers that this case is a positive outcome for consumers and acts as a warning to businesses.

4.4 Other activities

Local Number Portability Code Review The ACCC actively participated in Communications Alliance reviews into the processes that service providers use to allow consumers to retain their telephone number when changing fixed service provider. The reviews are expected to lead to a simpler and quicker porting experience for some consumers that have not been as well supported by the current processes. The reviews are also developing options to provide across the board consumer benefits to apply in an IP environment. Further information about our role in these reviews is outlined in chapter 8.

Submission to the ACMA Premium Services Review In May 2013 the ACCC made a submission to the ACMA’s review of the Telecommunications Service Provider (Premium Services) Determination 2004 (No.1). Under the Determination, CSPs must provide written information to customers about premium services, including voice and fax services. The ACCC noted that business models

114 ACCC, Unfair Contract Terms Industry Review Outcomes, March 2013, http://www.accc.gov.au/publications/unfair-contract-terms. for providing premium services have evolved to online platforms and the use of voice or fax based services had declined. Therefore, the ACCC submitted that it would be appropriate to allow the Determination to sunset in 2015. In October 2013 the ACMA decided to revoke the Determination on the basis that it was no longer needed due to ongoing changes in the market and a significant decline in consumer complaints. The ACMA noted that the revocation of the Determination will not affect the ability of consumers to seek redress for issues involving premium services. The ACCC will continue to monitor the issues and if any complaints are received will raise any future concerns with the ACMA.

Submission to TIO consultation paper: Publishing Comparative Complaints Data In June 2013 the ACCC made a submission to the TIO’s consultation paper: Publishing Comparative Complaints Data (consultation paper). The consultation paper canvassed different approaches to contextualising complaints data. The ACCC supported the TIO’s proposal to publish annual comparative complaints data on the basis of services in operation. The TIO is continuing to consult with industry and consumer organisations. The TIO commenced a public consultation process in September 2013.

Resources for students and parents about mobile phones During 2012–13 we worked with the ASIC, the ACMA, the TIO and the Australian Mobile Telecommunications Association (AMTA) to develop a series of multimedia classroom activities for students about mobile phones. The activities focus on teaching school children to be smart mobile phone consumers and about their consumer rights arising from the consumer guarantees under the ACL. This project is part of the ASIC’s MoneySmart Teaching program—an Australian Government initiative to improve consumer and financial literacy in Australian schools. The classroom activities include: choosing a mobile plan; value of mobile phone plans; cost of uploading videos and downloading pictures on social media; unsubscribing from premium services; identifying advertising techniques used to promote mobile phone plans; scams; in-app advertising; subscribing to competitions and promotional offers; and using mobile phone credits. The activities come with Teacher and Parent Notes and have been aligned to the Australian Curriculum. These resources are available on the ASIC and ACCC websites.115 We are also working with other agencies on a further resource which teaches students how to understand their consumer rights arising from the consumer guarantees under the ACL.

Information about in-app purchases In September 2013 we participated in an international effort with 50 consumer protection agencies to identify smartphone and tablet apps that may mislead young children into making unauthorised in-app purchases. We are engaging with platform operators, such as Apple and Google, to improve education and protect consumers using these apps. We have also publicly urged app developers and platform operators to take steps to address concerns held both in Australia and overseas about app based games.116 As part of this process, we also published some information for parents on avoiding unexpected bills by knowing how to prevent unauthorised in-app purchases on a smartphone or tablet. This includes information on preventing an unauthorised in-app purchase, restricting in-app purchases on Apple and Android devices, applying for a refund and making a complaint. This information is available on our website.117

Telecommunications Consumer Protection Code Review As reported in the Telecommunications Competitive Safeguards Report for 2011–12, the ACCC actively participated in a recent review of the TCP Code, with the aim of strengthening the Code’s content, compliance monitoring and enforcement mechanisms. The Code is a self-regulatory instrument that sets out rules for service providers about advertising, billing, complaint handling and a range of other issues. In September 2012 the Code was amended to incorporate several new important initiatives which took effect during 2012–13. The Code will provide consumers with tools to compare and contrast different service providers and to take advantage of the choices they have. In the longer term, it may increase customer satisfaction and reduce customer complaint volumes, resulting in significant benefits to consumers and the industry overall.

115 ACCC, Helping students be mobile savvy, http://www.accc.gov.au/about-us/tools-resources/helping-students-be-mobile-savvy and ASIC, MoneySmart, http://teaching.moneysmart.gov.au/. 116 ACCC, ACCC urges app industry to adopt new principles following ‘sweep’ of children’s game apps, http://www.accc.gov.au/media- release/accc-urges-app-industry-to-adopt-new-principles-following-‘sweep’-of-children’s-game-apps. 117 ACCC, In-app purchases, http://www.accc.gov.au/consumers/specific-products-services/in-app-purchases. 5 Monitoring and reporting

Key points  We collect a range of information from telecommunications providers to monitor the telecommunications industry and to inform regulatory decisions.  This chapter provides an overview of the types of information we collect and how it is used.

5.1 Overview This chapter outlines the ACCC’s main monitoring and reporting activities for 2012–13. The ACCC:  continued to collect a range of information under record keeping rules (RKRs) (section 5.2)  is considering a monitoring and reporting program regarding the performance of fixed broadband internet services in Australia (section 5.3)  monitors developments in media content and Telstra’s compliance with its retail price controls (section 5.3), and  has tariff filing powers, which allows the ACCC to collect pricing information about certain services (section 5.3). The ACCC also has powers under section 155 of the CCA to obtain information and documents from the carriers regarding a communications matter. The Minister can also require that the ACCC monitor and report on various aspects of competition within the industry. 5.2 Record keeping rules The ACCC has established RKRs which specify information that Telstra and other telecommunications providers must keep and provide on an ongoing basis. This information is used to monitor competition, monitor market developments and to inform regulatory decisions. The ACCC periodically reviews information collected under the RKRs and where appropriate, the ACCC has made changes to ensure that the information collected is relevant. Table 5.1 summarises the information collected under current RKRs. Further information about the RKRs is available on the ACCC website. Table 5.1 Current record keeping rules

Record keeping Information Rationale Reporting period and rule collected disclosure

Audit of Specified carriers Provides the ACCC Annual. Telecommunications must report on the with a consistent and The ACCC publishes Infrastructure Assets location of their core coherent infrastructure aggregated data on a network and database to inform periodic basis. customer access regulatory decisions. network (CAN) infrastructure.

Telstra customer Telstra must provide Allows the ACCC to Quarterly. access network information on the analyse competition Telstra must also (CAN) number of retail and and industry trends in provide a summary of wholesale services in telecommunications the data for public operation on its markets. release each quarter. network. This data is disaggregated by exchange service areas and access seekers. Access to Telstra Telstra must report To provide oversight of Monthly. exchange facilities on access to its any decision to cap an Telstra must publicly exchange facilities exchange and to disclose certain including capped monitor access seeker information. exchanges and queues to exchanges. exchanges with queued access seekers.

Bundled services Telstra must report To assess the effect of Quarterly. on types of bundled bundling on No public disclosure. services offered to competition in the residential customers telecommunications and the extent to markets. which its residential customers take up multiple services such as voice, data, and content.

Division 12 Specified carriers Each year the ACCC Annual. Reporting must report on the must report to the No public disclosure. retail prices charged Minister on changes in However, the ACCC for certain services the prices paid for publishes the annual including fixed voice, telecommunications Division 12 Report mobile and internet services in Australia. which contains services. This RKR enables the estimated price indices Carriers must also ACCC to collect for telecommunications provide data on information required services based on data revenue and usage, for the report. collected under this which enable the RKR. Some ACCC to calculate aggregated data is price movements also published in chapter 2 of this report.

Regulatory Optus, Telstra and Assists the ACCC with Biannual. Accounting VHA must provide key decisions and No public disclosure. Framework certain financial reporting functions, information and including declaring service usage data services, setting for retail and regulated prices under wholesale an access communications determination and services. reporting on the state of competition in telecommunications markets. Building Block Model Telstra must provide This data is used in theTelstra must provide its data on actual usage Fixed Line Services actual usage data on and historical asset Model (FLSM), which an annual basis. values. It must also is used to determine Telstra must also provide forecast data prices for the regulatedprovide other required on service demand, fixed line services and data (at the ACCC’s operating expenditure wholesale ADSL request) at the start of and capital services. a price review prior to expenditure. each regulatory period. No public disclosure required under the RKR. The ACCC will consider possible confidentiality arrangements to release some of this data as part of the access determination consultation process.

Telstra accounting Telstra must provide To provide greater Biannual. separation— current and historical transparency over The ACCC publishes Current Cost accounting reports Telstra’s financial data.summary results with Accounting under the It compares present commentary. telecommunications day valuations of industry framework. Telstra’s assets with the historical or original cost of these assets.

Telstra accounting Telstra must provide This is designed to Quarterly. separation— reports comparing its detect possible anti- The ACCC publishes Imputation Testing retail prices with the competitive price summary results with costs faced by squeezes by Telstra. commentary. access seekers in buying core services from Telstra.

Telstra accounting Telstra must provide To determine whether, Quarterly. separation— key performance for certain key The ACCC publishes Non-Price Terms indicators on non- services, Telstra is summary results with and Conditions price terms and providing equivalent commentary. conditions that service quality to its compare its customer wholesale and retail service performance customers. This may for specified retail assist in identifying and wholesale possible discriminatory services. behaviour by Telstra.

5.2.1 New Building Block Model RKR In August 2012 the ACCC made the Building Block Model (BBM) RKR, which requires Telstra to provide actual and forecast data on service demand, asset value, operating expenditure and capital expenditure. This RKR is designed to facilitate the implementation of the Fixed Line Services Model (FLSM), which is a pricing model that forms part of the ACCC’s ‘building block approach’ used for determining prices for regulated fixed line services and wholesale ADSL. In June 2013 the ACCC revised the BBM RKR after declaring the wholesale ADSL service and making a final access determination for this service. Telstra must now also provide information that allows the wholesale ADSL service to be included in the FLSM. This information will assist the ACCC to also set regulated prices for wholesale ADSL.

5.2.2 Amendments to RKRs During 2012–13 the ACCC varied the Infrastructure RKR and Division 12 RKR following public consultation processes. In March 2013 the ACCC amended the Infrastructure RKR by updating the list of record keepers and included requirements to identify leased infrastructure and infrastructure operated on behalf of third parties. This amendment took effect from 26 March 2013 and will assist the ACCC to identify competition in infrastructure. In July 2013 the ACCC amended the Division 12 RKR to ensure that it reflects changing market conditions and remains consistent with the ACCC’s methodology for preparing the Division 12 report. Key changes include streamlining some existing reporting requirements (such as aggregated reporting of mobile services); removing obsolete services (such as dial-up); adding new services (such as VoIP and those provided over the NBN); placing additional reporting obligations on some service providers; and removing obligations on service providers of reduced relevance in certain sectors. These amendments will take effect from the 2013–14 financial year. 5.3 Broadband monitoring and other activities

5.3.1 Upcoming issues The ACCC continually monitors developments in the communications sector and potential issues on the horizon to ensure that telecommunications services offered to consumers are competitive. As noted earlier in this report, the ACCC is monitoring a range of issues including the delivery of content services and network management practices. The ACCC is also monitoring a number of potential issues that may arise during the transition to the NBN. Among other things, the ACCC is considering a broadband speed monitoring program which—if ultimately implemented —will look at services provided over both legacy and NBN networks. This potential program is outlined in the case study below.

Case study: broadband speed monitoring The ACCC is considering the implementation of a monitoring and reporting program regarding the performance of fixed broadband internet services in Australia. Such a program would involve regularly running a series of tests on data transfer rates and other quality of service metrics for broadband services. The ACCC would then compile and publish the test results. The proposed monitoring and reporting program would provide significant benefits for both consumers and providers of broadband services in Australia. It would also likely enhance competition and encourage efficient investment in broadband infrastructure. A greater degree of transparency about the real-world performance of fixed broadband internet services would better enable consumers to weigh the cost, included value and performance aspects of different services and find the best fit for their needs. In addition, service providers would be able to compare their services against competitors and market their products in a way which reflects investments in infrastructure and capacity. On 14 August 2013 the ACCC released a consultation paper inviting stakeholders including industry and consumer groups to comment on the proposed program. The consultation process concluded on 13 September 2013 with the ACCC receiving a number of submissions. 118 A decision on whether to proceed with the proposed monitoring and reporting program has not yet been made. The ACCC continues to consult with industry and other stakeholders to develop the concept for the program.

5.3.2 Media content monitoring The ACCC recognises that access to compelling content, content delivery infrastructure and related content delivery services are important for ensuring efficient content and communications markets. These in turn ensure services are created that appeal to, and meet the needs of, Australian consumers. In 2012–13 the ACCC continued to review and analyse content markets in the course of both its transactional activities and contributions to government regulatory review processes. The ACCC’s consideration of transactions in the media and communication markets was informed by changes in the content acquisition and delivery markets, such as developments in services, technologies, consumer trends

118 A copy of these submissions are available on the ACCC website: http://www.accc.gov.au/regulated- infrastructure/communications/monitoring-reporting/broadband-performance-monitoring-reporting-program. and opportunities for new entrants and new markets. This analysis has informed a number of authorisation, merger and acquisition processes, in addition to consideration of issues such as multicast, in the context of the NBN special access undertaking (SAU). As part of our contribution to regulatory review processes, the ACCC made submissions relating to the interaction between intellectual property and content market issues. For example, the ACCC made a submission on these issues to the Australian Law Reform Commission’s (ALRC) inquiry on whether the exceptions and statutory licences in the Copyright Act 1968 are adequate and appropriate in the digital environment.119 The ACCC continued to monitor the effects on the content acquisition market of the 2012 FOXTEL undertaking, which was accepted in relation to FOXTEL’s acquisition of Austar. The objective of the undertaking is to lower barriers to entry into emerging media markets by preventing FOXTEL from entering into exclusive arrangements with certain independent content suppliers in relation to IPTV rights.

5.3.3 Telstra’s compliance with its structural separation undertaking Each year the ACCC must monitor and report to the Minister on Telstra’s breaches of the SSU. In June 2013 the then Minister tabled the ACCC’s inaugural report. The report identified a number of breaches of the SSU from its commencement in March 2012 until 30 June 2012.120 Telstra brought all breaches to the ACCC’s attention pursuant to the SSU’s monthly reporting obligations. The ACCC is currently preparing the report for 2012–13. Further information regarding Telstra’s compliance with the SSU is outlined in chapter 8.

5.3.4 Telstra’s compliance with its retail price controls Each year the ACCC must monitor and report to the Minister on the adequacy of Telstra’s compliance with retail price control arrangements that apply to certain fixed voice telephony services. The retail price control arrangements are set out in the Telstra Carrier Charge—Price Control Arrangements, Notification and Disallowance Determination No.1 of 2005 (the Determination) and its amendments, pursuant to Part 9 of the Telecommunications (Consumer Protection and Service Standards) Act 1999. The retail price control arrangements consist of a series of caps that limit Telstra’s ability to increase prices for specified baskets of fixed voice telephony services. Telstra may vary individual prices in a particular basket; however the total movement of all prices in that basket in the reporting period is subject to a cap. In February 2013 the ACCC reported to the then Minister that it was satisfied with Telstra’s compliance with its obligations for 2011–12. Further, in November 2013 the ACCC reported to the Minister that it was satisfied with Telstra’s compliance for the 2012–13 financial year. Information regarding these price controls is available on the ACCC website.121

5.3.5 Tariff filing Tariff filing refers to the provision of certain information about changes in prices. The ACCC has general telecommunications tariff filing powers (Part XIB, Division 4 of the CCA) and Telstra-specific tariff filing powers (Part XIB, Division 5 of the CCA).

Tariff filing directions Under Part XIB (Division 4) of the CCA, the ACCC may direct a carrier or CSP to provide information on charges for specified carriage services and/or ancillary goods and services, or information on its intentions regarding those goods or services. The ACCC may request this information if it is satisfied that the carrier or CSP has a substantial degree of market power in a telecommunications market. The ACCC did not make any tariff filing directions in 2012–13.

Tariff filing by Telstra Part XIB (Division 5) of the CCA requires Telstra to provide the ACCC with a written statement setting out any proposed pricing changes for a basic carriage service (BCS) seven days before the change occurs. A BCS allows for communication between two or more distinct places, supplied by fixed-line or satellite-based facilities, but does not include the supply of customer equipment.

119 The ACCC’s submissions to the Australian Law Reform Commission’s (ALRC) inquiry into Copyright and the Digital Economy are available on the ALRC’s website at http://www.alrc.gov.au/inquiries/copyright-and-digital-economy/submissions-received-alrc. 120 ACCC, Telstra’s Structural Separation Undertaking—Annual Compliance Report 2011–12: http://www.accc.gov.au/system/files/Telstra %27s%20structural%20separation%20undertaking%20annual%20compliance%20report%202011–12.pdf. 121 A copy of this report is available on the ACCC website: http://www.accc.gov.au/publications/telstras-compliance-with-the-price-control- arrangements/telstras-compliance-with-the-price-control-arrangements-2011–12. During 2012–13 Telstra complied with the requirements to give the ACCC tariff filing information. 6 Access to telecommunications network services

Key points  We regulate access to several wholesale telecommunications services to promote the long-term interests of consumers. This includes setting price and non-price terms and conditions of access to these services.  During the year we set terms and conditions of access to the wholesale ADSL service and the local bitstream access service.  We are also considering the future regulation of fixed line, mobile and transmission services.

6.1 Overview The ACCC regulates access to certain telecommunications network services where the high cost of building networks means that there would otherwise be only one or a small number of operators. This chapter outlines how the ACCC administers the telecommunications-specific access regime under Part XIC of the CCA. The access regime is intended to promote the long-term interests of end-users by:  promoting competition in telecommunications markets  achieving any-to-any connectivity (ensuring communication between consumers over all networks), and  encouraging the economically efficient use of, and investment in, infrastructure. Part XIC applies to NBN and non-NBN services (such as fixed line, mobile and transmission services). Further, additional access arrangements also apply to services provided over the NBN and superfast networks. Relevant provisions regarding the NBN are described in chapter 7. 6.2 Regulated services Access seekers that want to enter the telecommunications market or access existing telecommunications network services have no general right of access. Telecommunications services are only regulated under Part XIC if they are declared services. A telecommunications service can be declared if:  the ACCC declares a service after holding a public inquiry  the ACCC accepts a special access undertaking (SAU) for the service, or  in the case of NBN Co only, NBN Co publishes a standard form of access agreement (SFAA) regarding the service on its website. Once a service is declared the access provider must comply with standard access obligations. These facilitate access to the service, allowing access seekers to provide carriage or content services using the declared service. Standard access obligations include the requirement to supply a declared service upon request and interconnection to facilities upon request. Table 6.1 outlines the current declared services. As noted above, services may be declared via a special access undertaking with an SAU or if NBN Co publishes a SFAA on its website. NBN services declared in this way are outlined in chapter 7. Table 6.1 Currently declared services

Service Description Duration

Wholesale ADSL A point-to-point service which allows access 14 February 2012 to (ADSL) seekers to provide a broadband ADSL 13 February 2017 internet service to a customer using Telstra’s equipment.

Local carriage A service which carries local telephone calls 1 August 2009 to service (LCS) from the access seeker’s customer to 31 July 2014 Service Description Duration

another customer. The service is used by access seekers to resell local calls.

Public switched Allows a customer of a retail service provider 1 August 2009 to telephone network that does not have its own fixed line network 31 July 2014 originating access to make a telephone call on another service (PSTN OA) provider’s network.

Public switched Allows a customer who is provided a fixed 1 August 2009 to telephone network line phone from one retail service provider to 31 July 2014 terminating access receive a call from a person using another (PSTN TA) service provider’s network.

Wholesale line rental Allows an access seeker to rent an active 1 August 2009 to (WLR) copper line from an access provider and 31 July 2014 on-sell the rented line to customers. When bundled with other services (such as the LCS and PSTN OA), WLR allows access seekers to provide customers with a fixed voice service package to make local, national, long-distance, international and fixed to mobile telephone calls.

Line sharing service Allows access seekers to provide broadband 1 August 2009 to (LSS) services to customers via access to the 31 July 2014 higher frequency part of the copper line. Currently Telstra is the sole supplier of the LSS to access seekers.

Unconditioned local A service for access to the unconditioned 1 August 2009 to loop service (ULLS) wire between a customer and a telephone 31 July 2014 exchange. It allows an access seeker to provide voice and broadband services to customers using their own equipment.

Mobile terminating A service provided by a mobile network 28 May 2009 to access service operator to fixed line operators and other 30 June 2014 (MTAS) mobile network operators to connect a call on its mobile network.

Domestic A point-to-point service used for the high 29 September 2010 transmission capacity transmission of communications to 31 March 2014 capacity service traffic (such as voice, data or video) over (DTCS) long distances.

Local bitstream A point-to-point service used to carry The declaration took access service communications in digital form between an effect on 13 April (LBAS) access provider’s network and a customer. 2012. This Access seekers use the service to supply declaration does not superfast broadband services to customers, expire. primarily in new housing estates served by fibre networks other than the NBN.

6.2.1 Declaration inquiries during 2012–13 During 2013 the ACCC commenced three public declaration inquiries about the DTCS, MTAS and fixed line services. The ACCC is considering whether to extend, vary or revoke the existing declarations or make new declarations for these services. The ACCC is currently considering stakeholder submissions to all three inquiries and in December 2013 released draft decisions for all three inquiries. The ACCC intends to make final decisions for each service in 2014. The ACCC is engaging with both industry and consumer stakeholders to ensure that the views of all stakeholders are considered. To aid in this process, the ACCC has published a series of educational materials to explain how the regulation of these services benefits consumers and how these declaration reviews may impact consumers.122 If the ACCC continues to declare these services, it will commence separate inquiries during 2014 to make an access determination for each of the services. The access determination will set the prices and other terms and conditions that apply to a regulated service. Access determinations are further discussed in section 6.3.4 below.

Mobile terminating access service On 27 May 2013 the ACCC commenced a public inquiry and issued a discussion paper inviting submissions on the continued declaration of the MTAS. The ACCC invited submissions on whether SMS and MMS termination services should be declared and whether 4G network and NBN developments impact the declaration.

Domestic transmission capacity service On 11 July 2013 the ACCC commenced a public inquiry into whether the DTCS should be declared. The ACCC issued a discussion paper inviting submissions on the continued declaration and a range of issues. These include the scope of regulation, regulating certain transmission routes, the adequacy of the existing service description, the impact of the NBN, potential issues regarding access to facilities for the DTCS and the length of the regulatory period.

Fixed line services On 11 July 2013 the ACCC also commenced a public inquiry into whether the fixed line services should be declared. The ACCC issued a discussion paper inviting submissions on a range of issues relating to the regulation of fixed line services. These are further outlined in the case study below.

Case study: the fixed services review The ACCC regulates the landline telephone and internet services that are generally delivered over Telstra’s copper network—for example, home or business telephone and ADSL broadband services. In the industry, these are referred to as ‘fixed line services’. There are currently six declared services, which are collectively referred to as the fixed line services. These are the unconditioned local loop service (ULLS), line sharing service (LSS), public switched telephone network originating access (PSTN OA), public switched telephone network terminating access (PSTN TA), wholesale line rental (WLR) and local carriage service (LCS). The current declarations for these services expire on 31 July 2014. There have been several major changes in the communications sector since 2009, such as the introduction of the NBN and the increasing use of data, smartphones and tablets. The ACCC is comprehensively considering the implications of these industry changes as part of its inquiry into the re-declaration of these services. The ACCC issued a discussion paper in July 2011 outlining the ACCC’s proposed assessment approach, an overview of the relevant changes to the communications sector since 2009, the key issues relevant to future regulation of the services, and a number of questions on which the ACCC invited submissions. The ACCC released a draft decision in December 2013 and will make a final decision on the need for future regulation of these important services in 2014.

6.3 Access regime Part XIC of the CCA provides a hierarchy of regulatory mechanisms to clarify which terms and conditions apply in the event of an inconsistency. In descending order, the hierarchy is:  access agreements  special access undertakings  binding rules of conduct, and  access determinations. The access regime encourages commercial agreements (access agreements) between parties for access to declared services. If there is an inconsistency between an access agreement and another regulatory instrument,

122 A copy of these factsheets is available on the ACCC website: http://www.accc.gov.au/regulated-infrastructure/communications/accc-role-in- communications/consumer-fact-sheets-for-telecommunications-services. the terms and conditions in the regulatory instrument will not apply to the extent that they are inconsistent with terms and conditions contained in the access agreement. If any term or condition cannot be agreed between the parties, an access seeker may be able to access services on the terms and conditions that are available in the other regulatory instruments, as outlined below.

6.3.1 Access agreements Parties are free to negotiate and enter into commercial arrangements for access to declared services. From January 2011 providers of declared services must lodge with the ACCC all access agreements relating to access to a declared service. While the ACCC is not required to approve access agreements, compliance with the lodgement requirements is a carrier licence condition and service provider rule. In 2012–13 the ACCC investigated a number of providers for failing to lodge access agreements for declared services within the statutory timeframe. On each occasion providers took steps such as improving internal processes to address the ACCC’s concerns.

6.3.2 Special access undertaking Access providers can propose terms and conditions of supply for access to listed services through an SAU. These terms and conditions would apply if the SAU was approved by the ACCC. The CCA sets out the criteria by which the ACCC must decide whether to accept or reject an SAU. An SAU can be lodged for services that are not yet declared and for which no access determination is in place. The access provider can seek to vary or withdraw an SAU that is in force. In December 2013 the ACCC accepted an SAU lodged by NBN Co. Further information regarding the NBN Co SAU is outlined in chapter 7 below.

6.3.3 Binding rules of conduct Where the ACCC considers that there is an urgent need to do so, it can make binding rules of conduct (BROC). BROCs can specify any or all of the terms and conditions of supply for access to a declared service, or the manner in which a carrier or CSP must comply with any or all of the standard access obligations. BROCs operate temporarily either in advance of, or as a type of variation of, an access determination. The duration of a BROC is limited to a maximum of 12 months. The ACCC did not make any BROCs in 2012–13.

6.3.4 Access determinations Access determinations are written determinations made by the ACCC which determine a base set of price and non-price terms and conditions of access to a declared service. Access seekers can rely on an access determination if they are unable to come to an agreement with an access provider on the terms and conditions of access to a declared service. If parties do come to an agreement on the terms and conditions of access, their access agreement will prevail over the access determination to the extent of any inconsistency. The ACCC must undertake a public consultation process before making a final access determination (FAD). A FAD must be made within six months of a service being declared, although the ACCC can extend this time period if it provides reasons for doing so. Access determinations may specify any or all of the terms and conditions for compliance with any or all applicable standard access obligations. In 2012–13 the ACCC made a FAD for the local bitstream access service (LBAS) and the wholesale ADSL service.

Local bitstream access service In 2011 the Telecommunications Act 1997 and CCA were amended to include a regime to regulate layer 2 bitstream services to ensure that they are offered on an open and equivalent access basis, the same as NBN Co. The amendments also required the ACCC to declare a layer 2 bitstream service. In February 2012 the ACCC complied with this requirement by declaring the LBAS service following a public consultation. The LBAS is a wholesale access service for non-NBN networks that are built or upgraded after January 2011 where the download transmission rate is superfast (25 Mbps or faster). The declaration covers superfast networks that provide the ‘last mile’ fixed line connection between a consumer’s premises and an access provider’s network. In October 2012 the ACCC made a FAD for the LBAS which sets price and non-price terms and conditions of access for a 25/5 Mbps layer 2 bitstream service. The FAD sets a price ceiling of $27 for the service which is benchmarked to the NBN Co wholesale broadband agreement (WBA) price for a similar service. It also contains non-price terms and conditions of access. The LBAS FAD will expire on 5 October 2015. Wholesale asymmetric digital subscriber line service (Wholesale ADSL) Asymmetric digital subscriber line (ADSL) is the dominant technology providing fixed broadband internet to retail customers in Australia. It is supplied over Telstra’s customer access network which includes a network of copper wires running from Telstra exchange buildings to business and residential premises. ADSL technology allows the high frequency band of a copper wire to be used to provide broadband internet access while at the same time allowing the low frequency band of the copper wire to be used for a voice service. To supply ADSL broadband internet to a retail customer, an access seeker must either purchase a wholesale ADSL service or purchase the wholesale ULLS or LSS service from Telstra and deploy their own equipment. Telstra is the dominant wholesale provider of ADSL services. On 29 May 2013 the ACCC made a FAD for the Wholesale ADSL service which sets price and non-price terms that will apply until 30 June 2014. The price terms in the FAD are around 15 per cent lower than the commercial porices that were being charged, on average, prior to the regulation of the service in February 2012. The ACCC considered that making the FAD and regulating wholesale ADSL services would help ensure consumers and businesses had a choice in the provision broadband services. 6.4 Access disputes Following legislative amendments in 2011, the ACCC no longer arbitrates new access disputes lodged under Part XIC of the CCA. During 2012–13 the ACCC finalised the last of the disputes that were permitted to be lodged under Part XIC. In some circumstances access disputes may still be lodged with the ACCC under the Telecommunications Act 1997. These are discussed in section 8.4 Table 6.2 outlines the access disputes that were before the ACCC for arbitration during 2012−13. Table 6.2 Arbitration of access disputes 2012–13

New disputes Disputes Disputes Service 1 July 2012 lodged finalised withdrawn 30 June 2013

ULLS 6 0 6 0 0

LSS 7 0 7 0 0

DTCS 0 0 0 0 0

LCS 0 0 0 0 0

WLR 0 0 0 0 0

PSTN TA 0 0 0 0 0

PSTN OA 0 0 0 0 0

MTAS 2 0 0 2 0

Total 15 0 13 2 0

In November 2012 the ACCC finalised its joint arbitration of 13 access disputes relating to the ULLS and LSS declared services. These disputes were notified prior to the making of the FADs for these declared fixed line services. The two access disputes lodged in relation to the MTAS during the 2011–12 reporting period were withdrawn by the parties in July 2012. At the time the LSS and ULLS arbitrations were finalised, the ACCC had the power to publish a determination and its reasons where it considered that doing so would be likely to facilitate the operation of Part XIC of the CCA. In December 2012 the ACCC published two final determinations and a statement of reasons for the access disputes between Chime and Telstra in relation to the LSS and ULLS services.123

123 ACCC, Published arbitration determinations—internal interconnect cable—line sharing service and unconditioned local loop service (LSS & ULLS), http://registers.accc.gov.au/content/index.phtml/itemId/1094277. 7 NBN and superfast networks provisions

Key points We have a key role in regulating access to services provided over the NBN and designated superfast networks. This year we:  accepted a special access undertaking (SAU) lodged by NBN Co  published the list of points of interconnection (POIs) to the NBN, and  sought to ensure compliance with the non-discrimination guidelines and level playing field provisions.

7.1 Overview This chapter outlines the ACCC’s role in regulating access to services provided over the NBN and designated superfast networks. The Telecommunications Act 1997 and Part XIC of the CCA set out the key framework for access to these services. Key elements of this framework include:  declaration of NBN services, through an SAU or standard forms of access agreement (section 7.2 and 7.3)  NBN points of interconnection (section 7.4)  rules about non-discriminatory access to services provided over the NBN and superfast networks (section 7.5), and  ‘level playing field’ requirements for superfast networks (section 7.6). 7.2 NBN Special Access Undertaking On 13 December 2013 the ACCC accepted an SAU that was lodged by NBN Co on 19 November 2013. The SAU establishes principles for regulating access to the NBN until June 2040. The SAU forms a key part of the framework for governing prices and other terms upon which NBN Co will supply services to telecommunications companies over the NBN. This is the first time the ACCC has accepted an undertaking of this duration. The acceptance of the SAU will assist NBN Co and access seekers to negotiate commercial agreements. The ACCC’s decision follows the submission and withdrawal of two other undertakings by NBN Co and over three years of discussions between the ACCC, NBN Co, access seekers and other key stakeholders.

7.2.1 Overview of the SAU The SAU has a ‘modular’ structure which ‘locks in’ matters for different periods of time. This structure balances regulatory certainty for NBN Co with flexibility for the ACCC to intervene where necessary. The modular structure consists of three parts:  Module 0 applies for the term of the SAU and provides the overarching structure and context to other parts of the SAU.  Module 1 contains terms which will operate until June 2023. This includes initial prices for all current services, pricing methodologies to adjust prices over time, mechanisms to encourage efficient expenditure, as well as non-price terms and conditions relating to dispute resolution, and product development and withdrawal.  Module 2 commences after the expiry of Module 1 and operates until June 2040. This module sets out the long-term arrangements for determining NBN Co’s required revenue, price reviews and the development and withdrawal of NBN Co’s products. This module will operate alongside additional ‘replacement modules’ which will contain forecasts of NBN Co’s revenue and expenditure, as well as other detailed terms and conditions proposed by NBN Co. The SAU allows the ACCC to review NBN Co’s prices over time. In particular, the ACCC will have a role in periodically rebalancing price structures to ensure that these price structures encourage efficient use of the NBN. The ACCC will also have a role in overseeing the setting of initial prices for products that are introduced in the future. 7.2.2 Assessment and process for accepting NBN Co’s SAU NBN Co initially lodged the SAU in December 2012 following a process of pre-lodgement discussions between NBN Co and the ACCC. As part of its assessment of the SAU, the ACCC released a consultation paper which invited submissions from interested parties. Under Part XIC, the ACCC must not accept an SAU unless it is satisfied that it meets certain criteria. Generally speaking, the ACCC must be satisfied that the SAU is reasonable and promotes the long-term interests of end- users of NBN services. In April 2013 the ACCC released a draft decision on the December 2012 SAU, where it stated that it was not satisfied that the SAU met these criteria. As part of its draft decision, the ACCC proposed a range of amendments to the SAU for consultation. In July 2013 the ACCC released draft variations to the SAU for consultation. These draft variations took into account submissions to the draft decision. On 8 October 2013 the ACCC formally issued a notice to NBN Co specifying variations to the SAU, allowing NBN Co six weeks to respond. In developing these variations, the ACCC considered submissions to the draft variations and conducted extensive consultation with NBN Co and key stakeholders. The key variations were:  amendments to provide certainty about how NBN Co will comply with its obligations under the telecommunications access regime  allowing for periodic price rebalancing by the ACCC to ensure that price structures continue to encourage efficient use of the NBN in the future  amendments clarifying that the ACCC will have a role in overseeing the setting of prices for new products that are introduced  amendments clarifying that the ACCC will have a role in overseeing the development and withdrawal of products, including a commitment by NBN Co to consult with access seekers and consumer advocacy groups, and  removal of a number of non-price terms and conditions in order to facilitate effective commercial negotiation. On 19 November 2013 NBN Co lodged a varied SAU that incorporated the ACCC’s variations. This varied SAU replaced the one originally lodged in December 2012. On 13 December 2013 the ACCC released a final decision to accept the varied SAU. 7.3 Declared NBN services Part XIC provides for NBN Co to formulate and publish open offers to provide access to its services. The terms and conditions that comprise these offers are known as standard forms of access agreement (SFAA). If a SFAA is available on NBN Co’s website, NBN Co must enter into an access agreement on request by an access seeker on the terms and conditions contained in that SFAA. Publication of a SFAA by NBN Co on its website also has the effect of declaring the service to which it relates. In general, NBN Co must provide open and non-discriminatory access to its services. Further information on the regulatory framework that applies to declared services in general is described in chapter 6. 7.4 Points of interconnection An NBN POI is the physical location that allows retail service providers and wholesale service providers to connect to the NBN. Under section 151DB of the CCA, the ACCC must prepare a written list of POIs to the NBN and publish this list on its website (‘listed POIs’). In December 2010 the ACCC provided advice to government on the number and location of the initial POIs that would best meet the long-term interests of end-users. The ACCC also commenced public consultation in respect of the 120 POIs proposed by NBN Co in response to this advice. As an outcome of this consultation process, the ACCC and NBN Co agreed on the locations of 121 initial POIs to the NBN and a draft of the revised list was published by the ACCC in May 2011. In August 2012 the ACCC commenced public consultation on the final list of POIs. In November 2012 the ACCC formally published a ‘list in force’ pursuant to section 151DB of the CCA. In the first half of 2013 the ACCC conducted a review of the policies and procedures relating to the identification of listed POIs under section 151DC of the CCA. In February 2013 the ACCC invited submissions to the review, particularly about the application of the criteria used to assess the state of competition and the planning rules and procedures used in identifying the location of POIs. The ACCC also invited comment on the extent to which facilities are interconnected at listed POIs. The ACCC found that the application of the competition criteria and the planning rules was an effective process for identifying the POI locations consistent with a semi-distributed approach.124 The ACCC also found that the extent of service provider interconnection at the listed POIs was limited at the time the review was conducted. This appeared to be due to the early stages of the NBN rollout (as at May 2013 only 32 of the 121 listed POIs were active) and many service providers had initially interconnected at the NBN temporary POIs. The ACCC considers that interconnection at listed POIs will expand as the remaining listed POIs are progressively rolled out during 2013 and 2014. It also expects that reliance on interconnection at temporary POIs will diminish and that NBN specific services (including the provision of competitive backhaul and aggregation services) will also likely increase. The ACCC prepared a report on the review which was given to the Minister in early July 2013. The report was tabled in Parliament in December 2013. 7.5 Non-discrimination guidelines and other roles NBN Co and providers of layer 2 bitstream services over designated superfast telecommunications networks are subject to certain non-discrimination obligations. These are set out in Part XIC of the CCA. In general, these providers must not discriminate:  between access seekers in complying with their standard access obligations  between access seekers in the carrying on of activities related to the supply of declared services, and  in favour of themselves in the supply of declared services. The ACCC must publish explanatory material on its website to provide guidance to industry on the ACCC’s views on the operation of the non-discrimination provisions. In April 2012 the ACCC published explanatory material following consultation with industry. The ACCC will review its explanatory material periodically and provide additional guidance where necessary. The ACCC must also maintain a register of statements setting out differences between:  individual access agreements and any SFAA, SAU or access determinations relating to NBN Co, and  individual access agreements and any SAU or an access determination regarding the local bitstream access service. This is intended to allow access seekers to identify any different terms or conditions which may be available from their network access provider. The registers are also used by the ACCC to identify potential contraventions of the non-discrimination provisions. The registers of the statements of differences are available on the ACCC website. During 2012–13 the ACCC published a number of statements of differences on its website. Further, the ACCC has a role in enforcing the non-discrimination provisions by seeking orders from the Federal Court. During 2012–13 the ACCC did not seek orders to enforce these provisions. 7.6 Level playing field provisions Parts 7 and 8 of the Telecommunications Act 1997 set out the ‘level playing field’ provisions. These provisions are intended to ensure that non-NBN networks capable of supplying a superfast carriage service operate on a similar basis to NBN networks. Non-NBN networks capable of supplying a superfast carriage service, wholly or principally to residential or small business customers, must not be used unless:  a layer 2 bitstream service is available for supply, and  services supplied on the network are supplied on a wholesale-only basis. These provisions only apply to services supplied over superfast networks built, extended, altered or upgraded since 1 January 2011. The provisions do not apply to services provided over wireless, satellite or NBN networks. In 2012–13 the ACCC investigated a number of fibre to the home network operators for potential non-compliance with these provisions. One network operator ultimately divested its retail operation to resolve the ACCC’s concerns.

124 The semi-distributed approach to the number and location of POIs is the approach adopted by the government following the ACCC’s advice in 2010. 7.6.1 Exemptions Both statutory and Ministerial exemptions may apply to the level playing field provisions.

Statutory exemptions Network operators, subject to certain conditions, are exempt from providing services on a wholesale-only basis to utilities. This includes transport authorities, electricity and gas supply bodies, water supply bodies, sewerage services bodies, stormwater drainage service bodies and state or territory road authorities. Further, subject to certain conditions, statutory exemptions may apply to:  extensions to existing superfast networks within current real estate developments  extensions to existing network footprints no more than one kilometre from a point on the infrastructure of the existing network, as the network stood immediately before 1 January 2011, and  specified extensions of a telecommunications network.

Ministerial exemptions The Minister may exempt specified networks, local access lines or owners from the layer 2 bitstream requirements and/or the wholesale-only requirement. The ACCC has had a role in the Ministerial exemptions granted to date. The Minister must consult with the ACCC and the ACMA before granting an exemption. In January 2012 the then Minister granted Telstra conditional exemptions for the South Brisbane exchange service area and specified Telstra Velocity networks. In April 2012 the then Minister also granted TransACT conditional exemptions for its upgraded VDSL networks, specified TransACT fibre networks and very small scale TransACT networks. The ACCC was consulted before these exemptions were made. In December 2013 the Minister granted Telstra a further conditional exemption for the South Brisbane exchange until 31 December 2015. The ACCC was consulted before this exemption was made. 8 Telstra’s structural separation and other Telecommunications Act provisions

Key points  We are working to ensure a competitive transition to the NBN and a new industry structure, which includes overseeing Telstra’s implementation, and compliance with, its structural separation undertaking and migration plan.  We also regulated access to telecommunications facilities and actively participated in industry reviews about local number portability.

8.1 Overview This chapter outlines the ACCC’s powers and functions performed under the Telecommunications Act 1997. Our main activities under the Telecommunications Act 1997 for 2012–13 include:  monitoring Telstra’s compliance with its structural separation undertaking (SSU) and migration plan (section 8.2)  considering variations to the SSU and migration plan (section 8.2)  regulating access to telecommunications facilities, including varying the Facilities Access Code and considering disputes about access to facilities (sections 8.3 and 8.4), and  contributing to industry reviews about local number portability (section 8.5). The Telecommunications Act 1997 provides the ACCC with a variety of other functions and powers. This includes the power to conduct public inquiries into carriage services, content services and the telecommunications industry, and the power to issue directions and formal warnings to carriers regarding carrier licence conditions. In some cases, the Telecommunications Act 1997 ensures the ACCC’s involvement in certain inquiries by requiring that the ACCC is consulted before a decision is made by the responsible Minister or agency. For example, the ACMA must consult the ACCC before it varies a telecommunications industry standard or the telecommunications numbering plan. In some cases the ACCC is required to provide advice to the Minister on certain matters. As outlined in chapter 7, for example, the ACCC has a role in the Ministerial exemptions from the level playing field provisions. The ACCC actively participates in consultations and inquiries related to Telecommunications Act matters. The ACCC also continually monitors key areas under the Telecommunications Act 1997 and exercises its powers and performs functions where necessary. 8.2 Structural separation of Telstra Telstra’s undertaking implements structural separation through migration to the NBN. It outlines how Telstra will progressively cease to supply telephone and broadband services over its copper and HFC networks and commence to supply these services over the NBN. To promote competition until the NBN is completed, the SSU contains interim equivalence and transparency measures which require Telstra to supply regulated services to its wholesale customers and retail business units on equivalent terms. These measures are a substantial improvement upon the previous operational separation framework and require Telstra to identify and take steps to address any instance of non-equivalence. Telstra also has several reporting obligations under the SSU. These include providing the ACCC with monthly confidential compliance reports, quarterly public reports on operational equivalence, and six-monthly public and quarterly confidential Telstra Economic Model reports (which provide transparency over Telstra’s internal and external wholesale prices). The ACCC has worked with Telstra to improve its SSU compliance framework, resulting in Telstra undertaking a number of additional internal measures during 2012–13 to ensure greater compliance with its interim equivalence and transparency obligations. To facilitate engagement between Telstra and wholesale customers in relation to issues regarding the SSU and migration plan, the ACCC established a Wholesale Telecommunications Consultative Forum in 2012. The quarterly forum meetings provide industry participants with an opportunity to raise potential issues affecting competition or consumer interests more broadly, and concerns around the operation of the SSU and migration plan.

8.2.1 Telstra’s compliance with the SSU and migration plan Each financial year the ACCC must monitor and report to the Minister on Telstra’s breaches of the SSU. On 20 June 2013 the then Minister tabled the ACCC’s inaugural report. The report identified a number of breaches of the SSU from its commencement in March 2012 until 30 June 2012.125 Telstra brought all breaches to the ACCC’s attention pursuant to the SSU’s monthly reporting obligations. Importantly, where instances of non-compliance have been identified, Telstra has taken steps to address those concerns and has informed wholesale customers of its progress in rectifying the matters. Most reported breaches concerned Telstra’s obligation to safeguard confidential or commercially sensitive information of wholesale customers. These breaches arose because Telstra operates shared information systems that support its retail and wholesale functions. Access controls to those systems were not adequate to prevent disclosure of confidential wholesale customer information to Telstra’s retail business units. The ACCC sought to stop the conduct and minimise the detriment to Telstra’s wholesale customers, including alerting wholesale customers to issues so that they could take steps to minimise any impact. Since reporting these breaches, Telstra has implemented an extensive program of remediation work. Telstra is continuing to remediate its information systems to ensure that they are compliant with the information security commitments in the SSU. Identifying these issues under the SSU’s compliance reporting mechanisms and Telstra’s work in remedying these issues demonstrate that the ACCC is now much better placed to respond to equivalence concerns. It is also clear that Telstra is taking its commitments seriously, as shown by its internal compliance monitoring, self- reporting and its remediation work to meet the standard of equivalence required by the SSU. The ACCC is currently preparing its report to the Minister for the 2012–13 financial year.

8.2.2 Possible breaches of the overarching equivalence commitment The SSU also contains an overarching commitment requiring Telstra to provide equivalent outcomes for wholesale customers to those achievable by Telstra’s retail businesses. Where Telstra reports a possible breach of this commitment to the ACCC, it must submit a proposal to the ACCC outlining the steps it proposes to take to remedy the possible breach (a ‘rectification proposal’). Telstra must submit the rectification proposal no later than 30 days after reporting the possible breach. In May 2013 Telstra submitted two rectification proposals about its wholesale ADSL services. Following consultation with industry and affected wholesale customers, the ACCC accepted Telstra’s rectification proposals in July 2013.126 Further, Telstra reported a possible breach of the overarching equivalence commitment in relation to fault rectification for basic telephone services. Telstra has identified a number of causes that contributed to this issue and has taken steps to address these, including enacting operational rules to improve its fault handling performance and to ensure equivalence.

8.2.3 Implementation of the migration plan When the migration plan was lodged for ACCC approval, Telstra was not able to establish or specify a number of processes contemplated by the migration plan principles determined by the Minister. Pursuant to the migration plan, Telstra has now lodged five of the six ‘required measures’ with the ACCC for approval. The final required measure relates to disconnection processes for special services and is not required to be lodged for some time. On 26 September 2013 the ACCC approved three of these required measures. These relate to the disconnection of services (from copper or HFC networks) that have not migrated to the NBN within the applicable switchover period, and the building of copper lines in NBN roll out regions to supply services that cannot yet be provided over the NBN. The ACCC approved the measures as they provide appropriate protections to consumers and competition during migration to the NBN. These measures now form part of the migration plan. Telstra is also required to develop measures relating to a process referred to as ‘pull through’. NBN Co may use pull through to connect premises in the fibre-to-the-premises areas of the NBN rollout. In some cases, NBN Co

125 ACCC, Telstra’s Structural Separation Undertaking—Annual Compliance Report 2011–12. 126 ACCC, Industry Structure, http://www.accc.gov.au/regulated-infrastructure/communications/industry - reform . may need to use an existing copper or HFC line to pull the NBN fibre through the conduit that leads from the street to the end-user’s premise in order to connect that premise to the NBN. The pull through process will result in a temporary service outage to the existing communications services. If not properly managed, the consequence of a service outage, particularly for vulnerable consumers, carers or businesses that rely on their fixed line services for internet transactions or important calls, may be severe. On 20 December 2013 the ACCC decided to reject Telstra’s draft pull through required measures and direct Telstra to improve its process to notify wholesale customers of extended service outages caused by NBN Co undertaking pull through activities. The ACCC gave this direction as Telstra’s proposed process did not provide a firm commitment to provide notification to wholesale customers in a timeframe that would:  help limit any potentially adverse consequences for end-users that may arise from the service outage and the consequent inability to make or receive calls from their fixed line phone, and  ensure that, to the greatest extent practicable, Telstra wholesale customers will be in an equivalent position to Telstra to respond to the needs of their end-user customers. The ACCC is still considering Telstra’s proposed NBN Information Security Plan. Telstra is required to implement this plan to ensure that any information Telstra receives from NBN Co for the purpose of the commencement of supply of fibre services or the disconnection of copper services cannot be used by Telstra to gain an unfair commercial advantage over wholesale customers.

8.2.4 Variations to the SSU and migration plan Telstra may submit proposed variations to the SSU or migration plan to the ACCC for approval. On 18 June 2013 the ACCC approved two minor variations to the SSU representing modest incremental improvements to the interim equivalence and transparency measures. The first variation responded to a concern raised by industry and requires Telstra to determine reference prices for any future declared services. The second implements a new metric comparing Telstra’s performance in relation to provisioning wholesale line sharing services and Telstra’s retail ADSL services. During 2012–13 the ACCC also approved a number of minor variations to the migration plan intended to minimise service disruptions for consumers during the migration to the NBN. The ACCC has an important role to ensure that the provisions in the migration plan continue to meet a number of key objectives, including minimising disruption to the supply of services. In this regard, the ACCC recognised the significant negative consumer experience resulting from a prohibition in the migration plan on Telstra supplying new copper services to premises within ‘ready for service’ NBN fibre rollout regions, that are unable to connect to the NBN. The ACCC therefore invited Telstra to submit a variation to the migration plan to permit the provision of copper services to those premises (generally in multi-dwelling units) in NBN initial release rollout regions that are currently unable to obtain an NBN fibre service. While the ACCC has not formally approved this variation (it is awaiting finalisation of a relevant protocol by government and NBN Co), Telstra is now provisioning new copper services to premises that cannot obtain an NBN service. 8.3 Access to facilities The Telecommunications Act 1997 imposes a general obligation on access providers to give access to telecommunications facilities. It also gives carriers powers and immunities regarding the installation and maintenance of certain telecommunications facilities. A ‘facility’ is broadly defined to include:  any part of a telecommunications network, or any structure used in or in connection with a telecommunications network, such as lines, equipment, poles and ducts  land, buildings and structures in or on which, those facilities are located, and  customer equipment or customer cabling connected to the network. The ACCC arbitrates disputes over access to facilities where the parties fail to agree on the terms of access and fail to agree on the appointment of an arbitrator. The ACCC is currently considering three facilities access disputes (refer to section 8.4). The ACCC also has the power to make a code about non-price terms and conditions of access to telecommunication transmission towers, sites of towers and underground facilities designed to hold communication lines. In 1999 the ACCC published A Code for Access to Telecommunications Transmission Towers, Sites of Towers and Underground Facilities (the Facilities Access Code). The Facilities Access Code is intended to encourage co-location of eligible facilities and facilitate access in a timely manner. The Facilities Access Code is also intended to supplement commercially negotiated non-price terms and conditions of access and provide fall-back terms if the parties cannot agree. In September 2013 the ACCC varied the Facilities Access Code following a public inquiry. The revised code was registered on the Federal Register of Legislative Instruments on 23 September 2013 and took effect on 24 September 2013. Variations to the Facilities Access Code include making timeframes for accessing facilities a mandatory condition. This will ensure that all carriers are treated equally when making such a request. The Facilities Access Code was also varied to remove obsolete references, make minor typographical changes and to account for recent legislative amendments (including the introduction of the NBN, changes to the Telecommunications Act 1997 and the introduction of the Competition and Consumer Act 2010). 8.4 Access disputes While the ACCC no longer has an arbitration role under the CCA, the ACCC continues to arbitrate disputes under the Telecommunications Act 1997. The ACCC can arbitrate disputes about:  access to telecommunications transmission towers and underground facilities  access to supplementary facilities (such as exchanges), and  provision of pre-selection and number portability. In September 2012 the ACCC was notified of three access disputes. The ACCC is currently considering these disputes. 8.5 Number portability Number portability allows consumers to change their service provider and retain the same telephone number. Part 22, Division 2 of the Telecommunications Act 1997 requires the ACMA to develop a numbering plan outlining the allocation and use of numbers in connection with the supply of carriage services. Under the Telecommunications Act 1997, the ACCC has statutory powers to direct the ACMA on number portability. The ACMA cannot insert rules about number portability in the Telecommunications Numbering Plan 1997 unless directed to do so by the ACCC. Further, any rules the ACMA includes relating to number portability must be consistent with any directions by the ACCC. During 2012–13 the ACCC did not give the ACMA any directions on number portability. However, the ACCC actively contributed to industry reviews of the processes that service providers use to provide local number portability. The Communications Alliance commenced these reviews in October 2012. To date, the reviews have led to process revisions that are expected to improve the porting experience for a number of residential and business consumers that were not as well served by the existing processes as other consumers. The proposed revisions simplify the information those consumers must supply to initiate a number port. They should also bring the time taken to complete their requests (as measured from when they first provide their authority to port the number) into line with what other consumers have experienced. These proposed changes are specified in a revision to the Local Number Portability Code, which is under consideration by the ACMA. The reviews are also considering more fundamental process reform that would improve competition and consumer experience when porting numbers in an IP environment. 9 Radiocommunications Act

Key points  We accepted a variation of the digital radio access undertakings.  We are monitoring the recent outcomes of the digital dividend spectrum auction.

9.1 Overview The ACCC has limited responsibilities under the Radiocommunications Act 1992, including assessing and monitoring access undertakings for the Digital Radio Multiplex Transmission service and some responsibilities regarding radiofrequency spectrum. 9.2 Variation of digital radio access undertakings The ACCC administers the access regime for the Digital Radio Multiplex Transmission service. This service refers to the process of multiplexing (or bringing together) separate streams of content from individual radio broadcasters and transmitting a combined stream to end users. The service is provided by Digital Radio Multiplex Transmission Licensees who were allocated these licenses by the ACMA. The terms and conditions for access to this service are set out in the digital radio access undertakings. During 2012–13 the ACCC continued to monitor compliance with these undertakings. Further, on 19 December 2013 the ACCC accepted a variation of the digital radio access undertakings under subsection 118N(3) of the Radiocommunications Act 1992. The request to vary the digital radio access undertakings was made by licensees to, amongst other things, facilitate new investments in the Digital Radio Multiplex Transmission service (specifically on-channel repeaters) to improve service coverage and quality in existing broadcast areas. The ACCC publicly consulted on the proposed variation and, following the consideration of submissions, determined that the variation did not substantively alter the terms and conditions of access previously approved by the ACCC. 9.3 Radiofrequency spectrum The ACCC has some spectrum responsibilities under the Radiocommunications Act 1992, including assessing secondary acquisitions of spectrum through sharing arrangements. If requested, the ACCC may also provide advice to the Minister on setting of competition limits in new spectrum allocations. The ACCC is also monitoring the competitive outcomes following the recent digital dividend auction, which is outlined in the case study below.

Case study: digital dividend auction Under the Radiocommunications Act 1992 the ACMA is responsible for regulating the use of the radiofrequency spectrum in Australia, including licensing and compliance. Radiofrequency spectrum is primarily used for wireless communications and different frequency bands are assigned for specified uses. Due to the high demand for spectrum, many spectrum licences are allocated using a spectrum auction. On 23 April 2013 the ACMA commenced the digital dividend auction to reallocate spectrum in the 700 MHz and 2.5 GHz radiofrequency bands. The ‘digital dividend’ (700 MHz) spectrum will become available once the switchover from analogue to digital television services is completed. The 2.5 GHz spectrum is currently used for electronic news gathering services, which will soon be migrated to other parts of the spectrum. Telstra and Optus both secured spectrum in the 700 MHz and 2.5 GHz bands through the auction. TPG Internet also acquired a small portion of 2.5 GHz spectrum. In total, the auction resulted in government revenue of $1.964 billion. Telstra acquired rights to twice as much spectrum as Optus, spending around $1.3 billion. VHA was the only mobile network operator not to participate in the auction. The two digital dividend spectrum bands are complementary and suited to providing mobile services, including 4G services. The 700 MHz band is suited to providing coverage over wide areas with high in-building penetration. The 2.5 GHz band is suited to providing high data capacity in built-up areas. It is expected that Telstra and Optus will use their spectrum allocation to expand their LTE and 4G mobile networks. TPG is expected to use its allocation to offer wireless broadband services to complement its other services. This may benefit consumers through broader 4G network coverage, increased network capacity and potential increased competition in wireless broadband services. Licences for the 700 MHz band will commence on 1 January 2015. In most cases, licences for the 2.5 GHz band will commence on 1 October 2014, except for some areas of Western Australia that will commence in February 2016. The ACCC will continue to monitor the competitive outcomes of this auction. Appendix A: Types of internet access platforms

Dial-up uses the voice band frequency to transmit internet data over the copper network and has a headline data download transmission rate at a theoretical maximum of 56 kilobits per second. DSL (including ADSL) like dial-up, uses the copper network to provide an internet service. DSL operates at higher frequencies than voice services, and therefore is a form of broadband which operates independently of and simultaneously with the provision of traditional voice services over the same copper pair. HFC cable is a combination of optical fibre and coaxial cable, which can be used to provide high-speed broadband services, in addition to pay TV and voice services. Fibre refers to optical fibre which can be used to provide high-speed broadband services by transmitting information as light pulses. Optical fibre is capable of carrying much more information than conventional copper wire and is in general not subject to electromagnetic interference and the need to retransmit signals. Wireless broadband services are offered through both mobile and fixed wireless retail services:  Mobile wireless services have evolved from mobile phone technology, which uses various portions of the radio frequency spectrum. Mobile network technologies allow users to both move between geographic areas or cells and roam between different mobile networks. Users can access mobile wireless broadband networks using 2G, 3G or 4G voice handsets or non-voice service equipment such as USB modems or datacards.  Fixed wireless networks use similar technology to that used in mobile wireless networks. Significantly higher data rates and/or longer transmission distances can be attained from these networks by using fixed directional antenna only (that is, mobility is not supported by these networks). Satellite broadband uses geostationary orbiting satellites to relay data signals sent and received via a satellite dish by isolated end-users to and from a ground station connected to a broadband network. Note: many consumers now connect their devices at home or work via a wireless router, even if it is a fixed broadband connection to the internet. This is considered to be a fixed line service rather than a wireless service, because the underlying internet connection is via a fixed line. Changes in the prices paid for telecommunications services in Australia, 2012–13

Report to the Minister for Communications 1 Key messages

During the 1990s, the Australian Government implemented reforms to introduce competition into the telecommunications sector. The Australian Competition and Consumer Commission (ACCC) was asked to monitor and report on changes in the prices paid for telecommunications services to measure the extent to which competition is delivering benefits for Australian consumers. The ACCC has been measuring changes in the prices paid for fixed and mobile telephone (voice) services since 1997–98 and the prices paid for internet services since 2006–07. Since that time, average prices for voice and internet services have fallen significantly relative to the general level of consumer prices. The trend of falling telecommunications prices (compared to other consumer prices) has continued in 2012–13. However, retail price competition was generally less vigorous in 2012–13 than it has been in the past as the overall pace of price decline has slowed recently, particularly for mobile services. Mobile carriers have tended to adjust their pricing by keeping retail price points at the same level but reducing the inclusions (e.g. call credits) of some plans. Prices in the fixed line sector did fall; however, the price reductions were less than in the previous year. Prices for certain types of fixed-voice services have continued to fall markedly—average prices for international calls from a landline phone (i.e. international long-distance calls) fell 21.2 per cent and prices for calls to mobiles from a landline phone (i.e. fixed-to-mobile calls) fell 11.7 per cent in real terms in 2012-13. In addition, telecommunications carriers, especially mobile carriers, are competing to win customers on the basis of non-price terms such as network quality and customer services. The major reasons for lower real prices for telecommunications services are new technologies and greater competition. The ACCC has a number of roles in promoting competition in the telecommunications industry.

Prices for fixed and mobile voice services have fallen significantly

Since 1997–98, prices of fixed-voice (PSTN) services have fallen by an average of 47.1 per cent in real terms. Prices for mobile voice services have fallen by 51.7 per cent in real terms over the same time period (figure 1.1). Figure 1.1 Movement in real prices for fixed-voice and mobile services

Households and businesses have benefited from lower fixed line prices

Both household and business consumers have benefited from lower prices for fixed-voice services. In real terms, prices paid for fixed-voice services by business consumers have fallen by 54.4 per cent in real terms since 1997– 98. Prices paid by households have fallen by 42.3 per cent over the same period. While prices have fallen for all types of business consumers, small businesses have benefited less than larger businesses. Prices paid by small businesses are now 30.3 per cent lower than in 1997–98. The 68.3 per cent fall in prices paid by larger businesses is likely to reflect the fact that this group includes large corporate consumers for which retail service providers compete strongly. The lower prices for fixed-voice services have resulted from large falls in average call charges since 1997–98 (in real terms):  local call prices have fallen by 68.4 per cent  national long-distance call prices are fallen by 65 per cent  international call prices have fallen by 87 per cent  fixed-to-mobile call prices have fallen by 67.4 per cent. A key reason for these large falls in call prices is increased competition from mobile services and from internet protocol (IP) based alternatives for making national and international long-distance voice calls (such as Skype). In addition, the ACCC’s pricing decisions on the cost of terminating calls on mobile networks have contributed to lower fixed-to-mobile call prices since 2004–05 (including a further significant fall in 2012–13). During that time, the regulated price of mobile call termination has fallen, in nominal terms (that is, without adjusting for consumer price inflation) from 21 cents to 3.6 cents per minute. While call charges have fallen sharply (in real terms), line rental charges (known as ‘basic access’ charges) have increased by 59.7 per cent in real terms since 1997–98. This has resulted in a rebalancing of line rental and call charges. Retail service providers have progressively moved away from the practice prior to 1997 of using inefficiently high call charges to subsidise the costs of providing consumers with access to a telephone line. In addition, changes in consumer calling patterns have prompted retail service providers to use line rental charges to recover a greater proportion of their costs. Service providers now offer plans that combine higher line rental charges with lower call charges (such as a certain number of local calls for no extra charge). Consumers have shown a preference for these types of plans because they have greater control over their monthly telephone bill.

Mobile prices have more than halved since 1997–98

The prices of mobile services have fallen consistently over the past 15 years and are now 51.7 per cent lower than in 1997–98 level (in real terms). There are three mobile networks operating in Australia (Telstra, Optus and Vodafone). Strong competition between these carriers is the major reason for the large fall in mobile prices. However, the downward trend in prices has slowed in recent years as mobile service providers have started to reduce the amount of inclusions (e.g. call minutes and call credits) in plans as usage of mobile networks has grown.

Internet prices have fallen significantly

The ACCC started monitoring internet prices in 2006–07. Since then, prices for internet services have fallen by 20.9 per cent in real terms (figure 1.2). However, recently prices have started to level off in real terms. Figure 1.2 Movement in real prices for internet services

The internet services covered by the ACCC’s price monitoring comprise DSL (digital subscriber line) broadband, cable, wireless and dial-up broadband services. DSL broadband services accounts for more than half (56 per cent) of these internet services.

The long-term trend of falling prices continued in 2012–13

Australian consumers have benefitted from across the board price reductions for fixed and mobile voice services and for internet services, with an overall reduction in the price of telecommunications services of 20.9 per cent (in real terms) since 2006–07 (figure 1.3). Figure 1.3 Movement in real prices for telecommunications services

Prices continued to fall, though at a slower rate, in 2012–13. Overall telecommunications prices fell 1.5 per cent in real terms in 2012–13, with falls in the prices for fixed-voice, mobile and internet services. Prices of fixed-voice services fell by 1.2 per cent in 2012–13 due to the continuing decline in call prices. The fall in price was particularly marked for international long-distance calls (down 21.2 per cent) and fixed-to-mobile calls (down 11.7 per cent). Line rental charges again rose (up 0.7 per cent) as the rebalancing between line rental and call charges continued. The 1.2 per cent fall in the average price of mobile services in 2012–13 continued the slower pace of decline seen in recent years. Similarly, a small decline in internet prices (down 0.9 per cent) occurred in 2012–13. Most internet service providers did not make significant price changes to plans in 2012–13. Note on the ACCC’s method of calculating price movements In this report, the ACCC has used price indices to measure how telecommunications prices move over time compared to movements in the general level of consumer prices. Changes in the indices are a simple way to observe how prices for a ‘basket’ of services change over time. The indices do not show the actual level of prices. Each index starts at 100 in the first (base) year. Falling prices are shown by movements in the index below 100. Price movements are measured in real terms. That is, the effect of changes in the Consumer Price Index for the eight capital cities is used to adjust nominal prices. A fall in the indices shows that prices for telecommunications services are falling relative to average prices for the ‘basket’ of products and services covered by the Consumer Price Index. The ACCC measures prices for three ‘baskets’ of telecommunications services: fixed-voice services delivered to households and businesses, mobile services and internet services. 2 Introduction 2.1 Purpose of the report The ACCC is required to report each year to the Minister for Communications on prices paid by Australian consumers for telecommunications services.127 As in the past, the ACCC has chosen to fulfil this requirement by reporting how real prices have changed for Australian consumers for fixed-voice, mobile and internet services. This report provides its findings for 2012–13. 2.2 Structure of the report The structure of the report and every component of the telecommunications services index used to derive the estimates for price changes are shown by figure 2.1 (see page 96). 2.3 Methodologies and their limitations Measuring price changes for telecommunications services is a challenging task. This is mainly because the industry undergoes rapid changes driven by technological innovations. As a result, new strategies are adopted by carriers to differentiate their services, which results in continued changes to product offerings, dimensions and pricing structures. Devising methodologies capable of dealing with these complexities is challenging, as acknowledged by many. In addition, regulators also need to take into account their goal of minimising industry burden as well as their own resource constraints when making decisions about which methodology to adopt. For the purpose of this report, the ACCC uses two different methodologies to calculate changes in real prices. Price changes are estimated using a yield approach for PSTN fixed-voice and dial-up internet services. The yield for each particular PSTN service component is calculated from available revenue and usage data. Changes in these yields are then weighted by revenue shares of relevant service components and aggregated into the PSTN services price index to derive price movements. The ACCC applies a plan approach for mobile and non dial-up internet services. Under this approach, price changes are estimated by determining the average spend of five types of consumers128 and monitoring the change in price of the most appropriate plan for each group. Bill samples (i.e. 385 bills for each reporting company) are used to construct average usage bundles consumed by the five consumer groups. The most appropriate plan from each carrier is selected for each group. Price changes are then estimated by comparing the prices of the chosen plans across time periods. Both approaches have their limitations. Prices calculated under the yield approach are influenced by how revenue is allocated across services, which is particularly relevant with respect to plans with included call credits and bundled products. In relation to the plan approach, because a plan has a number of variables such as included call minutes, texts and data, the real value of the plan can vary from period to period independently of the nominal monthly price. Indeed, it has become common for carriers to maintain the nominal prices of their plans at certain price points (e.g. $29, $49, $69) and instead change the inclusions of those plans. Such changes to inclusions are not directly reflected in indices calculated using the plan approach. Further details on the methodologies are discussed in chapter 8. 2.4 Indices in this report As stated above, the ACCC measures changes in the real prices of telecommunications services through annual percentage changes in the various price indices in this report. The indices start from a chosen base year with an index number of 100 and annual changes in the indices are real. This is because the index changes are based on price movements with the effect of inflation over time removed.129 In 2012–13, the relationship between annual changes in the indices (given the inflation rate of 2.4 per cent) and nominal prices is shown in the following table:

127 Section 151CM (1)(a) of the Competition and Consumer Act 2010. 128 These five types of consumers are determined based on their monthly spend on telecommunications services and consists of ‘very low’, ‘low’, ‘average’, ‘high’ and ‘very high’ spend consumers. 129 Inflation affects the value of money over time. For example, the purchasing power of one dollar a year ago would generally be more than one dollar today. Adjusting for the effect of inflation generally involves setting prices from different time periods to the same base year level. Table 2.1 Relationship between annual changes in the indices and nominal prices

Annual change in price index (2012–13) Movement in nominal prices

An increase or a decline of less than 2.4 per cent Increase

A decline of 2.4 per cent No change

A decline of more than 2.4 per cent Decrease

The indices also capture the cumulative effect of annual price changes over time. For example, if an index fell to an index number of 60 in 2012–13 then real prices have fallen by 40 per cent since the base year. Further details on inflation and real prices are discussed in chapter 8. In addition, a number of charts in this report contain trend lines. These trend lines are curves of best fit for their respective price index over time. They serve to illustrate the size and trend of price movements over time. 2.5 Collection of data for the report This report is prepared based on information collected from carriers using a combination of the Division 12 Record-Keeping and Reporting Rules (RKR) (August 2010 version) and information informally requested from carriers by the ACCC. Table 2.2 shows which companies are currently required to report on PSTN fixed-voice, mobile and internet services under the Division 12 RKR.

Table 2.2 List of companies required to report under the Division 12 RKR130131

Category name Reporting carriers and carriage service providers

PSTN services information Telstra, Singtel Optus, AAPT, Primus

Mobile services information131 Telstra, Singtel Optus, Virgin Mobile, VHA

Internet services information (including Telstra, Singtel Optus, Primus, iiNet, VHA, SP Telemedia wireless, DSL, cable and dial-up) (TPG), Unwired

2.6 Revision of the Division 12 RKR (July 2013) On 16 July 2013, the ACCC revised the Division 12 RKR following consultation with industry. However, the August 2010 version of the Division 12 RKR132 is still applicable for the 2012–13 reporting period and for the purpose of producing this report because the revised RKR (July 2013) will only apply from the financial year 2013–14. The main changes to the current RKR implemented in the revised Division 12 RKR are for carriers to report on the following:  mobile services information on an aggregated level instead of by mobile technology (GSM, 3G and 4G)  VoIP services with comparable functionality and quality to PSTN voice services  broadband services provided over the NBN.

130 The complete table is at Schedule A of the August 2010 Division 12 RKR. 131 The August 2010 Division 12 RKR requires reporting companies to report separately on GSM and 3G mobile services. In July 2012, the ACCC granted an exemption to relevant companies, which allowed them to report all mobile services on an aggregated basis for the 2011– 12 reporting period. This exemption was extended to 2012–13 on 19 September 2013. 132 ACCC, Division 12 Report Record-Keeping and Reporting Rules—Issued under section 151BU of the Trade Practices Act 1974, August 2010. Figure 2.1 Structure of the report and telecommunications index 3 Telecommunications services index

The telecommunications services index shows how average real prices have changed over a certain period of time across public switched telephone network (PSTN), mobile and internet services. The index is derived by aggregating revenue-weighted price changes for the specified services. 3.1 Main changes The real prices of telecommunications services fell by 1.5 per cent in 2012–13 while nominal prices increased slightly in the period. Table 3.1 shows that the prices for the overall telecommunications services have declined each year since 2007–08 with the smallest decreases being recorded in the latest year and 2009–10.

Table 3.1 Year-on-year percentage change in the telecommunications services index, 2007–08 to 2012–13

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

All telecommunications services –5.5 –6.1 –1.5 –6.0 –2.2 –1.5

The telecommunications services index was re-based in 2006–07 following the addition of internet services. Figure 3.1 shows that the index has declined by over 20 per cent since 2006–07. The trend line for the index has also gradually levelled out in recent years compared to the sharper declining trend from earlier periods. Figure 3.1 The telecommunications services index, 2006–07 to 2012–13

The telecommunications service index includes a number of components. Table 3.2 shows that prices fell for the majority of them in 2012–13.

Table 3.2 Price changes for components in the telecommunications services index in 2012–13 % change % change in 2012–13 Base year since base year

Overall telecommunications –1.5 –20.9 services 2006–07

Fixed-voice (PSTN) services –3.2 1997–98 –47.1

Basic access 0.7 1997–98 59.7

Local calls –2.2 1997–98 –68.4

National long-distance calls –2.7 1997–98 –65.0 International long-distance calls –21.2 1997–98 –87.0

Fixed-to-mobile calls –11.7 1997–98 –67.4

Mobile services –1.2 1997–98 –51.7

Post-paid services –0.8 2006–07*

Prepaid mobile services –2.3 2006–07*

Internet services –0.9 2006–07 –20.9

Wireless services 1.8 2007–08 –14.8

DSL services –2.2 2006–07 –17.6

Cable services –1.8 2006–07 –10.8

Dial-up services 1.3 2006–07 –33.0

* The ACCC commenced sub-indices for post-paid and prepaid mobile services in 2006–07. Points contribution analysis indicates what percentage points each type of services in the telecommunications services basket has contributed to the movement in the overall index. Figure 3.2 shows that fixed-voice (PSTN) and mobile services contributed considerably more to the overall decline in the telecommunications services index in 2012–13 compared to internet services. Figure 3.2 Points contribution of the PSTN, mobile and internet service indices to the movement in the telecommunications services index, 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. 4 PSTN voice services index

The public switched telephone network (PSTN) voice services index measures average real price changes for a range of PSTN fixed-voice services across business (including ‘small business’ and ‘other business’) and residential consumer groups. The PSTN voice services index includes the following service components: basic access (i.e. line rental), local calls, national long-distance calls, international calls and fixed-to-mobile calls. The ACCC derives the PSTN fixed-voice services index and its related sub-indices using a ‘yield approach’. The yield for each PSTN service is calculated from available revenue and usage data. Changes in these yields are then weighted by revenue shares of relevant service components and aggregated into the PSTN services index. The overall PSTN index is derived from the PSTN business services index and the PSTN residential services index. The PSTN business index is further calculated from the ‘small business’ and ‘other business’ sub-indices. 4.1 Main changes The average prices of PSTN voice services fell by 3.2 per cent in real terms in 2012–13 as estimated by the PSTN index. This implies that prices fell slightly in nominal terms—that is, after allowing for the general level of inflation measured by the CPI. The PSTN index has declined by 47.1 per cent since the base year (i.e. 1997–98). The PSTN business sub-index has fallen steadily over the period while the decline in the residential index was interrupted by a period of rising prices from 2002–03 to 2003–04. Figure 4.1 The PSTN service indices by consumer group, 1997–98 to 2012–13

Real prices fell for each component of PSTN voice service in 2012–13, except for basic access (table 4.1). Notably, there were double digit declines in international and fixed-to-mobile call prices.

Table 4.1 Year-on-year percentage changes in the PSTN service index by service type over the last decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 1 1 – – – – – – – – – – 3 4 5 6 7 8 9 0 1 2 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Basic access 6.9 5.1 –2.4 –1.4 –1.6 1.1 –2.0 –4.2 –1.4 0.7

Local calls –3.3 –7.9 –9.5 –6.7 –10.1 –2.5 –7.5 –8.6 –8.2 –2.2

National long-distance –1.9 –3.0 –6.9 –10.9 –10.9 –6.7 –9.0 –7.9 –5.2 –2.7

International –6.1 –4.1 –8.8 –4.8 –7.7 –3.9 –13.8 –14.5 –15.5 –21.2

Fixed-to-mobile –2.2 –3.9 –10.5 –7.6 –6.4 –6.8 –9.7 –12.4 –10.5 –11.7 PSTN services index 0.3 –1.3 –6.6 –5.4 –5.5 –2.6 –5.8 –7.3 –4.9 –3.2

Table 4.1 also shows that real prices have fallen every year for the call components of PSTN voice services over the last decade. As can be seen from the magnitude of the real price declines, these prices have also fallen in nominal terms every year since 2003–04.These price reductions have also been much greater than that of basic access and may reflect increased competition from mobile and internet protocol (IP) based alternatives for making voice calls. The trend in prices for basic access is quite different. Prices for basic access are moderately lower in 2012–13 than 10 years ago (i.e. 2003–04) because prices rose for a number of years in the decade (table 4.1). The real decline in prices over the decade has been less than the general level of inflation as measured by the CPI meaning that nominal prices for basic access have, on average, increased. Figure 4.2 shows that basic access and fixed-to-mobile calls accounted for much greater proportions of total consumer expenditure in 2012–13 than they did in 1997–98. In particular, basic access’ share of the total revenue from PSTN services rose from 19 per cent in 1997–98 to 60 per cent in 2012–13. In comparison, the share of expenditure for local calls, national long-distance and international calls have all decreased since 1997–98. These price movements indicate that pricing structures are changing to recover a higher proportion of revenue through the fixed access charge. Figure 4.2 Comparison of share of total consumer PSTN expenditure by service component, 1997–98 and 2012–13

Figure 4.3 shows the contributions made by different components to the decline of the overall PSTN voice service index in 2012–13 after adjusting for revenue weights. Fixed-to-mobile calls continued to make the largest contribution to the decrease in the index which was greater than the decrease contributed by all the other call services combined. However, this was partially offset by the increase in basic access prices. Figure 4.3 Points contribution of PSTN services to the changes in the PSTN index, 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. In 2012–13, the PSTN services index underwent its smallest decrease since 2008–09 (table 4.2). The indices for both residential and business users fell in 2012–13, with the real price fall for businesses services (3.5 per cent) slightly higher than that for residential services (3 per cent). The business services index has declined every year over the last decade. The residential services index displays a downward trend overall during the same period following a small increase in 2003–04.

Table 4.2 Year-on-year ‘real’ percentage changes in the PSTN service index by consumer group over the last decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 1 1 – – – – – – – – – – 3 4 5 6 7 8 9 0 1 2 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Residential 1.4 –0.4 –5.5 –5.4 –6.4 –3.1 –6.4 –6.9 –4.4 –3.0

Business –1.6 –2.9 –8.6 –5.5 –4.0 –1.7 –4.7 –7.9 –5.7 –3.5

PSTN services index 0.3 –1.3 –6.6 –5.4 –5.5 –2.6 –5.8 –7.3 –4.9 –3.2

4.2 PSTN residential index The PSTN residential services index is derived from average real prices paid by residential consumers for each component of PSTN services.

4.2.1 Main changes Average prices of residential PSTN services declined in 2012–13 by 3 per cent in real terms and also fell slightly in nominal terms. The index has declined by 42.3 per cent since the base year (1997–98), and has fallen every year except 2002–03 and 2003–04 (figure 4.4). The trend line has gradually levelled out in recent years compared to the sharper declining trend from the late 1990s. Figure 4.4 Index for PSTN services for residential consumers, 1997–98 to 2012–13

4.2.2 Price changes in 2012–13 and changes by PSTN service component Table 4.3 shows the movement in the service components of the PSTN residential index over the past decade and figure 4.5 provides a graphical representation of that data over the last five years. Real prices decreased across every service component of the PSTN residential index in 2012–13 except for basic access and national long-distance calls. International and fixed-to-mobile call prices fell significantly in the period, with their price reductions the largest in the decade. Prices for local calls decreased slightly in 2012–13. Table 4.3 Year-on-year percentage changes in the PSTN residential index over the last decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 1 1 – – – – – – – – – – 3 4 5 6 7 8 9 0 1 2 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Basic access 7.5 7.4 –1.5 –0.1 –1.0 –0.3 –1.8 –4.1 –1.8 1.1

Local calls –3.9 –11.2 –9.0 –7.6 –10.1 –1.3 –8.1 –11.5 –6.1 –1.3

National long- distance 0.8 –1.7 –5.6 –13.0 –13.2 –6.7 –11.1 –2.5 –1.2 0.0

International –6.2 –3.4 –8.4 –5.3 –9.2 –3.7 –16.4 –13.8 –17.4 –26.7

Fixed-to-mobile 0.1 –1.7 –9.3 –8.3 –10.9 –7.9 –11.4 –13.4 –10.4 –14.3

PSTN residential 1.4 –0.4 –5.5 –5.4 –6.4 –3.1 –6.4 –6.9 –4.4 –3.0

Price reductions for international and fixed-to-mobile calls are particularly notable over the past four years, falling by over 10 per cent each year. The prices of local and national long-distance calls display a trend of smaller decreases over the past three years. On the other hand, price reductions for basic access were relatively small over the same period and actually increased slightly in 2012–13. Figure 4.5 Year-on-year percentage changes in the price index by PSTN service component for residential consumers, 2008–09 to 2012–13

Figure 4.6 shows the extent to which each service component contributed to the change in the PSTN residential index in 2012–13. As in 2011–12, the fixed-to-mobile calls service component is the largest contributor towards the fall in the index. Figure 4.6 Points contributions by individual PSTN service component to the real change to the PSTN residential index, 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. 4.3 PSTN business index The PSTN business services index is derived from the ‘small business’ and ‘other business’ sub-indices. As is the case for the PSTN residential index, each PSTN business sub-index is comprised of the five PSTN services components: basic access, local calls, national long-distance calls, international calls and fixed-to-mobile calls.

4.3.1 Definition of business type It should be noted that reporting carriers’ definitions for ‘small business’ and ‘other business’ sometimes vary. For example, certain types of consumers categorised as small business by one carrier may be treated as other business by another carrier. In addition, some carriers may change the definitions they use over time, which would result in revenues and/or usage being shifted between consumer categories and between time periods. Given these factors, it is difficult to compare either year-on-year price changes for each business category or prices across business types and/or carriers. Given this, the ACCC considers the aggregate PSTN business index the most relevant indicator of price changes for business consumers, because the index accounts for revenue and usage data for all business consumers regardless of definitions used by carriers. However, the ACCC is also of the view that the ‘small business’ and the ‘other business’ sub-indices provide additional useful information on price trends between business consumers of different sizes. Therefore, the ACCC has also included information on these sub-indices in this report.

4.3.2 Main changes Average real prices of business PSTN services declined in 2012–13, as shown by the 3.5 per cent fall in the business services index, and fell in nominal terms by more than 1 per cent. Figure 4.7 shows that the price reductions for other business services have been much greater than those for small business services since the base year (1997–98). This is due in large part to the rise in the small business sub-index during the period 2001– 02 to 2004–05. Figure 4.7 PSTN business services index for all business, by small and other businesses, 1997–98 to 2012–13

Table 4.4 shows the annual index movements for small business and other business services over the past decade. In 2012–13 the price decrease for other business services (8.1 per cent) was considerably larger than that of small business services (1.1 per cent). This is a departure from the previous four years where price movements have been broadly similar between the two groups.

Table 4.4 Year-on-year percentage changes in the PSTN business index by business type over the past decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 1 1 – – – – – – – – – – 3 4 5 6 7 8 9 0 1 2 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Small business 3.1 15.9 –9.6 –3.6 –3.3 –1.5 –4.7 –7.7 –5.7 –1.1

Other business –5.6 –18.2 –7.7 –8.8 –5.4 –1.9 –4.7 –8.2 –5.7 –8.1

PSTN business index –1.6 –2.9 –8.6 –5.5 –4.0 –1.7 –4.7 –7.9 –5.7 –3.5

Figure 4.8 shows that the other business index contributed significantly more (almost four times) than the small business index to the 3.5 per cent decrease in overall PSTN business index in 2012–13. This reflects that the decline in the other business index (8.1 per cent) was greater than that of the small business index (1.1 per cent) after adjusting for revenue weights. Figure 4.8 Points contributions by small and other business to the change in the PSTN business index, 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. Average real prices for every component of the PSTN business services index declined during 2012–13 with the exception of basic access (table 4.5). For all call services, price reductions in 2012–13 were smaller than those in 2011–12. Prices for basic access increased slightly (0.2 per cent) in 2012–13. Table 4.5 Year-on-year percentage changes in the PSTN business index over the past decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 1 1 – – – – – – – – – – 3 4 5 6 7 8 9 0 1 2 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Basic access 5.8 0.9 –4.2 –3.8 –2.8 3.8 –2.3 –4.4 –0.7 0.2

Local calls –2.3 –0.6 –10.4 –5.2 –10.2 –4.4 –6.7 –4.7 –10.9 –3.4

National long- distance –6.8 –5.6 –9.6 –6.9 –6.6 –6.6 –5.6 –15.5 –11.1 –6.8

International –5.8 –7.6 –10.4 –2.9 –2.0 –4.7 –3.4 –16.6 –10.8 –9.5

Fixed-to-mobile –4.7 –6.5 –12.0 –6.9 –2.3 –5.5 –7.5 –11.3 –10.7 –9.2

PSTN business –1.6 –2.9 –8.6 –5.5 –4.0 –1.7 –4.7 –7.9 –5.7 –3.5

Figure 4.9 charts the year-to-year price movements of the PSTN business service index (shown in table 4.5) for the past five years. Prices have fallen every year for PSTN business services since 2008–09, again with the exception of basic access. The magnitude of the price declines has also been relatively significant for the call services when compared to basic access. However, the price reductions for business international and fixed-to-mobile calls are much smaller than those for corresponding residential services. Prices for basic access were quite volatile with prices first rising in 2008–09 followed by three years of decline and then rising again in 2012–13. Figure 4.9 Year-on-year percentage changes in the price index by PSTN service for business consumers, 2008–09 to 2012– 13

Figure 4.10 shows the contribution each service component makes to the fall in the PSTN business service index. Fixed-to-mobile calls were the biggest contributor in 2012–13. Figure 4.10 Points contributions by individual PSTN service component to the change in business index, 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. 4.4 Small business index

4.4.1 Main changes Average real prices for small business voice services fell in 2012–13 as shown by the 1.1 per cent decline in the index. However, this decline was less than the level of inflation as measured by the CPI meaning that prices for small business rose in nominal terms, but by less than the general level of inflation. The index has decreased by 30.3 per cent since the base year (figure 4.11). However, it rose over the period 2001–02 to 2004–05 to a peak of 102.6 and then fell to 69.7 in 2012–13. These movements result in the trend line gradually levelling out in recent years compared to the sharper declining trend from the late 1990s. Figure 4.11 Index for PSTN services for small business consumers

4.4.2 Price changes by PSTN service for small business consumers Table 4.6 shows the movement in the service components of the small business PSTN sub-index over the past decade and figure 4.12 provides a graphical representation of that data over the last five years. Real prices fell across all small business call services in 2012–13, which was a repeat of the trend from the previous two years. Price reductions for local and national long-distance calls were the smallest in the decade with decreases of 0.5 and 0.4 per cent respectively. Prices fell significantly for international calls with a 12.8 per cent decrease in 2012–13. For basic access, real prices increased by 0.2 per cent. Table 4.6 Year-on-year percentage change in the PSTN small business index by service component over the last decade 4 5 6 7 8 9 0 1 2 3 0 0 0 0 1 1 0 0 1 1 – – – – – – – – – – 3 4 5 7 0 2 6 8 9 1 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Basic access 7.7 14.5 –9.3 –4.3 –4.0 1.8 –3.5 –4.2 –0.3 0.2

Local calls –3.0 17.8 –9.0 –2.6 –6.7 –2.4 –8.3 –3.8 –14.2 –0.5

National long- distance 5.3 10.3 –8.5 –2.3 –5.8 –6.6 –1.5 –18.9 –9.8 –0.4

International –4.4 14.1 –8.0 –13.2 0.7 –7.7 7.7 –27.5 –5.4 –12.8

Fixed-to-mobile 1.4 19.8 –11.0 –3.3 –0.4 –3.9 –6.9 –10.4 –11.4 –4.1

PSTN small business 3.1 15.8 –9.6 –3.6 –3.3 –1.5 –4.7 –7.7 –5.7 –1.1

Prices for all call components of the small business PSTN index other than international fell each year since 2008–09. The magnitude of price movements for small business basic access have been smaller than those for call services and increased slightly in 2008–09 and 2012–13. Figure 4.12 Year-on-year percentage changes in the price index by PSTN service component for small business consumers, 2008–09 to 2012–13

4.5 Other business index

4.5.1 Main changes Average real prices for other business voice services declined significantly in 2012–13 with the index falling by 8.1 per cent. This means that nominal prices also fell significantly (by approximately 6 per cent) in 2012–13. Figure 4.13 shows that the PSTN other business index has declined by 68.3 per cent since its base year (1997– 98). The index has also remained consistently below its long term trend line since 2004–05. In addition, the trend line for other business, while levelling out in recent years compared to the sharper declining trend from the late 1990s, has fallen at a faster rate than the trend lines for small business and residential services. Figure 4.13 Index of PSTN services for other business consumers, 1997–98 to 2012–13

4.5.2 Price changes by PSTN service for other business consumers Table 4.7 shows the movement in the service components of the other business PSTN sub-index over the past decade and figure 4.14 provides a graphical representation of that data over the last five years. Prices fell across every component of PSTN services in 2012–13, again except for basic access. Fixed-to-mobile calls showed the largest real price fall in 2012–13, with an 18.3 per cent decline. This may reflect industry’s response to the ACCC’s mobile terminating access service (MTAS) final access determination (FAD) in December 2011 which determined that MTAS prices reduce from 6.0 cents to 4.8 cents per minute over 2012– 13. The prices of national long-distance and local calls also fell significantly in 2012–13 with reductions of 15.4 and 10.4 per cent respectively.

Table 4.7 Year-on-year percentage changes in the PSTN other business index by service component over the last decade 4 5 6 7 8 9 0 1 2 3 0 0 0 1 1 0 0 0 1 1 – – – – – – – – – – 4 5 7 0 2 3 6 8 9 1 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2

Basic access 3.7 –14.7 1.5 –2.6 0.3 9.0 0.2 –4.7 –1.4 0.1

Local calls –1.6 –18.9 –11.9 –11.1 –19.0 –9.0 –3.2 –7.2 –2.1 –10.4

National long- – distance 14.8 –16.1 –10.3 –12.6 –7.8 –6.6 –10.4 –10.5 –12.9 –15.4

International –6.8 –21.8 –12.0 9.9 –5.0 –2.3 –10.1 –10.0 –13.0 –8.3

Fixed-to-mobile –8.5 –21.3 –12.6 –12.0 –5.2 –8.2 –8.5 –13.3 –9.3 –18.3

PSTN other –5.6 –18.2 –7.7 –8.8 –5.4 –1.9 –4.7 –8.2 –5.7 –8.1

Prices for every component of PSTN services other than basic access have fallen each year since 2008–09. In 2012–13, the price reductions for local, national long-distance and fixed-to-mobile calls were the largest since 2008–09. The price fall for international calls, while considerable, was the smallest in four years. Basic access prices, on the other hand, have been quite volatile over the five years and increased by 0.1 per cent in 2012–13. Figure 4.14 Year-on-year percentage change in the price index by PSTN service component for other business consumers, 2008–09 to 2012–13 5 Mobile services index

The mobile services index measures average real price changes for mobile services in Australia. As in the 2011–12 report, prices for mobile services provided via various types of network technologies (GSM, 3G, 4G)133 are reported on an aggregated basis for 2012–13 following the granting of a partial reporting exemption to reporting carriers in 2013. The change from the disaggregated reporting approach, which was used until 2010– 11, is mainly because carriers increasingly find it difficult to disaggregate data by technology type. In addition, most handsets are capable of roaming between different networks or technology platforms subject to network availability and only a small proportion of the services are tied to a particular technology. Finally, GSM services now account for a relatively small proportion of the total mobile services. As a result, the current report only includes the overall mobile services index and the post-paid and prepaid sub- indices. The indices are calculated from plan prices for bundles of mobile services that represent the expenditure patterns of consumers with notional ‘very low’, ‘low’, ‘average’, ‘high’ and ‘very high’ spend on mobile services. Sub-indices are derived for post-paid and prepaid mobile services. These sub-indices are then weighted using revenue weights for each type of service to derive the overall mobile services index. 5.1 Main changes Average real prices of mobile services fell by 1.2 per cent in 2012–13 as estimated by the mobile services index. This implies that nominal mobile prices increased by less than the general rate of inflation in the period. Figure 5.1 shows that the magnitude of price reductions in 2012–13 is slightly larger than that in 2011–12, and quite small compared to the other reporting periods over the past six years (except for 2009–10 when overall prices, driven by higher prepaid prices, increased). The relatively small changes may reflect a tendency for carriers to implement price changes through varying values of inclusions while maintaining nominal price points. Figure 5.1 also shows that mobile prices have fallen by 51.7 per cent since the base year (i.e. 1997–98). The mobile services price index shows a downward trend, with the index declining every year between 1997–98 and 2012–13 except on two occasions (i.e. 2002–03 and 2009–10). Figure 5.1 Overall mobile services index, 1997–98 to 2012–13

As can be seen in figure 5.1, the downward trend line in mobile prices is gradually levelling out in recent years compared to the sharper declining trend from the late 1990s. 5.2 Prepaid vs post-paid Real prices fell for both post-paid and prepaid mobile services in 2012–13. The fall in the prepaid sub-index of 3.1 per cent was larger than that for the post-paid sub-index which fell by 0.8 per cent (figure 5.2). These declines in 2012–13 were slightly larger than those in 2011–12.

133 GSM stands for global system for mobile communications; 3G stands for third generation of telecommunications standards and technology for mobile networking. 4G stands for fourth-generation of telecommunications standards and technology for mobile networking. The prices of post-paid services fell every year since 2008–09 while the prices of prepaid services show an overall decline despite an increase in 2009–10. Figure 5.2 also shows that the prices for prepaid services have recorded much larger reductions than post-paid services over the five year period despite a price increase in 2009–10. Figure 5.2 Year-on-year percentage changes in the overall mobile services index and the post-paid and prepaid sub- indices, 2008–09 to 2012–13

Figure 5.3 shows the contributions made by post-paid and prepaid services to the decline of the overall mobile services index in 2012–13. Post-paid services contributed slightly more than prepaid services despite having a much smaller price reduction (in terms of percentage changes). This is because post-paid services accounted for a much greater proportion (83.2 per cent) of mobile services in terms of revenue share in 2012–13. Figure 5.3 Points contribution by prepaid and post-paid indices to the change in the mobile services index, 2012–13

Note: The sum of the components’ point contributions may not add up to the net index change due to rounding. 5.3 Price changes by user groups Real prices fell for all user groups of post-paid services except the very low user group in 2012–13 (figure 5.4). Prices for the very low user group have been increasing over the past four years and increased by 17.9 per cent in 2012–13. This may be due to some carriers changing entry level plans. The post-paid sub-indices for all other user groups show quite persistent price reductions over the past five years. Further, figure 5.4 shows that the magnitude of price falls for the low user group was greatest in 2012–13 while the declines for the other groups were generally more modest. Figure 5.4 Year-on-year percentage changes in the price index for post-paid services by user group, 2008–09 to 2012–13

It should also be noted that, although figure 5.4 shows that prices for the very low group increased significantly in 2012–13, some carriers had increased usage inclusions for some of their plans. This may mean that some consumers within the very low group were not necessarily worse off when paying higher prices. Figure 5.5 shows changes in the real prices of prepaid services for all user groups between 2008–09 and 2012– 13. Prices for all user groups fell in 2012–13 and the magnitude of the declines was larger than the previous year’s except for the very low group. Real prices for the very low group fell by 0.1 per cent in 2012–13 after falling by 16.6 per cent in 2011–12. This may be due to some carriers refraining from large discounts in 2012–13 following sizeable price decreases in 2011–12. In addition, the rate of price declines appears to be quite volatile over the five year period for the prepaid user groups. Figure 5.5 Year-on-year percentage change in the price index for prepaid services by user group, 2008–09 to 2012–13 6 Internet services index

The internet services index measures average real price movements for the following types of internet services: wireless, DSL, cable and dial-up. Consistent with previous reports, wireless internet services are those services that provide internet connectivity via a USB modem key or wireless card. They therefore exclude data services available through a mobile handset. The wireless, DSL and cable internet sub-indices are calculated by comparing prices for the selected plans at the beginning and end of each reporting period. The prices for those services are estimated based upon published plan prices and representative usage/spend profiles for consumers in each expenditure quintile. In contrast, the dial-up internet services index is derived based on the average monthly expenditure by consumer. The sub-indices for those individual service types are then weighted and aggregated to form the price index for internet services. 6.1 Main observations The average prices of internet services decreased by 0.9 per cent in real terms in 2012–13 as estimated by the internet services index (table 6.1). This implies that nominal internet prices rose modestly during the year. The downward trend for real internet prices continued in 2012–13, but the fall is the smallest reduction in the six year period for which the index has been reported. This is because most carriers did not make significant price changes in 2012−13.

Table 6.1 Year-on-year percentage changes in price indices for internet services

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Wireless n.a –18.5 –14.7 –3.5 1.7 1.8

DSL –5.2 –0.4 –2.0 –3.4 –5.7 –2.2

Cable –5.9 0.5 –1.1 –3.5 1.0 –1.8

Dial–up –11.0 –13.8 13.1 –11.4 –13.9 1.3

Overall –6.2 –4.6 –4.9 –3.6 –2.7 –0.9

6.2 Points contribution In 2012–13, DSL internet services made the largest contribution to the decrease in the overall internet services index. This was partially offset by price increases for wireless and dial-up services. Figure 6.1 Points contribution by wireless, DSL, cable and dial-up indices to the change in internet services index 2012–13

Note: The sum of the components’ points contribution may not add up to the net index change due to rounding. 6.3 Wireless internet services In 2012–13, wireless internet prices increased by 1.8 per cent in real terms (table 6.1) which is similar to that in 2011–12. Wireless internet prices have shown increasingly small falls each year from 2008–09 to 2010–11 before increasing in 2011–12 and 2012–13. While the significant price falls in 2008–09 and 2009–10 helped drive strong take up of wireless internet services, the turnaround in prices may reflect carriers’ strategy of focusing on profitability rather than customer acquisition. During the reporting period, some carriers have also revised their plan offerings: increasing prices for entry level users and reducing data inclusions. This may reflect carriers’ response to the challenge of rapid traffic growth and the associated risk of network congestion. 6.4 DSL internet services In 2012–13, average real prices for DSL internet services fell by 2.2 per cent and this is the sixth consecutive annual price decline (table 6.1). The magnitude of the price decline was smaller compared to the previous two reporting periods because most carriers did not make significant price changes in 2012–13. The price decline in DSL services was also the major contributor to the overall decline in the internet services index. During the reporting period, carriers largely maintained the price points (i.e. the nominal price) and data inclusions of their plans. 6.5 Cable internet services In 2012–13, real prices for cable internet services decreased by 1.8 per cent (table 6.1). The prices of cable internet services have been relatively stable over the years with annual prices changes of less than 2 per cent in all but two of the reporting periods (2007–08 and 2010−11). During 2012–13, some carriers maintained prices on existing plans; others reduced prices on entry-level plans and introduced new plans aimed at higher spending consumers. These new plans feature higher price points and increased data quotas—users of these plans were therefore not necessarily worse off. 6.6 Dial-up internet services In 2012–13, dial-up internet prices increased by 1.3 per cent in real terms (table 6.1) which is the first price increase in three years. For every reporting company, both total revenue and the subscription numbers of dial-up internet services decreased again in 2012–13. This reflects dial-up internet’s declining share of the internet services market. Dial-up’s decline is also reflected by its small share of the overall internet services revenue which is indicated by its minimal contribution to changes in the internet services index in 2012–13 (figure 6.1). 7 Tables

Table 7.1 Telecommunications services index, 1997–98 to 2012–13 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 9 0 0 0 0 0 0 1 9 0 0 0 0 1 1 1 – – – – – – – – – – – – – – – – 7 9 1 2 4 5 7 0 8 0 3 6 8 9 1 2 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 9 9 0 0 0 0 0 0 9 0 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2

PSTN services 100.0 95.0 88.4 83.2 81.0 81.9 82.1 81.1 75.8 71.6 67.7 65.9 62.0 57.4 54.6 52.9

Mobile services 100.0 94.9 82.4 76.8 75.2 75.9 73.5 64.0 59.7 58.3 55.1 50.8 51.8 49.4 48.9 48.3

Internet services 100.0 93.8 89.5 85.1 82.1 79.8 79.1

All services (old series) 100.0 95.0 86.4 81.1 79.1 79.9 79.0 73.8 69.0 67.1

All services (new series)* 100 94.5 88.7 87.3 82.1 80.3# 79.1

Note: Base year for old series is 1997–98. Base year for the new series is 2006–07. * Includes internet services. # The figure in the previous report has been revised to 80.3.

Table 7.2 Points contribution to telecommunications services index, 2000–01 to 2012–13 1 2 3 4 5 6 7 8 9 0 1 2 3 0 0 0 0 1 0 0 0 0 0 1 1 1 – – – – – – – – – – – – – 2 4 6 8 0 0 1 3 5 7 9 1 2 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2

PSTN services –3.6 –1.6 0.6 0.2 –0.7 –3.6 –2.9 –2.2 –1.1 –2.0 –2.1 –1.0 –0.6

Mobile services –2.5 –0.8 0.4 –1.3 –5.8 –2.9 –1.2 –2.7 –4.5 1.2 –3.3 –0.5 –0.7

Internet services n/a n/a n/a n/a n/a n/a n/a –0.6 –0.5 –0.8 –0.6 –0.6 –0.2

All telecommunications services –6.1 –2.5 1.0 –1.1 –6.6 –6.5 –4.0 –5.5 –6.1 –1.5 –6.0 –2.2 –1.5 Notes: The sum of the components’ points contribution may not add up to the net index change due to rounding

Table 7.3 PSTN services index by service; residential and business, 1997–98 to 2012–13 – – – – – – – – – – – – – – – – 7 9 1 2 4 5 7 0 2 8 0 3 6 8 9 1 9 1 4 7 9 0 2 8 0 2 3 5 6 8 1 3 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 9 9 0 0 0 0 0 0 0 9 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2

All PSTN

Basic access 100.0 99.2 108.9 125.4 142.0 159.6 170.5 179.4 175.2 172.8 170.0 171.8 167.9 160.8 158.6 159.7

Local calls 100.0 99.5 90.3 74.1 65.4 62.9 60.8 56.1 50.7 47.3 42.5 41.7 38.6 35.1 32.3 31.6

National long-distance 100.0 93.6 84.7 79.4 72.5 69.1 67.8 65.7 61.2 54.5 48.6 45.3 41.2 38.0 36.0 35.0

International 100.0 79.3 57.9 48.0 40.7 38.3 36.1 34.5 31.5 29.9 27.6 26.4 22.8 19.5 16.5 13.0

Fixed-to- mobile 100.0 94.7 87.3 81.9 79.2 77.3 75.6 72.7 65.0 60.1 56.2 52.2 47.1 41.3 37.0 32.6

All PSTN 100.0 95.0 88.4 83.2 81.0 81.9 82.1 81.1 75.8 71.6 67.7 65.9 62.0 57.4 54.6 52.9

PSTN residential

Basic access 100.0 99.4 110.4 128.1 147.4 171.9 184.4 198.3 195.4 195.1 193.1 192.5 188.2 180.4 177.2 179.1

Local calls 100.0 99.0 88.7 74.1 66.0 65.2 62.7 55.7 50.7 46.8 42.1 42.0 38.6 34.1 32.1 31.6

National long-distance 100.0 94.8 85.0 82.4 75.4 73.6 74.2 72.9 68.8 59.9 52.0 48.5 43.1 42.1 41.5 41.5

International 100.0 80.2 59.1 50.5 42.6 41.1 38.7 37.3 34.1 32.3 29.4 28.2 23.5 20.3 16.8 12.3

Fixed-to-mobile 100.0 95.6 87.7 86.7 82.6 86.7 86.8 85.2 77.3 70.9 63.1 57.9 51.3 44.4 39.8 34.2

All residential 100.0 95.3 88.2 85.1 83.3 87.5 88.7 88.4 83.5 79.0 73.9 71.5 66.8 62.2 59.5 57.7 Fixed-to-mobile International long-distance National calls Local Basic access Small business 7.4Table Note: Base year is 1997–98. All business Fixed-to-mobile International long-distance National calls Local Basic access PSTN business

PSTN business PSTNbusiness servicessmallother index, and business,1997–98 to2012–13

100.0 100.0 100.0 100.0 100.0 1997–98 100.0 100.0 100.0 100.0 100.0 100.0 1997– 98 107.2 100.5 94.7 94.1 77.4 91.7 98.9 92.4 90.7 98.2 94.7 1998–99 1998– 99 105.6 106.4

87.4 59.7 89.5 98.4 1999–00 88.5 86.9 55.4 84.3 92.9 1999– 00 114.6 120.9

79.9 39.7 86.4 75.5 2000–01 80.3 78.3 41.4 74.5 74.1 2000– 01 133.2 133.0

79.3 34.4 80.7 73.2 2001–02 77.7 76.9 35.9 67.8 64.4 2001– 02 143.2 138.5

75.9 31.9 75.2 70.5 2002–03 73.2 69.5 30.8 62.0 58.5 2002– 03 154.2 146.6

77.0 30.5 79.2 68.4 2003–04 72.0 66.2 29.0 57.8 57.2 2003– 04 176.6 148.0

92.3 34.8 87.4 80.6 2004–05 69.9 61.9 26.8 54.5 56.8 2004– 05 160.1 141.9

82.2 32.0 80.0 73.4 2005–06 64.0 54.5 24.0 49.3 50.9 2005– 06 153.2 136.5

79.5 27.8 78.2 71.4 2006–07 60.5 50.7 23.3 45.9 48.2 2006– 07 147.0 132.6

79.1 28.0 73.6 66.6 2007–08 58.0 49.6 22.9 42.9 43.3 2007– 08 149.7 137.6

76.0 25.8 68.8 65.0 2008–09 57.1 46.9 21.8 40.0 41.4 2008– 09 144.6 134.5

70.8 27.8 67.8 59.4 2009–10 54.4 43.4 21.0 37.8 38.6 2009– 10 138.5 128.7

63.4 20.2 55.0 56.4 2010–11 50.1 38.5 17.6 31.9 36.4 2010– 11 138.0 127.8

56.2 19.1 49.6 48.4 2011–12 47.2 34.4 15.7 28.4 32.5 2011– 12

138.3 2012–13 128.0 2012– 53.9 16.7 49.4 48.2 45.6 31.2 14.2 26.4 31.4 13 All small business 100.0 97.9 90.8 82.9 84.9 85.9 88.6 102.6 92.8 89.4 86.5 85.2 81.2 74.8 70.5 69.7

Other business

Basic access 100.0 100.5 106.7 123.1 132.8 133.7 138.7 118.2 120.0 116.9 117.3 127.8 128.0 122.0 120.3 120.4

Local calls 100.0 98.6 91.4 73.7 62.3 55.6 54.7 44.4 39.1 34.8 28.2 25.6 24.8 23.0 22.5 20.2

National long-distance 100.0 89.4 82.5 70.4 63.8 58.0 49.4 41.4 37.2 32.5 29.9 28.0 25.0 22.4 19.5 16.5

International 100.0 69.0 51.8 40.2 34.9 29.4 27.4 21.4 18.8 20.7 19.7 19.2 17.3 15.5 13.5 12.4

Fixed-to-mobile 100.0 94.5 86.8 77.9 76.4 68.0 62.2 49.0 42.8 37.7 35.7 32.8 30.0 26.0 23.6 19.3

All other business 100.0 93.7 87.8 79.5 75.8 69.3 65.4 53.5 49.4 45.1 42.6 41.8 39.9 36.6 34.5 31.7

PSTN business 100.0 94.7 88.5 80.3 77.7 73.2 72.0 69.9 64.0 60.5 58.0 57.1 54.4 50.1 47.2 45.6

Note: Base year is 1997–98.

Table 7.5 Points contribution to PSTN services indices by service, residential and business, 1998–99 to 2012–13 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 9 0 0 0 0 1 1 1 0 0 0 0 0 0 1 – – – – – – – – – – – – – – – 8 2 3 4 5 9 0 1 9 0 1 6 7 8 2 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 9 0 0 0 0 0 0 0 9 0 0 0 0 0 0 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2

PSTN:

Basic access –0.2 1.9 3.3 3.7 3.7 2.2 1.8 –0.9 –0.5 –0.7 0.5 –1.0 –2.2 –0.7 0.4

Local calls –0.1 –2.8 –5.0 –2.6 –0.8 –0.7 –1.4 –1.5 –0.9 –1.2 –0.3 –0.8 –0.8 –0.7 –0.2

National long- distance –1.6 –2.3 –1.5 –1.9 –0.9 –0.4 –0.5 –1.1 –1.7 –1.6 –1.0 –1.2 –1.0 –0.6 –0.3

International –2.3 –2.6 –1.5 –1.1 –0.4 –0.3 –0.2 –0.4 –0.2 –0.3 –0.1 –0.5 –0.5 –0.5 –0.6 All business Fixed-to-mobile International distance long- National calls Local Basic access PSTN business: All residential Fixed-to-mobile International distance long- National calls Local Basic access PSTN residential: All PSTN Fixed-to-mobile

1998–99 – – – – – – – – – – – – – 5.3 1.2 2.0 2.1 0.1 0.2 4.7 0.4 2.5 1.3 0.3 0.1 5.0 0.7

1999–00 – – – – – – – – – – – – 6.5 1.8 2.1 1.8 2.2 1.3 7.5 0.9 2.9 2.6 3.3 2.3 6.9 1.3

2000–01 – – – – – – – – – – – – 9.3 2.6 1.3 2.5 5.5 2.7 3.5 0.2 1.6 0.7 4.7 3.7 5.9 1.1

2001–02 – – – – – – – – – – – – 0.7 3.2 0.5 0.4 2.0 2.9 2.5 2.1 0.8 1.5 1.9 2.4 4.4 2.6

2002–03 – – – – – – – – – 0.5 5.8 3.0 0.5 1.7 1.7 1.1 0.9 0.3 0.5 0.3 5.1 1.1 5 2003–04 – – – – – – – – 0.5 1.6 1.5 0.2 1.2 0.4 1.7 1.4 0.4 0.1 0.8 2.5 0.2 0 2004–05 – – – – – – – – – – – – 0.9 2.9 2.1 0.2 0.9 0.1 0.3 0.3 0.3 0.2 0.3 2.1 2.6 1.2

2005–06 – – – – – – – – – – – – – – 2.7 8.6 3.9 0.2 1.5 1.5 1.5 5.5 0.2 0.4 1.0 1.5 0.6 6.6

2006–07 – – – – – – – – – – – – – – 2.0 5.5 2.4 0.1 1.0 0.7 1.4 5.4 1.8 0.3 2.2 1.1 0.1 5.4

2007–08 – – – – – – – – – – – – – 1.8 4.0 0.8 0.9 1.2 1.0 6.4 2.3 0.4 2.0 1.3 0.5 5.5 0 2008–09 – – – – – – – – – – – – – 1.7 1.6 0.1 1.0 0.5 1.6 3.1 1.7 0.2 0.9 0.2 0.1 2.6 1.7

2009–10 – – – – – – – – – – – – – – 4.7 2.1 0.1 0.7 0.7 1.0 6.4 2.4 0.8 1.4 0.8 0.9 5.8 2.3

2010–11 – – – – – – – – – – – – – – 7.9 3.1 0.3 1.9 0.4 2.1 6.9 2.7 0.6 0.3 1.1 2.2 7.3 2.9

2011–12 – – – – – – – – – – – – – – 5.7 2.9 0.2 1.3 1.0 0.3 4.4 2.0 0.7 0.1 0.5 1.0 4.9 2.4

2012–13 – – – – – – – – – – – 2.4 3.5 0.2 0.7 0.3 0.1 3.0 2.6 0.9 0.0 0.1 0.6 3.2 2.5 Table 7.6 Mobile services index, 1997–98 to 2012–13 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 0 0 0 0 0 0 1 1 9 9 0 0 0 0 1 1 – – – – – – – – – – – – – – – – 9 1 2 4 5 7 0 2 7 8 0 3 6 8 9 1 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 9 0 0 0 0 0 0 0 9 9 0 0 0 0 0 0 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2

Mobile services index 100.0 94.9 82.4 76.8 75.2 75.9 73.5 64.0 59.8 58.3 55.1 50.8 51.7 49.4 48.9 48.3

Note: Base year is 1997–98. Table 7.7 Internet services index by network type and user group, 2006–07 to 2012–13

2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Dial–up 100.0 89.0 76.7 86.8 76.9 66.2 67.0

DSL: very low 100.0 98.6 99.0 97.7 97.0 97.9 97.2 low 100.0 99.1 98.8 98.2 97.6 96.7 96.1 average 100.0 99.5 99.3 98.7 98.1 98.5 97.9 high 100.0 98.7 98.5 98.4 97.7 97.0 96.6 very high 100.0 98.9 98.8 99.5 98.8 93.5 93.6

Cable: very low 100.0 97.6 99.2 100.2 99.5 99.3 98.1 low 100.0 99.1 98.9 98.0 97.3 97.1 96.0 average 100.0 99.1 98.9 98.0 97.3 97.1 96.0 high 100.0 99.1 98.8 98.0 97.3 97.1 97.2 very high 100.0 99.1 98.8 98.0 97.3 99.2 100.7

Wireless: very low 100.0 97.4 95.9 96.3 96.4 99.4 low 100.0 95.7 90.2 88.4 88.7 90.4 average 100.0 95.7 90.2 90.5 89.9 88.6 high 100.0 96.4 95.6 94.9 94.4 93.8 very high 100.0 96.4 95.5 94.0 96.3 95.2

Note: Base year is 2006–07 for dial-up, DSL and cable internet services. Base year is 2007–08 for wireless internet services. There is no breakdown of consumer groups for dial-up.

Table 7.8 Points contribution to internet services index, 2007–08 to 2012–13

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Dial–up –1.6 –1.4 0.4 –0.2 –0.2 0.0

DSL –3.4 –0.2 –1.1 –2.0 –3.2 –1.2

Cable –1.2 0.1 –0.2 –0.5 0.1 –0.2 Wireless n/a –3.2 –4.0 –0.9 0.5 0.6

All internet services –6.2 –4.6 –4.9 –3.6 –2.7 –0.9 8 Methodologies for determining price change 8.1 Index model The ACCC uses a basket approach to measure the prices consumers pay for telecommunications services. This approach was originally developed by the Communications Research Unit (CRU) of the former Department of Communications, Information Technology and the Arts and has been applied for the purpose of this report since 1999–2000. Under the basket approach, index numbers are used to indicate movements in the prices for a basket of telecommunications services. An index number measures the price of the services in one period relative to another. It reflects price changes over time, but not price levels. The price indices are constructed using revenue, quantity and pricing plan data collected by the ACCC from a number of telecommunications service providers. They are then aggregated to derive an overall index. The ACCC uses a different methodology to derive the price indices for public switched telephone network (PSTN) services and dial–up internet services, to that used for the price indices for mobile services and broadband internet services. These methodologies are explained later in this chapter. Changes to the composition of the indices and sub-indices are made from time to time, which should be taken into account when comparing the indices constructed in different time periods. The most significant changes include:  The internet services index was included as a component of the telecommunications service index in 2007– 08. In 2008–09, wireless internet services were first included in the internet services index.  The methodology used to calculate the mobile services index has changed over time. In 2007–08, 3G services were included for the first time. In 2008–09, the CDMA services sub-index was discontinued when the service was withdrawn and its customers migrated to either 3G or GSM services.  For the 2011–12 and 2012–13 reporting periods, the separate 3G and GSM sub-indices have been discontinued and all mobile services are reported under the overall mobile services index.

8.1.1 The PSTN services index The ACCC uses a yield approach to estimate prices paid by consumers for particular PSTN services. Company revenue and usage data are used to derive a yield, which is used as a proxy for the average price paid for a unit of that telecommunications service. Revenue and usage data for five PSTN service components are reported by companies for each reporting period: basic access, local calls, national long-distance calls, international long-distance calls and fixed-to-mobile calls. Data on each of these services is further disaggregated into three consumer groups: residential, small business and other business consumers. Using this data, a yield is derived for every PSTN service component by consumer group for each year. These yields are then converted into real terms134 and used to construct a series of price indices that show price movements of individual PSTN services for different consumer groups over time. These individual indices for each PSTN service by consumer group category are then weighted by revenue shares of those services and aggregated to derive indices for all PSTN services used by these three consumer groups. These three indices are then aggregated to form an overall index for all PSTN services for all consumers. As with all aggregated indices, the expenditure share of a service determines its relative importance in the overall index. For a given change in price, the index is influenced most by those services on which consumers as a group spend the most money. The yield approach has some limitations. Prices calculated under the yield approach are influenced by how revenue is allocated across services and some issues may arise with respect to subscription plans and bundled products. This is because access charges for subscription plans also include a certain value of call services and service providers may follow different methods when attributing these charges. Similarly, when providers attribute revenue of PSTN bundles to their components (e.g. PSTN home phone and DSL broadband bundle), they may also use different methods, which may cause inconsistency in revenue allocation.

8.1.2 The mobile services index The mobile services index measures prices paid by consumers for mobile services, which include both prepaid and post-paid services. Unlike the PSTN index, construction of the mobile indices does not rely on yield data. This reflects the differences in the pricing structures of PSTN and mobile services, e.g. it is less common to include

134 The nominal values are adjusted by using the Australian Bureau of Statistics (ABS) Consumer Price Index (CPI). handsets in a fixed-voice plan than it is with respect to mobile plans. However, the distinction is becoming less clear due to the increasing penetration of fixed-voice subscription plans. The ACCC applies a plan approach for mobile services. This approach estimates price changes by determining the average spend of five types of customers and monitoring the change in price of the most appropriate plan for each group. Bill samples (385 bills for each reporting company) are used to construct average usage bundles consumed by ‘very low’, ‘low’, ‘average’, ‘high’ and ‘very high’ spend customers. The most appropriate plans are selected for those customer groups for each reporting period. Price changes are then estimated by comparing the prices of the chosen plans across time periods. Separate post-paid and prepaid indices are constructed to compare the cost of each bundle over time. These sub-indices are then aggregated using a revenue-weighting process to form an overall mobile services index. As noted previously, a number of changes to the structure of the mobile service index were made in the past. This is to reflect changing market conditions. The mobile service index for 2007–08 included 3G services for the first time, while in 2008–09 CDMA services ceased to form part of the index due to service withdrawal. For the 2011– 12 and 2012–13 reporting periods, GSM and 3G services are no longer being reported separately. The plan approach has some limitations. Because a plan has a number of variables, such as included call minutes, texts and data, the real value of the plan can vary from month to month independently of the nominal monthly price. Indeed, it has become common for carriers to maintain the nominal prices of their plans at certain price points (e.g. $29, $49, $69) and instead change the inclusions of those plans. Such changes to inclusions are not directly reflected in indices calculated using the plan approach. The only way that these changes can be reflected in the price indices would be if the changed inclusions meant that the methodology had to choose a higher or lower tiered plan for analysis of how the price changed from the previous period. For example, a reduction in included call minutes of a particular entry-level mobile plan may mean that it would no longer be the cheapest plan for the ACCC’s ‘very low’ spend consumer profile. As a result, the price index would reflect the increase in price from the entry-level plan in Year 1 to the higher tiered plan in Year 2.

8.1.3 Internet services index The internet services index was introduced in 2007–08 and comprises sub-indices for wireless, DSL, cable and dial-up internet services. Plans for residential consumer-grade services are monitored because they represent the vast majority of internet services. The wireless, DSL, cable and dial-up internet indices are calculated by comparing plan prices for those services observed at the beginning and end of the period for those service providers included in the study. Representative consumer profiles are developed for each service provider by expenditure quintile derived from bill samples. Average price changes for each consumer profile and service provider are then calculated, with price changes for each service provider weighted by its revenue share to give the net price movement for that service type. This approach has similar limitations to the one used for the mobile services index. For dial-up internet services, prices are estimated using a yield methodology similar to that used for the PSTN services. 8.2 Other methodology issues

8.2.1 Real prices Price changes in this report are derived using real prices, which are obtained by adjusting nominal prices for the effects of inflation using the consumer price index (CPI). The CPI can be thought of as a measure of price increase (inflation)135 for a fixed basket of goods and services comprising items bought by Australian consumers over a period of time. The Australian Bureau of Statistics (ABS) publishes the CPI each quarter.136 For this report, the percentage change in the CPI (weighted average of eight capital cities) from June 2012 to June 2013 is used as a measure of general inflation for 2012–13.137 The ABS reported a 2.4 per cent increase in the CPI for this period. This means that if the nominal price of a commodity did not change over 2012–13, there would still be a decrease in the real price. For example, if the cost of internet plan A is $30 in 2011–12 and $30 in 2012–13 the nominal or

135 The inflation rate is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. 136 The ABS notes in its catalogue that the CPI is a price index which is designed to provide a general measure of price inflation for all Australian households. However, the ABS also notes that in practice, the index is constrained to only measure the changes in prices faced by private households living in the six state and two territory capital cities. 137 ABS, Catalogue 6401.0—Consumer Price Index, Australia, Sep 2013. unadjusted price change over time would be zero. However, given the CPI increase of 2.4 per cent, the real price of Plan A would be 2.4 per cent lower in June 2013 ($29.28) than in June 2012. Given the inflation rate of 2.4 per cent in 2012–13, the price indices of real price changes can be used to obtain a measure of the movement in nominal price levels as follows:  If the real price index increased or declined by less than 2.4 per cent, the nominal price level has increased.  If the real price index declined by 2.4 per cent, there is no change in the nominal price level.  If the real price index declined by more than 2.4 per cent, the nominal price level has decreased.

8.2.2 The goods and services tax The goods and services tax (GST) affects the prices paid by consumers for telecommunications services. This affects business and residential consumers differently. While business consumers can claim a GST input credit on telecommunications services, residential consumers cannot. For this report, the estimated prices paid by business consumers for PSTN services are GST-exclusive while those paid by residential consumers include GST. The prices for mobile services and internet services are GST– inclusive, as information is not available to estimate the proportion of these services used exclusively or partly for business.

8.2.3 Quality of service Quality relates to those non-price attributes of a product or service, including performance, reliability and other non-price features. The estimates in this report do not take into account the effect of quality changes on price and consumer usage of the services because it is difficult to quantify such changes. This is particularly true for those sectors that undergo rapid technological changes (e.g. mobile and internet). In the telecommunications industry, innovation and competition continue to drive improvement in the quality of services (e.g. data rates and data download quotas). As a result, consumers may benefit from higher quality services rather than lower prices. In fact, it is a strategy used by many service providers to maintain certain price points for their plans (e.g. $29, $49, $69) and instead vary service quality and/or value of inclusions.

8.2.4 Percentage changes and points contribution The percentage changes used in this report are based on changes in the price indices constructed for each of the services analysed. A complete set of index numbers for the telecommunications services covered is included in the tables in chapter 7. Percentage changes are useful when summarising and analysing price movements over time. The points contribution of an index component is the number of points that a component contributes to the net change in an index in a particular year. For example, analysis might show that, of a 10 per cent increase in the price index for a certain basket of services, four percentage points are due to an increase in the price of a given individual service. The points contribution for a component of a given index is calculated by multiplying the revenue share of a component in a basket by the value of the index in a particular year. Analysis of points contribution shows the effects of different price changes within the basket on the index.

8.2.5 Record keeping and reporting rule for the Division 12 report After consulting with industry, the ACCC implemented a record keeping and reporting rule (RKR) for the Division 12 report, in December 2004. Under s. 151BU of the Competition and Consumer Act 2010 (CCA), the ACCC has the power to make an RKR by written instrument and require that carriers and carriage service providers comply with it. Table 8.1 shows which companies are currently required to report on PSTN, mobile and internet services under the Division 12 RKR. Table 8.1 List of companies required to report under the Division 12 RKR138

Category name Reporting carriers and carriage service providers

PSTN services information Telstra, Singtel Optus, AAPT, Primus

Mobile services information139 Telstra, Singtel Optus, Virgin Mobile, VHA

Internet services information (including wireless, DSL, cable and dial-up) Telstra, Singtel Optus, Primus, iiNet, VHA, SP Telemedia (TPG), Unwired

Further information about the Division 12 RKR is available on the ACCC website at www.accc.gov.au.

ACCC contacts ACCC Infocentre: business and consumer inquiries: 1300 302 502 Website: www.accc.gov.au Translating and Interpreting Service: call 13 1450 and ask for 1300 302 502 TTY users phone: 1300 303 609 Speak and Listen users phone 1300 555 727 and ask for 1300 302 502 Internet relay users connect to the NRS (see www.relayservice.com.au and ask for 1300 302 502)

ACCC addresses National office 23 Marcus Clarke Street Canberra ACT 2601 GPO Box 3131 Canberra ACT 2601 Tel: 02 6243 1111 Fax: 02 6243 1199 New South Wales Level 20, 175 Pitt Street Sydney NSW 2000 GPO Box 3648 Sydney NSW 2001 Tel: 02 9230 9133 Fax: 02 9223 1092 Victoria Level 35, The Tower 360 Elizabeth Street Melbourne Central Melbourne Vic 3000 GPO Box 520 Melbourne Vic 3001 Tel: 03 9290 1800 Fax: 03 9663 3699

138 The complete table is at Schedule A of the Division 12 RKR. 139 The current RKR requires reporting companies to report separately on GSM and 3G mobile services. In July 2012, the ACCC granted an exemption to relevant companies, which allowed them to report all mobile services on an aggregated basis for the 2011–12 reporting period. This exemption was extended to 2012–13 on 19 September 2013. Queensland Brisbane Level 24, 400 George Street Brisbane Qld 4000 PO Box 12241 George Street Post Shop Brisbane Qld 4003 Tel: 07 3835 4666 Fax: 07 3835 4653 Townsville Suite 2, Level 9, Suncorp Plaza 61–73 Sturt Street Townsville Qld 4810 PO Box 2016 Townsville Qld 4810 Tel: 07 4729 2666 Fax: 07 4721 1538 South Australia Level 2, 19 Grenfell Street Adelaide SA 5000 GPO Box 922 Adelaide SA 5001 Tel: 08 8213 3444 Fax: 08 8410 4155 Western Australia 3rd floor, East Point Plaza 233 Adelaide Terrace Perth WA 6000 PO Box 6381 East Perth WA 6892 Tel: 08 9325 0600 Fax: 08 9325 5976 Northern Territory Level 8, National Mutual Centre 9−11 Cavenagh St Darwin NT 0800 GPO Box 3056 Darwin NT 0801 Tel: 08 8946 9666 Fax: 08 8946 9600 Tasmania Level 2, 70 Collins Street (Cnr Collins and Argyle Streets) Hobart Tas 7000 GPO Box 1210 Hobart Tas 7001 Tel: 03 6215 9333 Fax: 03 6234 7796

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