TELECOMMUNICATIONS LEGISLATION AMENDMENT (ACCESS REGIME AND NBN COMPANIES) BILL 2015 Explanatory Memorandum

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TELECOMMUNICATIONS LEGISLATION AMENDMENT (ACCESS REGIME AND NBN COMPANIES) BILL 2015

2013-2014-2015 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES TELECOMMUNICATIONS LEGISLATION AMENDMENT (ACCESS REGIME AND NBN COMPANIES) BILL 2015 EXPLANATORY MEMORANDUM (Circulated by authority of the Minister for Communications, Senator the Hon Mitch Fifield)

TELECOMMUNICATIONS LEGISLATION AMENDMENT (ACCESS REGIME AND NBN COMPANIES) BILL 2015 OUTLINE Overview The Telecommunications Legislation Amendment (Access Regime and NBN Companies Bill) 2015 (the Bill) will implement, in part, the Government's response to the independent cost-benefit analysis and review of regulatory arrangements for the National Broadband Network (NBN) undertaken by the panel of experts headed by Dr Michael Vertigan AC (the Vertigan panel). In addition to its cost-benefit analysis of the NBN, two reports to Government were produced by the Vertigan panel in 2014, containing a total of 53 recommendations on regulatory and market structure matters. The Government's response to the Vertigan panel's recommendations is set out in a policy paper released on 11 December 2014 titled, 'Telecommunications Regulatory and Structural Reform' (the Government Response). The Government Response indicated that the Government would introduce legislation in two tranches. This Bill contains measures that respond to recommendations made by the Vertigan panel to fine-tune the operation of the telecommunications access regime and NBN Co's line of business obligations. Most of the panel's recommendations in this area were made in its statutory review under section 152EOA of the Competition and Consumer Act 2010 (CCA) (the Statutory Review). The Bill proposes amendments to the Telecommunications Act 1997 (Tel Act), the CCA and the National Broadband Network Companies Act 2011 (NBN Companies Act), with minor consequential amendments to the National Transmission Network Sale Act 1998 (NTN Act). The measures:  clarify and better coordinate the interaction between the facilities access regime in Schedule 1 to the Tel Act and the access regime in Part XIC of the CCA, providing greater certainty for the telecommunications industry;  introduce a new obligation to ensure access providers give access to in-building cabling that they own or control, where they use that cabling to supply an active declared service, so that competing service providers are able to supply carriage and/or content services using that active declared service by means of the cabling, improving competition and providing greater choice for consumers;  introduce an exemption to NBN corporations' (such as NBN Co) and other relevant carriers' non-discrimination obligations for the purpose of conducting pilots or trials of new eligible services or enhanced declared services, to promote innovation;  require the Australian Competition and Consumer Commission (ACCC), in finalising an access determination, to take into account the method it uses to determine terms and conditions for NBN Co and others, as applicable, in the interest of achieving consistency of approach among access providers;  require the ACCC to consult with such persons as the ACCC considers appropriate before making an interim access determination or a binding rule of conduct;  streamline the process for submission and approval of new or varied special access undertakings by requiring the ACCC to specify the changes it considers are necessary in order for it to accept the undertaking and which changes are desirable;

 provide the person submitting a special access undertaking with flexibility as to how they respond to changes required by the ACCC, providing the changes are given effect;  amend the provisions in the CCA dealing with the ACCC's consideration of fixed principles provisions in new or varied special access undertakings, to increase the likelihood that the ACCC can accept fixed principles provisions;  require the ACCC to have regard to relevant fixed principles terms and conditions included in previous access determinations or special access undertakings when considering new access determinations or special access undertakings, to ensure consistency in approach in the ACCC's treatment of fixed principles;  amend the line of business restrictions under the NBN Companies Act to permit NBN companies to dispose of surplus assets and to allow regulations to be made to relax restrictions on supplying non-communications goods or services, or investments, providing NBN Co (and any other NBN corporation) with greater flexibility in its business operations; and  amend existing authorisations allowing NBN Co to limit interconnection to listed points on its network, and to require customers to purchase bundled services, to support the object of ensuring that superfast carriage services are reasonably accessible to all people in Australia, wherever they reside or carry on business, and to establish that the authorisations cease when the NBN is built and fully operational. The Bill also makes changes to Division 16 of Part XIB of the CCA following further Government consideration of these provisions. Regulation impact statements have been prepared as required for changes relating to NBN Co's non-discrimination obligations and for amendments set out in Part 7 of the Bill to authorised conduct provisions. These are attached. The remaining measures are relatively minor and therefore no regulatory impact statement is required for them. Part 1 - Access to facilities Currently, there is an a priori right for carriers to access certain facilities owned by other carriers. This access regime is set out in Parts 3 and 5 of Schedule 1 to the Tel Act. The Vertigan panel noted that facilities access services may also be regulated by the ACCC under Part XIC of the CCA and recommended that the Government clarify the ACCC's powers in relation to regulation of these services (Recommendation 1 of the Statutory Review). The facilities access regime in the Tel Act is based on an older 'negotiate/arbitrate' model that was removed from the CCA in 2011 in favour of up-front determination by the ACCC of terms and conditions of access. Consequently, if the ACCC were to declare a facilities access service, under the current regulatory arrangements, confusion may arise within industry over how terms and conditions of supply are determined. The Bill would amend the Tel Act to clarify that once the ACCC has declared a specific facilities access service, then an access seeker would no longer be able to use Schedule 1 of the Tel Act to gain access to the service. Instead, the carrier who owns the relevant facility would be required to supply the service in accordance with the Standard Access Obligations (SAOs) under the CCA. The terms and conditions of supply could be set out in an access agreement or match those set by the ACCC in a final access determination. It is also proposed that the Tel Act be amended to clarify that, should the ACCC declare a facilities access service, any existing contracts, arbitration determinations or Ministerial pricing determinations made in relation to that service continue to have effect until they expire. 2

Part 2 - Access to in-building cabling The Vertigan panel observed that carriers or service providers may not always own in- building cabling (for example, in apartment buildings between the building basement and customer premises), but may enter into agreements with building owners which confer control over the cabling to the carrier or carriage service provider (CSP). As a result, that carrier or CSP will effectively have control over an access bottleneck. This was seen as a possible barrier to the provision of next-generation broadband services. In such circumstances, the panel considered that Part XIC should clearly apply. The panel therefore recommended that there should be clear provision of access to in-building cabling controlled by a carrier or a CSP for use in conjunction with a declared service and that this provision should be included in the SAOs (recommendation 5 of the Statutory Review). The Bill amends the Category A and Category B SAOs to provide that an access provider who: - is required to supply an active declared service to an access seeker, and - owns or otherwise controls physical access to customer cabling, and - uses that cabling and a network to supply the active declared services, is to give an access seeker access to that cabling where needed for the supply of that declared service. This ensures that a single provider's control of in-building cabling cannot prevent access seekers from gaining end-to-end access for the purpose of supplying carriage or content services to end-users using the relevant declared service. To give an example of how this would work in practice, consider a scenario where an access provider supplies an active declared service. In some multi-unit buildings where the service is supplied, the access provider has an agreement with the body corporate manager which enables it to control access to some of the customer cabling after the main distribution frame (MDF). Consequently, when an access seeker requests the declared service from the access provider in order to supply services to an occupant of one of the units in the complex, if the access provider controls access to the customer cabling to that individual unit, the access provider must ensure that the declared service can also be carried over the in-building cabling. This would mean that where the access provider controlled the relevant in-building cabling, it could not argue that its obligation to provide access to the declared service ended at the MDF but the obligation would also extend to the associated in-building cabling under its control. The Bill also amends the Category A SAOs to provide that the access provider must take all reasonable steps to ensure that the service provider receives fault detection, handling and rectification of a technical and operational quality and timing that is equivalent to that which the access provider provides to itself in relation to the provision of access to such in-building cabling. It is not necessary to make a similar change to the Category B SAOs given NBN Co's wholesale-only and non-discrimination obligations. A consequential amendment is made to the NTN Act to clarify that this amendment will not apply to the telecommunications access regime provisions within the NTN Act. Part 3 - Pilots and trials The Government Response to the Statutory Review indicated that NBN Co's non- discrimination obligations would be relaxed to permit NBN Co to better conduct pilots or trials. Currently, if NBN Co or a CSP wishes to test a new service or technology on the NBN, NBN Co is required in accordance with its non-discrimination obligation to make the same 3

service or technology available to all of its customers. This can act as a practical impediment to product development and also as a disincentive to innovation, because NBN Co must put in place detailed mechanisms to maintain non-discrimination in a trial or pilot environment or a CSP with a new idea would have difficulties developing and testing it with NBN Co without involving its competitors. Consequently, the Bill 'switches off' the non- discrimination obligations in relation to pilots or trials, and also provides that NBN Co does not need to publish a Standard Form of Access Agreement for a pilot or trial service (because the service would not be a declared service). There are two key safeguards built in by the Bill to ensure that NBN Co's pilots or trials are focused on promoting innovation and reduce the risk of conduct having significant anti- competitive effects. In the first place, NBN Co must notify the ACCC of the details of the pilot or trial, including the conduct that it wishes to undertake that would otherwise breach the non-discrimination obligations. NBN Co must also publish on its website information about the trial. In the second place, the Bill provides that a pilot or trial cannot last longer than 12 months (although the ACCC may, if necessary, agree to a longer timeframe). If NBN Co is not actually undertaking a pilot or trial then the non-discrimination obligations would not be suspended and the ACCC could apply to the court to have the SAOs enforced under section 152BB of the CCA. Also, NBN Co's obligations under Part IV of the CCA relating to anti-competitive conduct would also continue to have effect notwithstanding the proposed new section 152F. For example, section 45 of the CCA, which prohibits contracts, arrangements or understandings that have the purpose, or would be likely to have the effect, of substantially lessening competition, would continue to apply, as would the major restrictions on conduct that substantially lessens competition in sections 46 and 151AJ of the CCA. The Bill includes provisions to clarify that, if the ACCC were to declare an eligible service that is being supplied as part of a pilot or trial the declaration would not apply to contracts in place to supply the pilot or trial service. Specifically, the provision deems such pilot and trial services to not be declared services. As a result, an access provider supplying the pilot or trial service in accordance with the contract in force during the pilot or trial period (as set out in the notice given to the ACCC), could not be found to have breached the non-discrimination obligations in the event that there were different terms and conditions in the pilot or trial contract from the terms and conditions in access agreements for the declared service. However, the protection is only temporary and as soon as the pilot and trial ceases, the access provider will be required to comply with the access declaration. The provisions are necessary to provide certainty to industry in relation to investments and the commercially negotiated terms for pilots and trials in the event of declaration by the ACCC. The Bill also repeals section 152CJH, which requires the ACCC to publish guidance material on the non-discrimination obligations. The ACCC published guidelines in relation to this section in 2011. The requirement to publish guidelines is being removed to ensure there can be no divergence between the statutory provisions and such explanatory material. Part 4 - Access determinations The Vertigan panel considered that the ACCC should, in its approach to access determinations, treat NBN Co and other access providers on a comparable basis. It therefore proposed that the ACCC, when it sets charges in an access determination, should be required to take account of the manner in which it sets charges for NBN Co (recommendation 17 of the Statutory Review). The panel was aiming to ensure consistency in approach for all access 4

providers. The Bill adopts this recommendation and extends it to cover both non-price and price-related terms and conditions and consistency between access determinations generally. Part 4 of Schedule to 1 to the Bill proposes changes to the CCA to clarify that the ACCC must have regard, when making access determinations that apply to NBN Co, to the method it uses to determine non-price and price-related terms and conditions it includes in access determinations that do not apply to NBN Co. Similarly, the ACCC must also have regard, when making access determinations that apply to other access providers, to the method it applies in determining non-price and price-related terms and conditions in NBN Co-specific access determinations. Currently, there are no access determinations applying to NBN Co. The provisions proposed by this section therefore propose to respond to potential future scenarios that might arise. The Vertigan panel also considered the importance of procedural fairness requirements applying to regulatory decision-making. The panel noted that in making an interim access determination (IAD) or binding rule of conduct (BROC), the ACCC is not subject to procedural fairness requirements and it also is not required to conduct a public inquiry as part of that process. In the absence of merits review arrangements for various Part XIC decisions, the panel proposed that the ACCC be required to consult affected parties when it makes IADs and BROCs, but the mere fact it fails to do so should not invalidate the decision by the ACCC (recommendation 20 of the Statutory Review). This would put the onus on the ACCC to consult but would not invalidate its decisions if it did not. The Bill also sets out when the amendments will apply. It is important that any regulatory processes that are under way at the time the provisions commence are not invalidated if the ACCC has not carried out such consultation, or delayed because the ACCC is then required to commence such consultation. The Bill establishes that the amendments do not apply to the making of a final access determination or an interim access determination if the ACCC commenced to hold a public inquiry into that access determination before the amendments commence. On this basis, current ACCC processes relating to the final access determination for the domestic transmission capacity service (DTCS), if that process is not finalised before the amendments commence, would not be affected by the amendments. The ACCC's current inquiry into declaring a Superfast Broadband Access Service may however be subject to the amendments if a decision is made to declare the service, or an inquiry into making an access determination begins after the amendments commence. The Bill also provides that, if the ACCC makes a final access determination without having conducted a public inquiry, then the amendments will not apply if the ACCC makes the determination within 28 days of the commencement of the amendments. Similarly, the amendments will not apply to any binding rules of conduct made before the end of 28 days after commencement. Part 5 - Special access undertakings - variation notices The Vertigan panel considered that ACCC notices to vary a special access undertaking (SAU) should be limited to those changes to the SAU that are necessary to satisfy the ACCC that the SAU would be reasonable. This reflected concerns that some of the variations the ACCC had required during the process of accepting NBN Co's SAU may not, strictly speaking, have been necessary for the ACCC to be satisfied that the SAU was reasonable. The Vertigan panel recommended that a notice to vary an SAU 'should be confined to matters that are, as a matter of fact, essential for the ACCC to be satisfied that the special access undertaking will pass the relevant thresholds for acceptance' (recommendation 22 of the Statutory Review). 5

The panel also recommended that a person giving the ACCC an SAU should have flexibility in responding to a notice to vary. The person should meet the substance of a notice to vary, but should not necessarily be required to provide a response in a specific form (recommendation 23 of the Statutory Review). Part 5 of the Bill responds to these recommendations. Under the proposed amendments, a person may respond to a notice to vary by proposing variations that have the same effect as the variations proposed by the ACCC. Variations that have the same effect as those proposed by the ACCC would achieve the same outcome, but need not follow the exact wording proposed by the regulator. This will confer flexibility on the person giving the SAU. The ACCC must not specify variations unless it considers that it would not accept the SAU if the variations, or variations having the same effect, were not made. The ACCC may suggest other variations that it considers desirable, however the person giving the SAU will have discretion as to whether to respond to these. While the new provisions necessarily rely on the ACCC exercising its judgement as to what it considers essential as opposed to desirable, the amendments will require it to actively consider the issue. Part 6 - Fixed principles The Vertigan panel was concerned that the current wording of section 152CBAA of the CCA, dealing with fixed principles in SAUs, could discourage the ACCC from accepting fixed principles. Paragraph 152CBAA(5)(h) provides that, when the ACCC is considering a new or varied SAU, it must not reject the SAU 'for a reason that concerns' a fixed principle term or condition, or a fixed period, that it has previously accepted as part of the original SAU. The phrase 'for a reason that concerns' is so broad that the ACCC could be concerned that accepting a fixed principle could cover a wide range of matters that were not anticipated or foreseen at the time it made its decision to accept fixed principles. This could discourage it from accepting proposed fixed principles, fearing that its ability to reject a new or varied undertaking would be significantly constrained. The panel recommended amending section 152CBAA (recommendation 25 of the Statutory Review). Part 6 of the Bill replaces the phrase 'for a reason that concerns' with the phrase 'on the basis of the inclusion or effect of'. This significantly narrows the scope of section 152CBAA and targets the specific fixed principle itself, or its effects. The ACCC would therefore know that, should it accept a fixed principles provision in an SAU, if in future it considers a subsequent SAU or variation to an SAU it would not be prevented from considering the wider implications of the fixed principle but only prevented from considering the principle itself or its effects. Part 6 also makes, as recommended by the panel, changes to section 152BCD to clarify that, when the ACCC decides whether to include a fixed principles provision in a final access determination, it must have regard to relevant fixed principles provisions in other access determinations. The ACCC must also have regard, when assessing an SAU, to any relevant fixed principles terms or conditions specified in any other SAUs given to it by the same person or any other person and that it has accepted. As with the amendments in relation to access determinations under Part 4, this is intended to promote consistency in decision- making by the ACCC in relation to fixed principles in access determinations and SAUs. Taken together, the changes in Parts 4 and 6 of the Bill improve regulatory consistency for the telecommunications industry without compromising the ACCC's effectiveness. 6

Part 7 - NBN corporations - Line of business restrictions and supply of goods and services Part 2 of the NBN Companies Act sets out a fundamental line of business restrictions on NBN Co. For example, section 9 of the NBN Companies Act sets out an obligation on NBN Co to supply services on a wholesale-only basis. Sections 18, 19 and 20 set out further restrictions relating to NBN Co's: - supply of content services, - supply of non-communications goods or services, and - investment activities. These restrictions ensure that NBN Co is highly focused on its objectives in its operation and limits its ability to exercise market power through integration in horizontal markets, or participation in downstream markets. The Vertigan panel noted that there could be developments in the market that warrant some modifications to NBN Co's line of business restrictions. It argued that the NBN Companies Act should be amended to allow such changes to be made through regulations, noting that as safeguards the Government is required to consult on proposed regulations before they are made and also that regulations are subject to disallowance by either House of Parliament (recommendation 29 of the Statutory Review). NBN Co, in its submission to the Vertigan panel, noted that as the restriction on the supply of non-communications goods is currently worded, it cannot supply a non-communications good 'unless the goods are for use in connection with the supply, or prospective supply, of an eligible service by the NBN corporation'. As a result, NBN Co is concerned that it could not, for example, sell off surplus equipment unless it supplies an eligible service to the same person to whom it sells the good, and unless the sale is connected with the supply of that eligible service. The introduction of a regulation-making power would allow such unintended restrictions to be eased. As the regulation would be subject to Parliamentary disallowance, the Parliament would be able to monitor any changes to the scope of NBN Co's permitted business activities made by regulation and block any not considered appropriate. The Bill proposes two main changes to NBN Co's line of business restrictions. First, it specifically provides that an NBN corporation may dispose of surplus non-communications goods. The Government has chosen to make this change explicitly in the statute given that the evidence presented to it clearly showed that the current drafting was having unintended consequences. The change will not compromise the key purpose of the existing line of business restrictions. Second, the Bill proposes that regulations may be made providing that sections 18, 19 and 20 do not apply in circumstances set out in the regulations. This is a general power that would allow flexible responses to unanticipated circumstances, subject to Parliamentary scrutiny, without degrading the bright line conduct rules that the sections establish. For the avoidance of doubt, the Bill also makes it clear that no change is intended to section 9 - the requirement on NBN Co to operate on a wholesale-only basis - as this is fundamental to the structural and competition reforms NBN Co is designed to bring about. That is, regulations will not be able to be made in relation to section 9. Part 7 - NBN corporations - Authorised conduct Division 16 of Part XIB of the CCA currently authorises NBN Co to engage in three specific forms of conduct for competition law purposes: - restricting interconnection to the NBN to listed points of interconnection; 7

- bundling designated access services; and - other conduct, on the basis that the conduct is reasonably necessary to achieve uniform national pricing of eligible services supplied by NBN Co. The Government reviewed the authorisations in Division 16 and determined that the restrictions on interconnection, and the ability to bundle designated access services, remain valid to support the efficient and timely roll out of the NBN within the Government's specified funding envelope. In particular, the Government noted that these restrictions had underpinned NBN Co's current network and product design model, and were also reflected in its special access undertaking, accepted by the ACCC in 2013. Consequently, the Government has decided to retain the first two authorisations, with amendments to limit their practical use for the period of the NBN rollout, while repealing the third broad authorisation. The Bill provides that the object of the authorisations is to ensure that superfast carriage services are reasonably accessible to all people in Australia, wherever they reside or carry on business. The language used is analogous to that used to describe the current Universal Service Obligation in the Telecommunications (Consumer Protection and Service Standards) Act 1999, and reflects the policy that NBN Co will operate as the broadband infrastructure provider of last resort once the NBN has been built. Separate legislation is being prepared setting out infrastructure provider of last resort obligations. Part 8 - Definition of 'declared service' Division 1 of Part 8 of the Bill clarifies that facilities access services which are supplied under the current definitive agreements between NBN Co and Telstra, and NBN Co and Optus are not declared services to the extent that they are supplied under those agreements. This provision clarifies that these commercially agreed terms and conditions of supply will continue if a service is declared, until those specific agreements expire. The protection would apply to the agreements as they exist at a point in time. Specifically, in the case of the Telstra agreements, the protection covers only the six definitive agreements that are in force and described in the Telecommunications (Agreements for Compliance with Structural Separation Undertaking) Determination 2014. In the case of Optus, the definitive agreement that would be covered is that in force as at 14 December 2014. Part 8 - Definition of 'eligible service' Division 2 of Part 8 of the Bill also sets out various minor changes to definitions and consequential amendments required as a result of amendments proposed in Division 1 of this part of the Bill. FINANCIAL IMPACT STATEMENT The measures in this bill do not impose any financial impact on the Commonwealth. 8

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 Telecommunications Legislation Amendment (Access Regime and NBN Companies Bill) 2015 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview of the Bill The Telecommunications Legislation Amendment (Access Regime and NBN Companies Bill) 2015 (the Bill) is the first tranche of reforms being implemented in relation to the Government's Telecommunications Regulatory and Structural Reform policy, released on 11 December 2014. This policy paper was issued in response to the 53 recommendations made by the panel of experts headed by Dr Michael Vertigan AC (Vertigan panel) in its independent cost-benefit analysis and review of regulation. Specifically, the Bill proposes amendments to the Telecommunications Act 1997 (Tel Act), the Competition and Consumer Act 2010 (CCA) and the National Broadband Network Companies Act 2011 (NBN Companies Act), with minor consequential amendments to the National Transmission Network Sale Act 1998 (NTN Act). The key measures:  clarify and better coordinate the interaction between the facilities access regime in Schedule 1 to the Tel Act and the access regime in Part XIC of the CCA, providing greater certainty for the telecommunications industry;  introduce a new obligation to ensure access providers give access to in-building cabling that they own or control, where they use that cabling to supply an active declared service, so that competing service providers are able to supply carriage and/or content services using that active declared service by means of the cabling, improving competition and providing greater choice for consumers;  introduce an exemption to NBN corporations' (such as NBN Co) and other relevant carriers' non-discrimination obligations for the purpose of conducting pilots or trials of new eligible services or enhanced declared services, to promote innovation;  require the ACCC, in finalising an access determination, to take into account the method it uses to determine terms and conditions for NBN Co and others, as applicable, in the interest of achieving consistency of approach among access providers;  require the ACCC to consult with such persons as the ACCC considers appropriate before making an interim access determination or a binding rule of conduct;  streamline the process for submission and approval of new or varied special access undertakings by requiring the ACCC to specify the changes it considers are necessary in order for it to accept the undertaking and which changes are desirable;  provide the person submitting a special access undertaking with flexibility as to how they respond to changes required by the ACCC, providing the changes are given effect; 9

 amend the provisions in the CCA dealing with the ACCC's consideration of fixed principles provisions in new or varied special access undertakings, to increase the likelihood that the ACCC can accept fixed principles provisions;  require the ACCC to have regard to relevant fixed principles terms and conditions included in previous access determinations or special access undertakings when considering new access determinations or special access undertakings, to ensure consistency in approach in the ACCC's treatment of fixed principles;  amend the line of business restrictions under the NBN Companies Act to permit NBN companies to dispose of surplus assets and to allow regulations to be made to relax restrictions on supplying non-communications goods or services, or investments, providing NBN Co (and any other NBN corporation) with greater flexibility in its business operations; and  amend existing authorisations allowing NBN Co to limit interconnection to listed points on its network, and to require customers to purchase bundled services, to support the object of ensuring that superfast carriage services are reasonably accessible to all people in Australia, wherever they reside or carry on business, and to establish that the authorisations cease when the NBN is built and fully operational. These reforms aim to enhance the operation of the telecommunications access regime, clarify NBN Co's line of business obligations and amend provisions authorising certain conduct by NBN Co. No human rights issues were raised during consultation on the Bill. Human rights implications The Bill does not engage any of the applicable rights or freedoms. Conclusion The Bill is compatible with human rights as it does not raise any human rights issues. 10

REGULATION IMPACT STATEMENTS Amending NBN Co's Non-Discrimination Obligations to allow it to conduct pilots or trials with specific persons NBN Co is subject to strict non-discrimination obligations. These are set out in Part XIC of the Competition and Consumer Act 2010 (CCA). They require NBN Co not to discriminate between access seekers when supplying services or interconnection, and also not to discriminate between access seekers in carrying on related activities. The obligations ensure that all access seekers receive the same services, on the same terms and conditions, with the same level of information and support. In other words, the obligations ensure that access seekers access the National Broadband Network (NBN) on a level playing field with a view to promoting fair and effective retail competition. In its National Broadband Network Market and Regulatory Report, the Vertigan panel proposed that NBN Co should be allowed to discriminate between access seekers under Part XIC of the CCA, where that discrimination aids efficiency or is authorised by the ACCC. The panel also proposed that the non-discrimination obligations be removed if NBN Co faces effective competition in the long term. The Government announced in its 11 December 2014 policy statement, Telecommunications Regulatory and Structural Reform, that it did not agree with this recommendation, but would bring forward legislation to allow NBN Co to conduct pilots and trials without breaching its non-discrimination obligations. In relation to the panel's proposal to relax the non- discrimination obligations more generally, the Government announced that this recommendation will be considered by the Productivity Commission as part of the review it is required to undertake under the National Broadband Network Companies Act 2011 (the NBN Companies Act) after the NBN rollout is completed. This regulatory impact statement considers options relating to non-discrimination, including the Government's preferred option to allow NBN Co to discriminate in conducting pilots and trials. Context On 7 April 2009, in announcing the NBN initiative, the then Government indicated that NBN Co would be wholesale-only and operate on an open access basis, subject to oversight by the ACCC. NBN Co would also provide equivalent access to all access seekers. In requiring NBN Co to operate on a wholesale-only open access basis with no retail arm, the then Government was seeking to provide an open platform for the development of retail competition and to respond to concerns about barriers to competition in the telecommunications market flowing from the vertical integration of network owners. The commitment to non-discrimination reflected concerns that even a wholesale-only operator may have incentives to favour some providers over others - for example, its largest customers, or customers who also provide it with access to specific services it requires. To give effect to this commitment to non-discrimination, the then Government proposed legislation to impose non-discrimination obligations on NBN Co. Recognising that a blanket requirement to offer equal treatment to all access seekers can lead to inefficient outcomes, the legislation proposed three exceptions from the non-discrimination obligation: 11

1. where NBN Co has reasonable grounds to believe that an access seeker would fail to comply with the terms and conditions proposed by NBN Co (for example, because the access seeker has repeatedly failed to do so in the past); 2. in grounds or circumstances specified by the ACCC; and 3. where discrimination aids efficiency. The concept that an access provider may offer different terms and conditions to different access seekers, where that differentiation aids efficiency, already exists in the general access regime in Part IIIA of the CCA. Parliament subsequently amended the bill to remove all of the exceptions other than the one relating to an access seeker failing to comply with proposed terms and conditions. Accordingly, when the legislation was passed as the Telecommunications Legislation Amendment (National Broadband Network Measures - Access Arrangements) Act 2011, the non-discrimination obligations applying to NBN Co were quite broad. Under Part XIC, NBN Co must not discriminate between access seekers in the supply of declared services (section 152AXC) and in conducting related activities such as developing or enhancing services, planning for a facility or network, or giving information to access seekers (section 152AXD). NBN Co is also prevented from discriminating in favour of itself in regard to the supply of declared services. Assessing the problem Discrimination can take a number of forms. It can encompass the simple differentiation of non-price terms and conditions - for example, the time to connect or repair a service, or the type of interface used to access a service - in response to access seeker requirements. It can also encompass more significant discrimination, such as offering volume or term discounts to access seekers who meet particular requirements of the access provider, or offering a particular type of service to only a few access seekers who agree to certain criteria such as committing up-front resources to the task. Some discrimination can promote innovation and competition. Generally, it is recognised that in some circumstances discrimination can promote economic efficiency by allowing businesses to tailor prices and products to more specific market segments. This in turn can promote experimentation in developing new products and services in response to market demand. These issues were considered in the 1993 Hilmer Report on National Competition Policy, where the Independent Committee of Inquiry examined whether an existing prohibition on price discrimination in the CCA should remain. The Committee considered that "price discrimination generally enhances economic efficiency" (page 79), while noting that in some cases price discrimination can lessen competition where it allows a firm to entrench its market power by creating strong ties with certain customers and thereby restricting market entry by competitors (page 75). The Committee argued that anti-competitive conduct which can derive from price discrimination is best handled by general laws against such conduct, and therefore price discrimination should be permitted because of the potential efficiency benefits. These strictures were adopted by the then Government in 1995, which removed the ban on price discrimination from competition legislation and ensured that the general access regime under Part IIIA of the CCA permits discrimination where it aids efficiency. The key issue is to distinguish between discrimination that has beneficial impacts in terms of innovation and promoting efficiency, and discrimination that amounts to conduct that would damage competition in the market place. The CCA generally attempts to preclude the latter through general competition law. However, the Parliament decided, in relation to NBN Co's 12

non-discrimination obligations, that general competition law would not be sufficient and therefore imposed a blanket ban on most discrimination. A key issue for debate since 2011 has therefore been whether the non-discrimination obligations are harming efficiency. The Independent Costs-Benefit Analysis of Broadband and Review of Regulation (the Vertigan panel) considered NBN Co's non-discrimination obligations in its 2014 statutory review under section 152EOA of the CCA (Statutory Review). The Vertigan panel recognised that discrimination can have significant efficiency benefits: Rather, the strongest case for allowing discrimination to occur is that it may replicate some of the incentives for innovation that would occur in a vertically integrated firm: for example, by ensuring that an RSP [retail service provider] that bears special risks in innovating receives greater rewards than those RSPs that merely imitate its conduct if and when it succeeds. In that way, allowing greater scope for discrimination would help reduce some of the costs of structural separation, enhance the scope to coordinate risky upstream and downstream investment and partly restore incentives for the development of innovative services (Statutory Review, page 48). The Vertigan panel proposed amendments to NBN Co's non-discrimination obligations to re- introduce an efficiency-based exemption matching the one rejected by the Parliament in 2011. The panel also proposed removing the non-discrimination obligations altogether in the longer term if NBN Co faces effective competition. It can be argued that many of the benefits of discrimination can be achieved under current laws. NBN Co can offer different wholesale services with different service levels to retail service providers to on-sell to their customers - for example, it can design specific products for corporate customers, small businesses and residential customers, which retailers can then use to target those market segments. The non-discrimination obligations do not prohibit experimentation, segmentation or differentiation by end-user. However, because they restrict NBN Co from discriminating between its customers, they create practical difficulties for NBN Co in conducting pilots or trials, and also discourage NBN Co's customers from bringing ideas for new products or services to NBN Co. In the case of NBN Co, when it wishes to trial a new product or service, it complies with its obligations if it makes the product or service available to all its customers on the same terms and conditions. This can create practical difficulties where, for example, NBN Co has limited capacity on its network for a trial service. To trial its interim satellite service, for example, NBN Co had to use additional time and resources to develop an acceptable trial process that recognised capacity limits. Similarly, NBN Co may not be able to conduct a properly focussed trial with wholesale customers who possess some intellectual property, as those customers may be wary of sharing that intellectual property with their competitors. The non-discrimination obligations may also create concerns outside of pilots or trials. VHA argued, in its submission to the Vertigan review, that because NBN Co is required to comply with the obligations it has set prices for its Connectivity Virtual Circuit at a one-size-fits-all level. The service capacity is sold in large blocks, which means that providers with a small number of customers must pay for the base level of capacity whether they use it or not. VHA noted that the obligations conferred a lack of flexibility on NBN Co which hampered service innovation and the emergence of new business models. In the case of NBN Co's customers, the current obligations do not address the problem of free riding. Under the obligations, if a retail service provider approached NBN Co with a proposal to trial a new product, NBN Co would need to inform all its wholesale customers of the product idea. This may discourage retail service providers from collaborating with NBN 13

Co on innovative products or services because they may need to share their innovation with their competitors before even working out its full potential, and before it is commercialised. As a result, two potential responses may occur. One is that retail providers may simply not innovate. This is perhaps unlikely - the pressure of competition, especially where there is a level playing field for all retail providers, will encourage retail providers to differentiate their service offerings from each other. A more likely response is that innovation by retail providers is more likely to be focussed on areas that those providers directly control and where they do not have to share their innovations, such as specific content packages, data allowances or pricing points. Retail service providers could, however, limit co-operation with NBN Co that could be beneficial in developing more innovative products and services. As a result, end-users may have poorer access to new or improved products and services. Industry stakeholders generally are concerned that any changes to the obligations could be to the detriment of overall competition. They are not convinced that their individual organisations would be able to benefit from a relaxation of the non-discrimination obligations. This leads to a further key issue for the Government - to what extent any relaxation of the non-discrimination obligations could encourage NBN Co to favour one or more access seekers over other access seekers, for example, by offering lower prices or other more favourable terms and conditions, and whether such conduct would lessen competition. Access seekers receiving such beneficial treatment could gain a competitive advantage over other firms in the sector. In designing any changes to the non-discrimination obligations, the Government therefore needs to consider the extent to which any changes would promote anti- competitive conduct; the extent to which such conduct could be prevented or addressed by existing competition laws such as sections 45 and 46 of the CCA, and Part XIB of the CCA; and the extent to which changes would promote experimentation and innovation. In other words, can changes to the non-discrimination obligations be designed with appropriate safeguards so that experimentation and innovation can take place and overall competition will not be lessened? The Government considered this issue in developing its 11 December 2014 policy statement. The Government's view was that the time is not right for a complete relaxation of the non- discrimination obligations. It may also not yet be appropriate to attempt to insert a broader exemption for discrimination that aids efficiency. Such issues are best considered after the NBN is built and fully operational, as part of the statutory review by the Productivity Commission under the NBN Companies Act. However, the Government accepted that the current laws restrict innovation, and therefore considered that they should be amended to permit NBN Co to engage in pilots and trials of new products and services. Objective The Government's objective is to ensure that obligations on NBN Co can effectively prohibit discrimination that may produce anti-competitive effects, while also promoting experimentation and innovation that could increase efficiency and end-user benefits. Options Four options have been considered: 1. status quo - retain the current non-discrimination obligations; 2. adopt the Vertigan panel's recommendations (allowing discrimination that aids efficiency, and removing the obligations altogether in the longer term); 3. allow NBN Co to engage in pilots and trials that have been authorised by the ACCC; and 14

4. allow NBN Co to engage in pilots and trials without ACCC authorisation but with sufficient transparency so that the ACCC could take swift enforcement action if it considered NBN Co's conduct was anti-competitive. There is also the theoretical option of removing the non-discrimination obligations at this time. However, this was not proposed by the Vertigan review, which considered that removal should only take place in the longer term if NBN Co faces effective competition. The Government response also made clear that the Government did not intend to remove the obligations at this time. Consequently, the option is not considered further. Option 1: Status quo - retain the current non-discrimination obligations Under this option, the obligations set out in sections 152AXC and 152AXD in Part XIC would be unchanged. NBN Co would have to offer the same services, on the same terms and conditions, to all access seekers and in conducting related activities, including pilots and trials, would need to ensure it complied with the law. The only discrimination permitted would be in the limited circumstance where NBN Co believed an access seeker would not comply with its obligations. NBN Co and access seekers could propose pilots and trials, noting however that these could be subject to the practical and commercial difficulties outlined above. Option 2: Adopt the Vertigan panel's recommendations Under this option, the Government would implement the panel's recommendations in this area. The obligations on NBN Co in Part XIC would be replaced with provisions that allow NBN Co to discriminate in situations where it would aid efficiency or is otherwise authorised by the ACCC. NBN Co would also be required to seek authorisation from the ACCC for any agreements that substantially differ from its standard terms and conditions. The Vertigan panel also proposed disclosure obligations, without elaborating on what they could comprise. Measures similar to those already in Part XIC could be adopted. For example, where NBN Co proposes to enter into an agreement with an access seeker that differs from its standard form access agreement in a substantial way, NBN Co must publish and lodge a statement of difference with the ACCC. Affected parties would have an opportunity to object to the ACCC about an agreement. The ACCC would also be able to make an instrument setting out circumstances in which particular forms of service differentiation would be feasible, which could provide greater certainty to industry and end- users. The Government would continue to monitor the market place so that, in the longer term, if NBN Co faces effective competition the Government would then make a decision on whether or not to remove the non-discrimination obligations altogether. Option 3: Allow NBN Co to engage in pilots and trials that have been authorised by the ACCC Under this option, the non-discrimination obligations would be amended so that NBN Co can conduct pilots or trials where the ACCC has previously authorised the pilot or trial (including the timeframe for the trial, the parties to the trial and the particular conduct to be undertaken as part of the trial). The ACCC would be required to publish details of the pilot or trial, so other industry members could object to the ACCC if they did not consider the activity being undertaken was a real pilot or trial, or considered that NBN Co's conduct was anti- competitive. 15

Option 4: Allow NBN Co to engage in pilots and trials without ACCC authorisation but with sufficient transparency so that the ACCC could take swift enforcement action if it considered NBN Co's conduct was anti-competitive Under this option, amendments would be made to the law to enable NBN Co to undertake trials and pilots without breaching its non-discrimination obligations. The ACCC would not be required to authorise a pilot or trial, but NBN Co would be required to notify the ACCC of a pilot or trial before entering into an arrangement to conduct the pilot or trial. Once the notification is published, NBN Co would be free to conduct the pilot or trial. Additional safeguards would be built into the law to guard against the potential for anti-competitive conduct. These would include:  specifying a maximum timeframe for a pilot or trial in legislation;  requiring NBN Co's notification to the ACCC to be in a form specified by the ACCC. Obligations on NBN Co to publish a standard form of access agreement for all its services would be relaxed so it was not required to publish such a standard form for a service that is a pilot or trial service. If the ACCC considered that the pilot or trial was not a real pilot or trial it would be able to take enforcement action against NBN Co using its standard powers under the CCA and the Telecommunications Act 1997. Analysis of options This section discusses the relative costs and benefits of the three options and their impacts on stakeholders, namely carriers (access seekers), the ACCC and end-users. The key criteria used in the assessment are whether the option achieves the Government's twin objectives of promoting innovation while also providing safeguards against undue discrimination which could harm competition. The analysis also considers the degree to which the option provides certainty for industry that particular activities can take place or that a customer of NBN Co will be able to compete on a level playing field. Option 1: Status quo - retain the current obligations Advantages:  Promotes competition at the retail level by ensuring there is a level playing field for retail service providers on the NBN.  Promotes certainty for industry that all access seekers will have access to the same terms and conditions in all circumstances (except for the limited exemption where NBN Co believes an access seeker will not fulfil its obligations).  Saves NBN Co from being pressured to vary the terms and conditions that it offers retail service providers.  The non-discrimination obligations were only introduced in 2011 and access seekers have planned their operations on the basis that NBN Co operates on a non-discriminatory basis. Accordingly, there is merit in taking further time to see if change is warranted. Disadvantages:  Does not address fundamental concern that the non-discrimination obligations could inhibit innovation and the development of new or improved services for end-users.  Although pilots or trials may take place, these will usually be initiated by NBN Co which, because it is structurally separated from retail providers, will have less exposure to end- users and therefore may not be as responsive to end-users' requirements. 16

 Innovation by retail providers may be limited and end-users may therefore not benefit from faster development of new products or services. Option 2: Adopt the Vertigan panel's recommendation Advantages:  Relaxation of the non-discrimination obligations where it aids efficiency or in circumstances specified by the ACCC would encourage innovation while providing some safeguards against anti-competitive effects. For example, NBN Co would be required to prove that proposed discrimination would either provide it with more efficient outcomes, or would promote greater efficiency within industry or the market place generally.  Disclosure requirements will provide industry with transparency of NBN Co's conduct. This would then provide scope for parties to determine whether they can also seek access to any differentiated terms and conditions.  Changes to permit pilots and trials will provide access seekers who undertake such trials with incentives to promote innovation. Disadvantages:  The option could promote greater industry uncertainty and give rise to challenges to discriminatory agreements. In some circumstances it may be difficult to prove that a particular proposal actually promotes efficiency, and there may be circumstances where a proposal that would help NBN Co operate on a more efficient basis would nonetheless not promote greater industry efficiency and may in fact have anti-competitive outcomes. There is therefore a risk that this option could tie up industry and regulatory resources and divert NBN Co's attention away from the general rollout.  The ACCC could address this risk by providing clearer guidance on what conduct it considers acceptable, but there will always be a gap between the interests of the regulator and the incentives of commercial operators and no guidance by the regulator can predict all the ways in which the market will attempt to innovate and permit discrimination. There is also a risk of regulatory overreach in that the regulator may be too conservative and reject conduct that may not in the long-term prove anti-competitive.  The non-discrimination obligations were only introduced in 2011 and access seekers have planned their operations on the basis that NBN Co operates on a non-discriminatory basis. There is therefore merit in allowing the current obligations to continue largely as they are, but perhaps with some small changes to better promote innovation. Option 3: Allow NBN Co to engage in pilots and trials that have been authorised by the ACCC Advantages:  Relaxation of the non-discrimination obligations can promote efficiency and encourage innovation.  Changes to permit pilots and trials will provide access seekers who undertake such trials with incentives to promote innovation.  ACCC publication of information about the pilot or trial will promote transparency on what is taking place while preserving commercial-in-confidence information.  Change to the non-discrimination obligations is limited and does not affect their fundamental operation in guaranteeing a level playing field for access seekers. 17

 The risks associated with a wider relaxation of the non-discrimination obligations set out under option 2 are averted. Disadvantages:  Should up-front authorisation of all proposals to differentiate terms and conditions be required, the ACCC would have to review all such proposals. This could tie up regulatory resources and delay some commercial agreements, imposing costs on NBN Co and its customers.  There is also a risk of regulatory failure - the ACCC's approach could be too conservative, meaning that genuine pilots or trials are not authorised because the ACCC is concerned that there may be anti-competitive impacts.  Doesn't address wider problems with the non-discrimination obligations, although in this regard the Government was concerned that it may be too early to amend the obligations and that they should be reviewed by the Productivity Commission as part of its statutory review. Option 4: Allow NBN Co to engage in pilots and trials without ACCC authorisation but with sufficient transparency so that the ACCC could take swift enforcement action if it considered NBN Co's conduct was anti-competitive Advantages:  The option has the same advantages as option 3, but with two key added benefits. First, pilots or trials will be able to be conducted flexibly in response to market circumstances, promoting more timely innovation, while safeguards will continue to be in place to prevent anti-competitive outcomes. Second, the option avoids the delay costs inherent in option 3.  Change to the non-discrimination obligations is limited and does not affect their fundamental operation in guaranteeing a level playing field for access seekers.  The risks associated with a wider relaxation of the non-discrimination obligations set out under option 2 are averted. Disadvantages:  Absence of up-front authorisation means there is a risk that some conduct could occur that has anti-competitive effects. However, as NBN Co would need to notify the ACCC of proposed conduct before the pilot or trial commences, this risk is considered low. Furthermore, the ACCC would be able to take enforcement action.  The option means that there will continue to be some uncertainty within industry about whether particular proposals will be subject to regulatory action, but this is an issue that industry must consider in relation to all market activities. Again, up-front notification to the regulator will ensure that the regulator can quickly identify any concerns and industry can adjust proposals to reflect this.  Doesn't address wider problems with the non-discrimination obligations, although in this regard the Government was concerned that it may be too early to amend the obligations and that they should be reviewed by the Productivity Commission as part of its statutory review. 18

Preferred option Option 4 is the preferred approach, because it is likely to produce the highest net benefit of all the options. It best balances the Government's objectives (promoting innovation while ensuring adequate safeguards are in place to preclude undue discrimination that may harm competition). It places a lower regulatory burden on industry and the regulator than option 3. It is more market-based than option 3, in that no prior authorisation is required. The absence of prior authorisation does not mean that there will be less transparency than under option 3 - under both options, NBN Co would have to notify the ACCC and publish the notice. It means, on the contrary, that market participants will be better placed to judge that a pilot or a trial may deliver good commercial outcomes and test that for themselves, rather than the regulator being required to mimic the incentives of market participants. Option 4 does not preclude anti-competitive conduct being penalised; the proscriptions in the CCA on such conduct would continue to apply and the ACCC would be able to take action if it considered it warranted. Option 1 does not address the Government's objectives, though it does at least provide certainty to industry that the current level playing field delivered by the non-discrimination obligations will continue. However, it would also mean that innovation on the NBN could be limited, for the reasons given above. Option 2 addresses the panel's concerns, but departs from the non-discrimination obligations introduced in 2011 and by which access seekers have planned their operations. It could lead to considerable industry uncertainty about the impacts of the option on competition, which could have a chilling effect on investment decisions. Option 3 addresses the Government's objectives, but the role given to prior authorisation could result in delays to pilots or trials that could reduce their commercial utility, add to regulatory costs on business and potentially limit the benefits of the change if the regulator proved too conservative in its assessments of proposals. Consultation There was extensive consultation in early 2014 as part of the Vertigan review. For the Regulatory Report, the panel released a Regulatory Framing Paper in February 2014 to take soundings from industry and the public on key factors that should be considered. The panel received 43 submissions. For the Statutory Review, the panel released a consultation paper in March 2014 to seek views from industry and the public on the telecommunications access arrangements. The panel received 15 submissions. The Statutory Review was released in July 2014, allowing industry considerable time to provide feedback to the Government on its recommendations. The Department of Communications consulted carriers and industry organisations in relation to the panel's recommendations. In those consultations stakeholders indicated a general support for promoting more innovation on the NBN, but expressed concerns that any changes to the non- discrimination obligations could harm competition. The Government consulted industry stakeholders on an exposure draft of the legislation and on the early assessment RIS, sending the documents to major telecommunications carriers (about 20 industry members) and to key organisations including the Australian Communications Consumer Action Network, Communications Alliance and the Competitive Carriers' Coalition (CCC). The Government also provided the draft RIS and legislation to the ACCC for comment. 19

Six submissions were received. Opinion was divided on the non-discrimination proposals. One submission proposed broadening the changes to permit any discrimination that aids efficiency. Another supported the proposed changes but sought a specific exemption for itself. Four submissions indicated concern that the changes could advantage larger providers over smaller ones, especially in the context of NBN Co migrating services from Telstra's networks to the NBN. While the Government accepts that there are risks of such advantages being conferred, it also notes that general competition law provides adequate powers to the ACCC to monitor the sector and take action against anti-competitive conduct. No submitters commented on the regulatory burden measurement costings in the early assessment RIS. Implementation and Evaluation The Government issued a media statement on 11 December 2014 indicating its response to the Vertigan report and its proposal to amend legislation to permit limited discrimination relating to pilots and trials. Legislation is expected to be introducing during the Spring 2015 sittings of the Parliament. Should the Parliament pass the legislation, the Government would evaluate the impacts of the changes through its normal industry monitoring and consultation processes. This includes ACCC monitoring, such as its annual reports on competition in the telecommunications sector. 20

Regulatory Burden Measurement Options Preferred Regulatory Burden Measurement 1: Status quo No Neutral 2: Amend Part XIC of the CCA No Administrative Cost -NBN Co to enable NBN Co to would need to report discrimination discriminate between access to the ACCC. seekers where it aids efficiency or is authorised by the ACCC. 3: Amend Part XIC of the No Administrative Cost -NBN Co Competition and Consumer Act would need to notify the ACCC, to suspend the non- which would then need to authorise discrimination obligations for a the conduct. pilot or trial, subject to ACCC Delay cost - if the ACCC takes time authorisation. to authorise proposals, there may be a delayed commercial benefit for industry. 4: Amend Part XIC of the Yes Administrative Cost - NBN Co Competition and Consumer Act would need to notify the ACCC. to suspend the non- discrimination obligations for a pilot or trial, subject to notifying the ACCC. Assumptions (option 1) None - there is no change in regulatory burden for the status quo option. Average Annual Regulatory Costs (from business as usual) Change in Business Community Individuals Total costs Organisations change in ($million) cost Total by ($0) $0 $0 ($0) Sector Assumptions (option 2)  This option has a greater administrative overlay than options 3 or 4 (preferred). Given that discrimination between access seekers would be generally permitted it is expected that more proposals would be submitted to NBN Co for consideration and 21

therefore there would be an increase in the discrimination notices provided to the ACCC.  This increase is assumed to be 200% over the three notices a year average in Option 4 - that is, on average, 9 notices a year. Average Annual Regulatory Costs (from business as usual) Change in Community Total change in costs Business Individuals Organisations cost ($million) Total by $0.093 $0 $0 $0.093 Sector Assumptions (option 3)  NBN Co would accept 3 proposals per year over the next 10 years to conduct pilots or trials. The ACCC would need to examine and authorise each proposal.  The ACCC would need to allocate 1.0 FTE for up to 8 weeks per year to assess each proposal.  Delay costs to industry would be generated by the authorisation process. These are difficult to judge, and would depend on the nature of the proposal and envisaged benefits. As this option is not preferred, we have not attempted to calculate the delay costs. Average Annual Regulatory Costs (from business as usual) Change in Community Total change in costs Business Individuals Organisations cost ($million) Total by $0.062 $0 $0 $0.062 Sector Assumptions (option 4 - preferred)  Option 4 has similar assumptions to option 3 but the costs are half of that option because it does not involve ACCC authorisation.  NBN Co would accept 3 proposals per year over the next 10 years to conduct pilots or trials.  Based on costings for varying access agreements it is estimated that each proposal requires 1.0 FTE for 4 weeks per year to lodge the notification document with ACCC and manage follow-up consultation. 22

Regulatory Burden and Cost Offset Estimate Table Average Annual Regulatory Costs (from business as usual) Change in Business Community Individuals Total costs Organisations change in ($million) cost Total by $0.031 $0 $0 $0.031 Sector Cost offset Business Community Individuals Total by ($million) Organisations Source Agency ($0.031) $0 $0 ($0.031) Are all new costs offset?  yes, costs are offset no, costs are not offset deregulatory, no offsets required Total (Change in costs - Cost offset) ($million) ($0.031) The regulatory cost offsets noted in the above table have been identified within the Communications portfolio. These cost offsets relate to the Identity Checks for Prepaid Mobile Services reforms. 23

Amendments to Division 16 of Part XIB and Part XIC of the Competition and Consumer Act 2010 Introduction and overview This Regulation Impact Statement (RIS) looks at the arguments for and against amending existing statutory authorisations in the Competition and Consumer Act 2010 that allow NBN Co to limit its points of interconnection (POIs) and support NBN Co's supply of service elements. These practices are essential to the efficient and timely construction of the National Broadband Network (NBN) and the Government's ability to provide all people in Australia with access to next-generation broadband. There is a risk however that the practices could be considered contrary to general competition law. This creates risk and uncertainty for NBN Co that could delay the roll-out. The proposed amendments respond to the change in Government policy, in December 2014, whereby a price capping requirement would replace the previous Government's policy of uniform national wholesale pricing (UNWP) on the NBN. The existing statutory authorisations mentioned above are based on UNWP. Notwithstanding this change, there are strong arguments for the retention of the authorisation in a modified form to facilitate the prompt and efficient rollout of the NBN, thereby providing early access to the benefits it will deliver. This RIS:  provides background to this problem,  explains the Government objectives,  considers the options available, and the strengths and weaknesses of those options,  assesses the impact of those options on stakeholders, and  recommends a preferred course of action. The options are: 1. retaining the status quo, 2. repealing the existing statutory authorisations, 3. amending the existing statutory authorisations to reflect changes in NBN Co's operational mandate so that the authorisations work effectively (with those authorisations ceasing once the network is deemed to be completed), and 4. as above at option 3, but with the statutory authorisations continuing after the network has been completed. The RIS recommends option 3 as being the only legally sound and effective means of providing NBN Co with the certainty it requires to roll out and complete the NBN in a timely manner, and within budget, consistent with Government objectives, and with minimal practical impact on competition. 24

Background Since the NBN was first announced in April 2009, a key issue has been the way in which it would ensure faster broadband services are made available to all people in Australia, whether in metropolitan, regional, rural or remote areas. Funding of broadband services in rural and regional Australia was a particular concern as the costs incurred in supplying telecommunications services to regional areas are generally higher than the costs incurred in supplying city areas. This is because additional infrastructure is required to connect services and higher operating expenditure is likely to be required per premises in regional areas in order to support the geographically dispersed population. The then Government stated in its 2008 request for proposal process to select a provider(s) to build, operate and maintain the NBN that there would be uniform wholesale pricing in all regions of Australia. This policy was expanded upon in the then Government's 2010 Statement of Expectations issued to NBN Co: NBN Co will be required to charge access seekers uniformly for services across its network for all technologies and for the basic service offering. 1 This policy of UNWP was designed to ensure that a retail service provider (RSP) would pay the same wholesale price for an NBN carriage service to serve an end-user customer regardless of the end-user's location within Australia. The then Government's NBN UNWP policy was dependent on NBN Co operating an internal cross-subsidy, under which the higher cost of providing services to users in regional areas would be subsidised by the revenue earned in the higher-margin metropolitan areas. These policy requirements were factors in the design of NBN Co's product model and pricing. In this context, NBN Co, consistent with Government decisions, chose to limit the locations at which RSPs could interconnect with the NBN to the listed POIs agreed between the ACCC and NBN Co (this concept is discussed in detail, below). NBN Co's wholesale services involve the acquisition of a number of elements (this concept is also discussed in detail, below). This was consistent with the efficient and effective rollout of the network and supported the delivery of UNWP. However, in certain circumstances, there was a risk that such conduct could breach the competition provisions in Parts IV and XIB of the Competition and Consumer Act 2010 (the CCA). There was also a risk that NBN Co's limiting interconnection at POIs and requiring RSPs to acquire the bundled service elements would be inconsistent with Part XIC of the CCA. Amongst other things, Part XIC sets out a number of standard access obligations (SAOs) that NBN Co must comply with. For example, NBN Co is required, on request, to interconnect its facilities with the facilities of its customers. This SAO also requires NBN Co to allow interconnection at any POI. Accordingly, the then Government introduced Division 16 of Part XIB of the Competition and Consumer Act 2010 (CCA), which authorises conduct by NBN Co if it is reasonably necessary for it to achieve UNWP. This authorisation enables NBN Co to engage in conduct that may otherwise be considered anti-competitive in order to meet its UNWP requirements without breaching the CCA. The authorisations in Division 16 were reflected in complementary provisions in Part XIC which limit NBN Co's standard access obligation to 1 Senator the Hon Penny Wong and Senator the Hon Stephen Conroy, 'Statement of Expectations', 17 December 2010, p.7. 25

interconnect facilities to listed POIs and also provide for regulatory processes to be consistent with the authorisations. In this way, Division 16 supported the operational practices that were reasonably necessary to deliver UNWP and the efficient and effective rollout of the network. Points of interconnection An NBN POI is the location where the end-user traffic on NBN Co's network is handed over to a transmission network used by a RSP. The transmission network carries the combined traffic of many separate services between the POI and the RSP's point of presence, where their technical equipment such as servers and routers is located (generally this location is in a capital city). Under Divison 16, the ACCC is required to keep a list of POIs. There are currently 121 'listed POIs'. These are shown at Attachment A to this RIS. NBN POIs operate as 'star' networks. That is, lines run out from the POI to premises in nearby suburbs and towns. RSPs then pay NBN Co to use these lines to access customers. However, RSPs are responsible for transmission to and from every POI that they interconnect at and the wider telecommunications network. Access seekers must interconnect at the POI closest to their customer in order to supply them. This means that an access seeker with customers in both Perth and Canberra cannot connect all customers through a POI in Canberra. Instead, the RSP must interconnect at each relevant POI in Perth and Canberra, and then, if necessary carry communications between them, using non-NBN infrastructure. Under the current Division 16, NBN Co may operate the listed 121 POIs without offering further POIs. It may also, if it chooses, offer additional POIs (that are not included in the ACCC's list).2 In all instances, it can limit RSP access to these POIs without breaching the competition provisions in the CCA (if doing so is reasonably necessary to achieve UNWP). The ACCC and NBN Co's decision on the placement and number of listed POIs was critical because of the effect that POIs have on network design and cost. As the 'inner' geographic boundary of NBN Co's network is at its POIs, a small number of POIs allows NBN Co to control its costs of rolling out the network. Conversely, a large number of POIs may increase NBN Co's costs on the basis that provisioning its network to enable interconnection at a larger number of POIs will result in higher costs. The figure below shows the size of NBN Co's network under the three options described above. Identification of the Listed POIs In 2010-11, following public consultation, the ACCC and NBN Co agreed on 121 listed POIs that would preserve existing competition in transmission markets and promote the efficient 2 If NBN Co does decide to provide services from an additional POI, it is required to provide access seekers with at least 12 months prior notice of the new POI, per clause 1H.4.2 of its Special Access Undertaking (of 18 December 2012, varied on 18 November 2013). 26

use of, and investment in, transmission infrastructure on competitive routes.3 The ACCC and NBN Co considered three broad approaches to the number and location of listed POIs: 1. Distributed - approximately 718-750 POIs would be located deep in NBN Co's network at local telephone exchanges. Under this approach, POIs would be closer to end-users' premises. It would not provide any transmission services, avoiding any stranding of existing transmission infrastructure. At many of these POIs, especially in rural and regional Australia, Telstra would be the only transmission provider and this could limit the development of wholesale and retail competition in these areas. 2. Semi-distributed - POIs would be located at local exchanges where there were at least two competing transmission providers. Under this approach, NBN Co's costs of construction would be lower than under the first approach (because fewer POIs would need to be provisioned to enable interconnection), but higher than under the third approach. NBN Co would provide transmission services to its POIs. This would limit stranding of existing transmission infrastructure and promote competition in the transmission market. 3. Centralised - 14 POIs would be located in the five mainland state capital cities (4 x Sydney, 4 x Melbourne, 2 x Brisbane, 2 x Adelaide, 2 x Perth). Under this approach, NBN Co's wholesale product would include 'transmission'. This would extend NBN Co's network beyond the access network, stranding some existing transmission infrastructure being used to supply services to fixed-line customers. The option would risk foreclosing future competition in transmission networks. POIs under the Government's multi-technology mix model In April 2014, NBN Co's Shareholder Ministers (the Minister for Finance and the Minister for Communications) required NBN Co to use a range of technologies to achieve the Government's objective of ensuring that all Australians have access to very fast broadband as soon as possible and at least cost to taxpayers. Under this multi-technology mix (MTM), NBN Co will remain a national, wholesale only, open access provider of broadband, and will still be required to roll out its network to metropolitan, rural and regional areas within the funding envelope provided to it by Government. Under the MTM, the technology used over the 'last mile' of the network, which is used to connect the final network element (usually a 'node') to the end-user, could be one of three types - fibre, HFC or copper. In a large number of cases, rather than new fibre optic cabling being deployed and connected to the end-user premises at significant cost to the Government, the existing copper network will be utilised to provide similar, high-speed services. The MTM model added extra access technologies to the NBN, but it did not change NBN Co's overall design of the network. That is, NBN Co's network design is based on its ability to provide its product bundle, aggregate traffic back to 121 POIs, and for those POIs to still be linked by competitive backhaul providers. Bundling of designated access services Division 16 of Part XIB also allows NBN Co to refuse to supply a 'designated access service' to a service provider or utility unless that person acquires other 'designated access services'. 3 ACCC Advice to Government - National Broadband Network Points of Interconnect, p 2 27

This ensures that NBN Co can require access seekers to purchase a 'bundle' of service elements, rather than only one or two of those service elements. Each of the service elements is characterised in Division 16 of Part XIB as a 'designated access service', of which there are five:  a user network interface (UNI) service - the physical port at the end-user premises,  an access virtual circuit service (AVC) - the bandwidth allocated to each end-user,  a connectivity virtual service (CVC) - additional bandwidth, on top of AVC, between the POI and the end-user (this is designed to enable RSPs to add value to the basic NBN Co service through the provision of their own services, such as IPTV),  a network-network interface (NNI) - the physical port at NBN Co's POI, and  a voice telephony facilitation service. This service bundle enables NBN Co to effectively plan and provision the building of its network and provides it with commercial certainty in relation to the supply of services to its RSP customers. The service bundle is illustrated by the following diagram: Figure 1: NBN Co's product construct as shown in its 2016 Corporate Plan This service bundle, involving as it does an integrated product from the UNI to the NNI, again has been constructed to reflect the network structure and operational model set for NBN Co at the outset, including the number and location of POIs. NBN Co submitted a special access undertaking (SAU) to the ACCC setting out its policy to require RSPs to purchase the bundle of services. A SAU is a tool used by an access provider to gain regulatory certainty over future products and pricing into the future. The SAU sets out commitments to supply specific services and locks in specific pricing methodologies for those services. NBN Co's SAU was accepted by the ACCC in 2013. The formulation of NBN Co's SAU reflects the service elements constituting the 'designated access services' to be purchased by RSPs and also sets out provisions relating to points of interconnection that are consistent with the authorisations in Division 16 of Part XIB. 28

CCA provisions and Division 16 authorisations Part IV of the CCA includes a number of provisions that prohibit anti-competitive conduct. These provisions apply to all industry sectors. Part XIB of the CCA contains telecommunications-specific provisions which prohibit anti-competitive conduct in that sector. Division 16 was inserted into the CCA in 2011 as part of the Telecommunications Legislation Amendment (National Broadband Network Measures--Access Arrangements) Bill 2010 (the Bill) to protect NBN Co from liability under the CCA. The objects clause states that the purpose of the Division is to:  promote the national interest in structural reform of the telecommunications industry (s151DA(1)(a)); and  promote uniform national pricing of eligible services supplied by NBN corporations (s151DA(1)(b)). There are three authorisations for conduct that is "reasonably necessary to achieve uniform national pricing of eligible services supplied by the NBN corporation" which provide NBN Co with the ability to:  refuse interconnection of its facilities at a particular location with the facilities of another service provider or utility if the location is not a listed POI (s151DA(2));  refuse to supply a designated access service to a service provider or utility unless that person acquires other NBN access services (s151DA(3)); and  engage in conduct that is reasonably necessary to achieve uniform national pricing (s151DA(4)). These authorisations mean that NBN Co has statutory protection from any potential legal action under the Part IV of the CCA for that conduct. They also exempt NBN Co from the telecommunications-specific provisions in Part XIB of the CCA (s151AJ(7)(a)). By refusing interconnection at any POI and requiring RSPs to acquire each of the service elements, NBN Co could theoretically (depending on the particular circumstances) breach the competition provisions in Parts IV and XIB of the CCA if this conduct substantially lessened competition in any market. This means that if Division 16 is repealed, NBN Co is exposed to a risk of breaching Parts IV and XIB of the CCA (and could potentially face litigation by the ACCC and/or competitors) if it sought to rely on the authorisations. Interaction with Part XIC Part XIC of the CCA sets out a telecommunications industry-specific access regime which is administered by the ACCC. Under Part XIC, the ACCC can require NBN Co to give access to telecommunications services and facilities where this promotes the long term interests of end-users. Part XIC also sets out a number of standard access obligations (SAO) that NBN Co must comply with. For example, NBN Co is required, on request, to interconnect its facilities with the facilities of its customers. This SAO requires NBN Co to allow interconnection at any POI. The authorisations in Division 16 are reflected by provisions in Part XIC of the CCA that 'switch off' certain regulatory processes in Part XIC. For example, the SAO that requires NBN Co to allow interconnection at any POI does not apply to an interconnection at a location that is not a listed POI (subsection 152AXB(4A)). The ACCC also cannot make access determinations or binding rules of conduct that would have the effect of making NBN Co engage in conduct that is inconsistent with the authorisations (subsections 152BCB(3B) 29

and 152BDA(3B)) or reject a special access undertaking if it contains a refusal to engage in conduct that is authorised under Division 16 (subsection 152CBD(5C)). Vertigan Review and Government Policy Statement of 11 December 2014 The Independent Cost-Benefit Analysis of Broadband and Review of Regulation, undertaken in 2014 by the Vertigan panel of experts, recommended that the Government end its UNWP policy and instead adopt a policy of capping the prices of NBN Co's services (recommendation 8). The recommendation reflected the panel's view that infrastructure-based competition should be facilitated to the greatest extent possible, and also its concern that NBN Co would not be able to compete with other infrastructure providers if it was required to maintain UNWP. If UNWP applied, NBN Co would have to charge its customers more in metropolitan areas than its competitors in order to subsidise the cost of providing services in low-value areas. The panel's view was that NBN Co should be able to reduce its prices in metropolitan areas in response to competitive pressure, enabling customers in metropolitan areas to experience the benefits of competition (i.e. lower prices and higher quality of service). As a result, the panel recommended that wholesale price caps should be implemented in order to ensure that consumers in low value areas still had access to affordable services. The panel also recommend that, assuming UNWP is no longer required, the Government should repeal Division 16 (recommendation 10). This recommendation was made on the basis that if the authorisation provisions in the Division were there to enable UNWP, then in the absence of a UNWP policy, NBN Co would have no reason to be able to engage in the authorised conduct. The Government broadly accepted the panel's findings in relation to these recommendations. In its Telecommunications Regulatory and Structural Reform policy paper, released in December 2014, the Government stated that it would confirm that NBN Co has flexibility to adjust prices on a non-uniform basis, subject to price caps, and that it would repeal Division 16, subject to considering implementation arrangements for price capping. The Government's price cap policy still imposes obligations on NBN Co to ensure that the wholesale prices do not increase above the current prices approved by the ACCC in NBN Co's SAU. To the extent that price capping will require NBN Co to provide services on a non-commercial basis, the Telecommunications Regulatory and Structural Reform paper provides for the implementation of a transparent funding scheme. Accordingly, the Bureau of Communications Research is developing a possible funding mechanism for consideration by Government. The case for action The fundamental issue that this RIS explores is the need to minimise risk, uncertainty and cost for NBN Co, other carriers and CSPs and end-users in rolling out the NBN as quickly and cost-effectively as possible, and the role Division 16 may need to continue to play to achieve this. As noted above, the Government's in-principle decision in its December 2014 policy statement was to repeal Division 16 on the basis that UNWP did not allow NBN Co to price efficiently in competitive markets, such as metropolitan areas. That decision to repeal Division 16 was however, subject to considering implementation arrangements for price capping. Given that the price cap will be funded through a transparent industry cross-subsidy, there appears to be little basis for maintaining Division 16 for pricing reasons. However, in 30

analysing this matter further, it has become apparent that justification remains for the retention of some authorisations, but in amended form. It was evident in carriers' submissions to the Vertigan Review that the telecommunications sector in Australia strongly supports the completion of the NBN rollout. The NBN will not only provide faster internet access for end-users, but also a new platform for fairer and more retail competition. To complete the rollout, however, NBN Co must be able to plan and provision its network in the most cost effective and resource efficient manner possible. Since 2011, NBN Co has operated on the basis that it would be able to limit its number of POIs and sell a 'bundle' of access service elements to carriers and carriage service providers. This model has effectively been endorsed by the Parliament in its original enactment of Division 16 and by the ACCC's approval of NBN Co's SAU, which reflects NBN Co's product design and the supply of services at listed POIs. This has been the operating model that the company has built and designed its network around. As noted above, while the move to an MTM rollout changes the technologies NBN Co will use in the access network, it does not change its fundamental operating model of POIs and products. The repeal of authorisations under Division 16 could give rise to additional risk, uncertainty and cost through the application of Part XIC to NBN Co's network during the period in which it is being rolled out. There is a risk that without the conduct authorised under Division 16 being available to it, NBN Co could be subject to pressure from access seekers to change the fundamental design of NBN Co's products and services, and to provide additional points of interconnection during the rollout of the network. This is problematic because it would require NBN Co to look at alternative operating models to the one on which it is building and operating its network. Put simply, repealing Division 16 has the potential to create significant delays and additional costs which would be directly contrary to the Government's objective to roll out the NBN as soon as possible and at lower cost to taxpayers. The current POI and bundling arrangements have these implications for NBN Co: 1. POIs -NBN Co is only required to provide service providers access to its 121 POIs. By requiring access to these POIs, NBN Co can optimise use of the POIs it maintains and ensure that its transmission services are being utilised to the maximum extent, ensuring economic efficiency and that the NBN can be rolled out within the Government's funding profile. Further, it is not distracted from its roll out task by having to provide additional unplanned POIs. Any access seeker is likely to request access to a large number of additional POIs and NBN Co could not accommodate this within its current plan. 2. 'Bundling' of services - NBN Co is permitted to sell specified service elements as a 'bundle'. This provides it with certainty in the planning and provisioning of its services because it is maximising the efficient supply of those services, and providing them on terms that provide NBN Co with the opportunity to seek to recover the cost of building the network. If NBN Co were required to change its product design this could significantly impact delivery of the NBN overall given the interaction between NBN Co's product design and the 121 listed POIs (e.g. the NNIs are located in the POIs). Access to additional POIs and service elements could be sought by carriers where those carriers have existing networks or facilities that would enable them to provide services. For 31

example, a carrier may have transmission capacity at or near potential (unlisted) POIs. If the ability to refuse interconnection at non-listed POIs was removed, the carrier could seek to connect to the NBN at the unlisted POI. A carrier that seeks access to additional POIs may request access to hundreds, if not thousands, of POIs. This would inevitably distract NBN Co from its planned build. It could also affect the ability of NBN Co to provide reasonably priced services to all RSPs, including those who do not have much network infrastructure available to use. Provision of access at this level is not part of the existing build plan. Given these factors, any request to NBN Co to offer interconnection at a significant number of new POIs, and to 'unbundle' its service elements, would have serious implications for NBN Co. Effectively, it would require a fundamental re-design of its current network design and operating model. It could, for example, be required to build larger nodes or use different equipment to support access at many more points, and it may need to look for new and/or different locations for POIs with all of the complexity in terms of time and costs that that would entail. Given that, it is more likely that NBN Co would reject a request for interconnection at a large number of additional points. It may then seek an authorisation under Part IV, or an access seeker could approach the ACCC for a regulatory decision under Part XIC of the CCA. In either case, NBN Co may choose to slow its rollout until a regulatory decision is made. Such decisions can take time; approximately six months in the case of an authorisation, and up to a year or longer in the case of Part XIC processes. As a result, the network would be delayed during that period, thereby delaying the benefits to end-users and other access seekers of having access to the network. If NBN Co were required to supply interconnection at a larger number of POIs, this could also result in a resource shortfall, both for NBN Co and the broader industry in terms of the availability of skilled personnel and equipment with consequential time and cost implications for NBN Co and therefore also access seekers. More seriously, the requirement would impose significant new costs on NBN Co. NBN Co would face extra costs from having to identify new locations for POIs, seek approvals, buy new or additional equipment and hire additional staff. Its ability to recover some or all of these costs would be subject to the ACCC's regulatory determinations, but in any case it could not recover the costs from access seekers until it could actually supply them with the service - that is, after it had hired the additional staff and built the additional POIs - or until there were actually access seekers seeking those products. Delays to the rollout would also have impacts on NBN Co's ability to meet its forecast revenue. Certainty in relation to the rollout of the NBN is important to other carriers and CSPs as well. It provides confidence in relation to future investments and in the provisioning of their own networks or facilities. Most carriers and CSPs have developed their business models, and configured their networks or supply arrangements to access the NBN in the form that it is currently planned, that is to connect at listed POIs and purchase the 'bundle' of service elements as required. Impacts on end-users are considered in greater detail in the 'analysis of options' section, below. Unbundling of access services may lead to competitive efficiencies, such as enhanced or differentiated service offerings and possibly lower retail prices. These potential benefits are considered in further detail in the discussion of options below. 32

Once the NBN has been built, the case for retaining Division 16 is reduced and default rules and processes can prevail. The reason that the authorisations can be repealed once the network is complete is because certainty is only needed to facilitate the efficient and effective rollout of the network. If an access seeker requests interconnection at a large number of new POIs once the NBN has been built, NBN Co will already have a functioning network that is earning revenue. It will also have the network on the ground and would not need to fundamentally redesign it. Furthermore, it would be able to seek a funding contribution from another carrier for any new facilities before it builds those facilities, meaning that it would not face unmanageable calls on its funding. The authorisations are an important mechanism for providing certainty and ensuring that the network is built quickly as now planned, without distraction, as would be the case if access to non-listed POIs could be granted or different service elements 'unbundled', requiring significant redesign and potentially significant further, currently unplanned, investment by NBN Co and access seekers. Once the network is built however, the ability to unbundle it to support greater competition, if the demand exists, using standard processes like those under Part XIC, should be available. To summarise, the broad policy issue the Government needs to address is:  whether NBN Co needs to be able continue to operate a limited number of POIs and bundle services so that it can roll out the network as planned, on a timely basis, at lower cost, for the benefit of consumers, and as expected by its customers; or  whether NBN Co should not have the benefit of the exemptions, so that other carriers could potentially seek access to its infrastructure to help them provide competing services, especially in the long term, despite the potential short term impact on the NBN rollout, stakeholders, and the benefits the rollout will deliver. The issue basically arises because the move from UNWP to price capping calls into question the existing statutory authorisations. NBN Co needs to continue to engage in the conduct concerned, because it has planned its network on this basis, and industry has also planned to access the NBN on this basis, and a change in policy would delay the rollout of the NBN, increase costs for NBN Co and also delay access for industry and end-users to high-speed broadband services. This therefore means that the statutory authorisations should be amended to allow the behaviour to continue, but in doing this the Government needs to ensure that the impacts on competition and efficiency are limited and appropriate. In drawing a suitable balance between these issues, the Government will also need to consider the timing of various actions. Delays and costs for NBN Co are likely to be particularly acute during the rollout stage, i.e. pre-2020, as any requirements to repurpose or redesign the network would be likely to create additional costs, and result in delays. Once the network is built however, i.e. post-2020, industry can negotiate with NBN Co for additional POIs at locations that reflect market signals, and the costs of building new POIs can be shared. Building new POIs at this point does not cause any delays or additional rollout costs, but could promote competition and benefits for end-users. As a result, there is merit in ensuring that the authorisations are only set in place for a period of time in which they are useful and do not unduly restrict competition, and are lifted when the benefits for competition can be realised. 33

Overview of options Option 1 - Do nothing Under this option the Government would leave Division 16 in its current form. It is assumed that NBN Co would operate on the basis that the authorisations provided by Division 16 would remain in place, however, in the absence of the Government's policy supporting UNWP, the interpretation of the authorisations is somewhat uncertain. Option 2 - Repeal Division 16 in its entirety, rely on existing ACCC powers to authorise certain conduct that may be anti-competitive Under this option the Parliament would repeal Division 16 in its entirety. NBN Co could seek authorisation from the ACCC in relation to restrictive trade practices under Part IV and Part XIB of the CCA (noting, however, that there would be no protection in relation to Part XIC 4), but this authorisation is far from guaranteed. In addition, the provisions in Part XIC of the CCA which allow NBN Co to refuse interconnection at any facility that is not a listed POI would be repealed. An access seeker could therefore request interconnection to an unlisted POI and NBN Co could be required to allow this interconnection. If NBN Co refused interconnection the ACCC or the affected RSP could apply to the Federal Court seeking an order to require NBN Co to allow interconnection. Option 3 - Amend Division 16 so that it provides authorisation for necessary conduct that facilitates the rollout of the NBN Under this option, the Government would amend Division 16 to continue to authorise NBN Co to limit the number of POIs and to bundle services as it currently does. This would aim to ensure that NBN Co was authorised to engage in conduct to enable the effective and efficient roll out of its network by minimising the risks to which NBN Co is exposed to. To this end, the Division would be amended so that the object of the Division is to facilitate access to superfast carriage services by all people in Australia, wherever they reside or carry on business. The amendments would also ensure conduct necessary to achieve this object-- namely limiting interconnection to listed POIs and bundling access services--was authorised. That is, in effect, the authorisations would be amended to cover conduct reasonably necessary to build the NBN according to the established operating model, rather than to achieve UNWP. Matching amendments would be made to Part XIC to ensure that the SAOs continue to be limited by the authorised conduct. A new clause would also be included in the amended Division 16 to ensure that the Division ceases to have effect once the NBN has been completed and is fully operational, as declared by the Minister under section 48 of the National Broadband Network Companies Act 2011. The anticipated date of completion of the network is 2020, meaning that any authorisations would be in place for a limited period. This would be consistent with the rationale for the amendments, that is, to provide certainty for NBN Co during the rollout of the network. 4 As noted on pages 8-9 above, the authorisations in Division 16 are linked to the SAOs set out in Part XIC of the CCA. Part XIC currently contains provisions preventing the ACCC from making an access determination that is inconsistent with the authorisations set out in Division 16 (s 152BCB(3B)). While authorisation under Part IV of the CCA would enable NBN Co to engage in the conduct specified, the ACCC could still make an access determination providing access to NBN Co's services which would otherwise be protected under Division 16. 34

Option 4 - Amend Division 16 so that it provides that NBN Co can engage in authorised conduct during the rollout of the network, and once it has been completed This option is similar to option 3 in that the Government would amend Division 16 to continue to authorise NBN Co to limit the number of POIs that it provides access to and to bundle services as it currently does. The key difference however is that NBN Co will continue to be able to engage in authorised conduct once building of the network has been completed. Impacts of options The following criteria have been considered in assessing the costs and benefits of the different options: 1. Will the option support the successful rollout of the NBN? 2. Will the option affect competition, both infrastructure and retail, in the telecommunications market? 3. Does the option comply with the Competition Principles Agreement, made between the Council of Australian Government (COAG) on 11 April 1995 and which requires that any legislation that potentially restricts competition:  must be able to show that the benefits to the community of the restrictions on competition outweigh the costs, and  the objectives of the legislation can only be achieved by restricting competition. 4. How will the option affect end-users? In terms of the overall conceptual framework for analysis being applied, the focus is on the benefits to be derived from NBN Co having certainty and reduced risk and costs in relation to the rollout, versus, the theoretical potential benefits of more efficient supply from NBN users being able to source infrastructure from providers other than NBN Co and using it in conjunction with the NBN. Option 1 - Do nothing Advantages: The main benefit of the status quo option is that the Parliament would save time and resources by not having to consider the matter. As this option is likely to give rise to significant uncertainty, the effect of the option on competition, the NBN rollout, and end-users are all considered in the disadvantages section. Disadvantages: The status quo option would result in Division 16 remaining in the CCA in its current form, despite the Government's adoption of a price capping policy and the cessation of the UNWP policy. This would create considerable uncertainty around the application of Division 16 and NBN Co's ability to use the authorisations contained within it. NBN Co would face the risk that, if it continues to operate under the current framework, a carrier might challenge the legality of that framework, due to the shift in Government policy. Legal action, or consideration of the matter by the ACCC, could create further uncertainty and delay to the roll-out. If a court settled on an outcome which required NBN Co to re- design its network to support broader interconnection and unbundling, then the Government may need to consider legislation to address this. In other words, an outcome of option 1 would be that the Government needs to proceed to options 3 or 4 anyway. 35

The effect of this option on competition is difficult to assess. If NBN Co was to continue operating as if the authorisations remained in place, and its approach was not challenged by other industry players, then the NBN would continue to be rolled out and retail service providers could benefit from increased access to an open access network offering services on non-discriminatory terms and conditions. Conversely, if competitors sought to interconnect outside NBN Co's 121 POIs, or unbundle NBN Co's designated access services, and these changes became available following a court or regulatory process, the implications for competition are less clear. Some access seekers may be able to make greater use of existing transmission assets, which could reduce their costs and allow them to compete more effectively. However, it is not clear that such a request would be made, given the strong industry support for the NBN model and for the authorisations in Division 16 to continue. As noted above, non-NBN carriers and CSPs have planned their network investments and supply arrangements to take account of the NBN, and delays to the rollout or a network redesign could impose costs on them from having to adjust their own operating models and plans. If an access seeker did request greater interconnection or unbundling, and NBN Co refused, then any subsequent court or regulatory process would also delay the rollout as NBN Co would need to pause its current plans in case it was made to redesign its network and products. These delays would flow through to other carriers and CSPs, imposing delay costs on their activities. Delays and additional costs would have consequential implications for end-users. People living in areas where the NBN is being rolled out could face a delay in being able to access high-speed broadband. Many would not be able to access such services from competing providers, as those providers target a limited number of high-density areas or new developments and do not, for example, target suburban or regional areas. Such delays are likely to outweigh any benefits for individual access seekers from being able to make greater use of their transmission assets. The existing arrangements are consistent with the competition principles agreement on the basis that a uniform pricing approach was considered to provide benefits that outweighed the restrictions on competition. If an access seeker sought additional locations for interconnection and difference service elements from NBN Co, then any benefits for competition would be consistent with the agreement, but the possibility of wider costs for industry and delays to end-users' ability to receive services would mean that the costs of this option would outweigh the benefits, which are uncertain in all instances (i.e. because it is uncertain anyone will seek such interconnection). The long term implications of this option are unlikely to be significant in that competing carriers are unlikely to come forward to seek to access to NBN assets at a deeper level in the network. However, if they did come forward and did secure access, through ACCC decisions, it could potentially enhance infrastructure-based competition in areas attractive to competitors into the future. This means that infrastructure competition may be more developed in some areas post-2020, compared to the counterfactual presented in option 3. However, this would come at the expense of rolling out the NBN more quickly and at lower cost and providing the benefits of better broadband sooner on a national basis, while leaving open the option in the future for access seekers to seek to leverage NBN assets. This would also be expected to impact on NBN Co's long term commercial performance. 36

Option 2 - Repeal Division 16 in its entirety, rely on existing ACCC powers to authorise certain conduct that may be anti-competitive Advantages: Under option 2, the legislation would be repealed on the basis it is no longer needed to support UNWP, which would be consistent with the Government's regulatory reform policy. This would create a greater degree of certainty for industry and NBN Co than Option 1. NBN Co could seek authorisation under Part VII of the CCA to limit interconnection and require RSPs to purchase bundled services if it considered that it required protection from potential action for anti-competitive conduct. This option would comply with the Competition Principles Agreement on the basis that it does not restrict competition (and, if NBN Co sought an authorisation, that authorisation would by definition be granted on the basis that the benefits outweigh the costs). Disadvantages: This option does not address the fundamental issue of NBN Co potentially having to provide levels of wholesale access during its rollout that are inconsistent with its operating model. This, in turn, gives rise to significant uncertainty, risk and potential delay to the rollout of the network. If Division 16 (and the consequential limits on the SAOs) are repealed, an access seeker would be able to request interconnection outside listed POIs, and may seek to unbundle the designated access services. If NBN Co refused this request, an access seeker could raise the issue with the ACCC which could consider whether it needed to take regulatory action. As services supplied by NBN Co under its SAU are 'active declared services', the ACCC would be able to consider making an access determination setting out requirements for interconnection and unbundling. However, as noted above, NBN Co's SAU sets out a requirement for RSPs to purchase bundled access services and establishes arrangements in relation to interconnection at NBN Co's POIs. There is no provision in legislation for the ACCC to re-open a SAU once it has approved the SAU. However, this need not mean that the SAU would shield NBN Co from change. If a challenge were to occur and the ACCC made an access determination under Part XIC requiring NBN Co to offer additional POIs, then NBN Co would be required to provide more interfaces at which access seekers/RSPs could interconnect, and could also be required to unbundle its services. As noted above, these obligations could require it to re-design its network and product suite, which could significantly increase its costs and delay the rollout of the NBN. Another consideration is the constraints on resources, in terms of skilled personnel or equipment. If more POIs are required, in addition to planning and redesigning the network, NBN Co would, by extension, require more equipment and labour which would result in further costs and delays to the network. It is not certain that the ACCC would consider that it needed to undertake a regulatory process, or that access seekers would seek interconnection outside listed POIs and unbundling. It should be noted that industry, in submissions on the draft legislation, supported retaining authorisations relating to interconnection and bundling. On that basis, it is uncertain that there would be any challenge to NBN Co's current arrangements. However, the risk of a challenge and subsequent regulatory uncertainty could divert resources within NBN Co from the rollout and access seekers and other industry participants from implementing their existing business plans; with consequential impacts for end-users. At its worst, it could lead to the significant redesign of the network, affecting the budget and delaying the rollout 37

of the NBN. Generally, where a risk exists that could, even theoretically, lead to significant delays to the NBN rollout, it is preferable to address that risk than to ignore it. An opportunistic carrier or carriers could request interconnection at a significant number of POIs, placing significant resource and cost burdens on NBN Co. If NBN Co considered the risk of having to provide access to additional POIs or to unbundle its services was significant, it could seek authorisation under Part VII of the CCA to limit interconnection and require RSPs to purchase a bundle of designated access services. Part VII enables NBN Co to apply to the ACCC to obtain authorisation to engage in conduct that may have anti-competitive implications under Part IV of the CCA, if the public benefit of such conduct outweighs the public detriment. This would be time consuming and uncertain. Moreover, it would only provide relief for NBN Co from potential action for anti-competitive conduct under Parts IV and XIB of the CCA. It could not 'switch off' the SAOs in Part XIC of the CCA. This could result in an unusual regulatory situation where NBN Co is protected from the consequences of limiting interconnection and requiring bundling, but an access seeker could nonetheless still ask the ACCC to consider regulating these issues. The uncertainty creates scope for opportunistic behaviour and, to the extent that industry needs to adjust its behaviour to cater to the uncertainty, creates additional costs for industry. In its 2016 Corporate Plan, NBN Co noted for every seven months that the launch of its FTTN product is delayed, the company would require an extra $1 billion in funding.5 If NBN Co seeks authorisation under Part IV, the subsequent ACCC processes are likely to result in lengthy delays which will result in significant costs to the network. If there are multiple authorisation requests, those delays could conceivably extend to 18 months or more. If additional funding is then required by the Government, then consideration should be had for the opportunity cost of that funding. In relation to competition, if alternative providers did not seek access to NBN Co's POIs deeper in the network, then there would presumably be no impact on the current level of competition in the market. If alternative providers did, however, seek access to unlisted POIs and NBN Co was required to go through the process described above in relation to Part IV and ACCC declaration under Part XIC, there could be delays to the construction of the network which would result in delays to the retail competition in areas where the network has not been built. To the extent that access seekers are able to make greater use of their transmission assets and reduce their costs, they may be able to compete more effectively and efficiently in some areas of Australia. However, the only access seeker with extensive transmission network infrastructure in rural and regional Australia is Telstra. In its 2010 advice to the Government in relation to POIs the ACCC expressed concern that this could foreclose competition in those areas because Telstra would have an advantage over other providers because it owned the transmission networks. As a result, it would inevitably be better placed to compete on price than its competitors6. Consequently, this option may in fact reduce competition in many areas of the country. Moreover, any potential for additional infrastructure competition in such instances must be assessed against the broader disruption and uncertainty caused to the rest of the rollout. 5 NBN Co Corporate Plan 2016, p 69 6 ACCC Advice to Government - National Broadband Network Points of Interconnect, November 2010, p2. 38

There is no guarantee that this option would result in better commercial outcomes for carriers and CSPs generally. As noted in option 1, non-NBN carriers and CSPs have planned their own network investments and supply arrangements with the expectation that the NBN will be rolled out as currently planned and completed within the proposed timeframe. Any redesign of the NBN could be expected to similarly adversely affect the speed at which access seekers are able to leverage the NBN to provide their own services. To the extent an alternative provider wanted to compete with NBN Co without accessing NBN Co assets, it would be largely unaffected by the proposed approach. This option is also unlikely to lead to better outcomes for end-users, whether residential or business. In the event that NBN Co is subject to uncertainty and risk that could delay its rollout, those delays will flow through to end-users. As the majority of end-users live or work in areas where competitive rollouts are not planned or are unlikely to occur, those end-users will not be able to access viable fixed-line alternatives for high-speed broadband services. To the extent that the option might foster competition, it would be consistent with the Competition Principles Agreement, but the extent to which it will is far from certain. The long term effects of this option are likely to be similar to those discussed under option 1. If unbundling of service elements and access to additional POIs was sought by carriers and permitted by the ACCC, then infrastructure competition may develop in high-value areas where it would be advantageous for carriers to interconnect their own networks to additional NBN POIs, and the ACCC allows interconnection to take place. This may enable the benefits of infrastructure competition to be realised. It would appear to be more likely however, that competition would be limited to those high-value areas. Consequently, it is likely that people in most areas of Australia would receive delayed access to high-speed broadband services, and therefore the benefits from promoting competition in some areas are likely to be less significant than the costs to end-users. This would also be expected to impact on NBN Co's long term commercial performance. Option 3 - Amend Division 16 so that it provides authorisation for conduct that facilitates the rollout of the NBN Advantages: NBN Co would be able to refuse interconnection at non-listed POIs and require providers to purchase its 'bundle' of service elements where those actions are required to achieve the objectives of structural reform of the telecommunications sector and rolling out the NBN. This will enable NBN Co to operate its network during the construction phase in the most effective and efficient manner possible. It will avoid a potential redesign of the operating model. This would significantly increase certainty for the project, and for the wider industry. By extension, this should result in the delivery of the network as a whole, faster, and therefore enable all Australians to experience the benefits of faster broadband, sooner. The sooner and more efficiently the network is built, the sooner and at lower cost it is available to support retail competition. One of the key findings of the Vertigan Review, which conducted a cost-benefit analysis of the NBN, was that the overall benefits of the NBN would be greater if the network was completed sooner. This is because users are able to realise the value of faster broadband earlier. The Vertigan Review estimated the MTM scenario provided a net benefit relative to 39

the FTTP scenario of $16 billion. $6 billion of this difference is attributed the benefit of the MTM scenario delivering higher speeds to consumers sooner than the FTTP model.7,8 The Vertigan Review also commissioned 'willingness to pay' analysis which estimated the benefits to households and business of getting access to high-speed broadband sooner. The analysis found that the weighted total benefit per household moving to the NBN is $26.30 per month.9 Assuming that the approach proposed under this option means faster broadband is provided 12 months sooner than might be the case under option 1 or 2, due to the uncertainty and potential delay under those other options, there would be a significant nominal benefit of $26 multiplied by the number of end-users that would otherwise be connected to the NBN during the delay period. This option would also remove the right of NBN Co to engage in authorised conduct once the network has been built. This would ensure that there are no ongoing authorisations in place and that the sector can default to the general regulatory approach following the completion of the network build. The impacts of the option are limited to the duration of the network build, meaning (as set out below) that the impacts on competition are limited. It should be noted that while the authorisations are in place, other carriers are not prevented from rolling out their own networks. To the extent an alternative provider wanted to compete with NBN Co without accessing NBN Co assets, it would be largely unaffected by the proposed approach. Carriers can still invest and compete against NBN Co, but they cannot leverage certain NBN Co infrastructure in order to compete against it. Non-NBN Co carriers and CSPs would also be able to take advantage of the benefits inherent in the network being rolled out as planned, by not having to revise their existing plans to provide services through the NBN. This will ensure that end-users are able to access services with the changes proposed by this option sooner, than under options 1 and 2. The option is also consistent with the COAG Competition Principles Agreement. Section 5 of the Agreement requires that legislation should not restrict competition unless it can be demonstrated that: 1. the benefits of the restriction to the community as a whole outweigh the costs, and 2. the objectives of the legislation can only be achieved by restricting competition The public benefits of the option are likely to outweigh the cost of any potential reduction in competition while the network is being built. The benefits of the proposed approach are that it would enable the network to be built as quickly as possible, allowing benefits of the kind estimated by the Vertigan Review to be captured. The costs would primarily relate to possible future costs, from NBN Co having to provide deeper interconnection and to unbundle services, if access to such products was sought sometime in the future. That, in itself, however, is uncertain. Importantly, the option provides a far more reliable pathway to retail competition over the NBN compared with options 1 and 2 as NBN Co would have greater certainty in relation to it rollout under this option. Industry is already operating on the basis 7 Independent cost-benefit analysis of broadband and review of regulation: Volume 2 - The costs and benefits of high-speed broadband, p84. 8 While the NBN Co 2016 Corporate Plan estimated that the cost of the MTM or FTTP rollout would be greater than the previous figures used by the cost predicted as part of the Vertigan review, the principle that there is a greater net-benefit associated with a network being rolled out sooner would still apply. 9 Independent cost-benefit analysis of broadband and review of regulation: Volume 2 - The costs and benefits of high-speed broadband, p 74 40

that it interconnects at 121 POIs and purchases a 'bundle' of designated access services. Consequently, it will not need for them to incur adjustment costs. Allowing interconnection at more points in the network could potentially allow some industry players to use more of their transmission facilities to supply services and reduce their costs. However, this is uncertain given industry support for the NBN, and the ability for alternative providers to roll- out their own networks, independent of the NBN. For example, TPG has announced that it will roll out an FTTB network to 500,000 apartments in competition with NBN Co. It is currently reported to service 850 buildings. There has also been speculation that M2 and Vocus, if their merger proceeds, may adopt a similar strategy. All indications are they would pursue these strategies using their own infrastructure, rather than accessing NBN Co's. Once the NBN is complete NBN Co would be subject to the normal operation of Part XIC and industry will be able to seek interconnection outside listed POIs.10 As noted above, in submissions on the draft legislation no industry members indicated concerns in relation to this option. This proposal also reflects industry submissions to the Vertigan Review which argued in favour of the NBN being completed as soon as possible. Any potential disadvantages for the wider industry from a delay in being able to use their own transmission assets more fully should be considered against the benefits to business and residential end-users from gaining earlier access to high-speed broadband. As noted above, the cost-benefit analysis of broadband undertaken by the Vertigan Review estimated that the benefits of the MTM NBN were in the order of $18 billion (in net present value terms). These benefits reflected the fact that the MTM is lower cost than an all-fibre rollout, and, significantly, will be able to be rolled out faster, meaning that the economic benefits of the technology could be captured sooner. Although a number of competitors have rolled out infrastructure in competition with NBN Co, fixed-line rollouts are limited to certain areas of major capital cities (new developments, business parks, CBDs) where the investment can produce a clear commercial return. In these areas end-users will, as a result, always be able to receive high-speed broadband services from alternative fixed-line providers. However, NBN Co is servicing the entire country and history has shown that competitive fixed-line rollouts are unlikely to occur in regional or rural areas, or indeed in the suburbs of larger cities. Delays to the NBN rollout will therefore result in the majority of areas of Australia not receiving high-speed broadband services quickly. This option therefore provides a clear advantage for end-users as it promotes certainty and the early rollout of the NBN. As under options 1 and 2, the long term implications of this option are unlikely to be significant in that competing carriers are unlikely to come forward to seek to use NBN Co's assets and will not be affected by restrictions on doing so. However, if an access seeker does wish to secure access through ACCC decisions, they would not be able to under Option 3 and any long term benefit derived from that infrastructure-based competition would not eventuate. Competitors, however, would still be able to compete using their own infrastructure and, once the NBN was built and fully operational, they would be able to seek to use NBN Co's assets, should they wish to, under usual ACCC processes. At the same time, NBN Co would be able to roll out its network more efficiently with greater certainty and lower risk, delivering the benefits of better broadband sooner. NBN Co may, as a result, be 10 As noted above, because NBN Co's SAU sets out a requirement for RSPs to purchase bundled access services, industry would not be able to seek unbundling before the SAU expires in 2040. 41

better positioned long term to compete with other infrastructure providers, however, those other providers are still able to build their own networks while NBN Co is building its network and will be able to seek access to the NBN in future. In the long term, carriers would be able to seek access to NBN infrastructure and because the NBN market place will be more mature, they would be better placed to request interconnection in response to market signals. They would be able to seek access to NBN Co's assets to leverage their existing backhaul and transmission infrastructure. However, NBN Co would not be disadvantaged by the cost of building in interconnection capability that may not be required, but access seekers could seek access in future at their cost, with that cost recoverable from them as the cost-causers. Overall, the benefits of this approach are seen to outweigh the costs. Disadvantages: This option could, for a short period of time, limit providers' ability to use their existing backhaul networks to interconnect at deeper points in the NBN. However, as the authorisations will only be in place for a limited period of time, any such impacts would be short-term and are likely to be outweighed by the benefits of reducing delays in the rollout and ensuring that people in a broader span of Australia will be able to access high-speed broadband services sooner. To the extent an alternative provider wanted to compete with NBN Co without accessing NBN Co assets, it would be largely unaffected by the proposed approach. While this option may theoretically have an adverse effect on competition in some markets for a limited period of time, this will not always be the case. Other infrastructure providers are likely to continue to invest in transmission networks that connect directly to their own local access networks, where such investment is viable, for example, in high-density metropolitan areas. Consequently, where competitive infrastructure investment is commercially viable, there is unlikely to be a significant cost to industry from option 3. This means that while the NBN is being built, the option will preclude industry from being able to access specific facilities or services where it may be efficient for them to do so, but as noted above, the advantages of completing the NBN sooner would outweigh the limited short term costs. Option 4 - Amend Division 16 so that it provides that NBN Co can engage in authorised conduct during the rollout of the network, and once it has been completed Advantages: The advantages of option 4 are similar to those listed under option 3, particularly in the short term. That is, the continued operation of authorisations will enable NBN Co to roll out its network during the construction phase in the most effective and efficient manner possible. It will avoid a potential redesign of the operating model. This would significantly increase certainty for the project, and for the wider industry. By extension, this should result in the delivery of the network as a whole, faster, and therefore enable all Australians to experience the benefits of faster broadband, sooner. Such certainty would be on an enduring basis. Disadvantages: Allowing NBN Co to continue to limit access to POIs after it has completed the NBN would risk putting in place longer-term limits on competitive investment in transmission infrastructure. Over the long term, such restrictions could inhibit efficiencies in the market and limit the ability of competition to provide end-users with better services and lower prices. Accordingly, once the network has been built, NBN Co should be subject to the normal 42

operation of the SAOs. If the authorisations were continued on an ongoing basis, access seekers could not even seek access under Part XIC, and the ACCC would not have the opportunity to consideration declaration. This option is arguably not compliant with the Competition Principles Agreement as the long term effect of retaining the authorisations is potentially not outweighed by the benefits. The benefits occur by limiting disruption to the rollout, and ensuring that end-users can gain earlier access to high-speed broadband services. Once the rollout is complete then the benefits of early adoption are by definition no longer available. Conversely, if there are enduring benefits from limiting access to POIs, then this can be considered by the ACCC in the context of its Part XIC processes. Selecting the best option The preferred option is option 3 because it is expected to confer the highest net benefit. As noted in the Vertigan Review, there is a $6 billion net benefit to rolling out the NBN as planned under an MTM scenario, compared with other, slower rollout scenarios. For the NBN to be rolled out quickly and cost-effectively, it needs to be built with as few disruptions as possible to the model planned. Option 3 provides a mechanism for NBN Co to roll out its planned model. It will provide NBN Co with the certainty required to minimise delays to the rollout of the NBN and to contain its costs. It also provides the broader telecommunications industry with certainty that the NBN will be completed as soon as possible. As discussed above, it is also likely that the benefits to end-users from a faster rollout of the NBN outweigh the costs to industry from short-term restrictions on lower levels of interconnection. None of the major industry participants objected to the preferred option. There are risks associated with Option 3. As noted above, depending on the plans of competitors, Option 3 may affect the shape and extent of infrastructure-based competition. For example, it may encourage competing carriers to build their own competing infrastructure, instead of leverage NBN assets, through the access regime. Conversely, it may delay their ability to seek to leverage NBN Co assets, under ACCC processes, until the NBN is built and operational. Obtaining greater access at that time, may also be more costly due to the need to add that capability. Both scenarios also have long term commercial implications for NBN Co. However, the risks of Option 3 are assessed as low, and to be outweighed by the benefits. Again, those benefits are that the network is built faster and at lower cost, delivering benefit to the community sooner. Options 1 and 2 do not provide an acceptable level of certainty for NBN Co and the wider industry. This lesser degree of certainty and consequential higher degree of risk is not counter-balanced by the possibility of greater private sector investment and competition. Options 1 and 2 are likely to result in significant additional costs compared to Option 3. As noted in the analysis above, on top of the legal and administrative processes that will be required, options 1 and 2 may be resource intensive, both for NBN Co and industry. As discussed above, it is also likely that the benefits to end-users from a faster rollout of the NBN outweigh the costs to industry from short-term restrictions on lower levels of interconnection. By contrast, under the proposed approach (Option 3), an access seeker would be able to seek access under Part XIC in future, and the ACCC would consider whether it is in the long term interests of end-users, and if so, declare such access, with the cost being able to be recovered from the access seeker/s. The Department therefore considers Option 3 delivers the highest net-benefit because:  it delivers access to superfast broadband sooner, 43

 no significant cost is incurred in advance on a wholly speculative basis (and significant potential waste is therefore avoided), and,  if there is demand in the future for deeper interconnection, it can be provided, albeit it at a cost, but that cost will be able to be measured against benefits. In particular, the cost could be assessed in terms of the costs access seekers would avoid in future by accessing the NBN rather than building their own infrastructure. This is in contrast to NBN Co incurring a cost now, which cannot be assessed against given unknown demand, and thus unknown costs and benefits. Option 4 is not preferred because it would prevent carriers from leveraging NBN Co's infrastructure over the long term, which may be an appropriate outcome once the network is rolled out and one which the ACCC should be able to consider at that time. Consultation There was extensive consultation in 2014 on future industry structure as part of the Vertigan Review. For the Regulatory Report, the panel released a Regulatory Framing Paper in February 2014 to take soundings from industry and the public on key factors that should be considered. The panel received 43 submissions. For the Statutory Review, the panel released a consultation paper in March 2014 to seek views from industry and the public on the telecommunications access arrangements. The panel received 15 submissions. While few submissions focussed specifically on Division 16, the majority of submissions strongly endorsed the NBN model, with many submitters noting that future investment plans had been made on this basis of the NBN rollout. The Structural Review, which considered Division 16, was released in October 2014, allowing industry considerable time to provide feedback to the Government on its recommendations. The then Department of Communications consulted carriers and industry organisations in relation to the panel's recommendations. The Government released its response to the Vertigan review in December 2014, again leaving industry with time to provide comment. There has been little such comment. Separately in October 2013, Deloitte Access Economics reported to Government on a review of s 151DD of the CCA that is was commissioned to undertake and which invited stakeholders to comment on Division 16.11 Seven submissions were received, including from Telstra, Optus and the ACCC. The review found that the authorisations had not given rise to conduct that has attracted any practical concern about the operation of the Division. In August 2015, an exposure draft containing the proposed amendments to Division 16 was provided to industry stakeholder for three weeks comment. None of the major industry participants objected to the proposal that was put forward. No changes were made to the exposure draft following consultation. Industry was also asked to comment on this RIS prior to the Bill being introduced into Parliament. Again, no industry participants objected to the proposal that was put forward. Implementation and evaluation Legislation is expected to be introduced during the Spring 2015 sittings of the Parliament. Should the Parliament pass the legislation as proposed, the new authorisations would come 11 Independent review under s.151DD of the Competition and Consumer Act 2010, October 2013 44

into effect on Royal Assent. They would cease to have effect once the Minister for Communications determines, by legislative instrument, that the NBN is built and fully operational. The Government would evaluate the impacts of the legislation through its normal industry monitoring and consultation processes. Additionally, the Productivity Commission is required to conduct a thorough review of the NBN once the Minister for Communications determines that the NBN is built and fully operational. This review must consider a range of matters, including competition in telecommunications markets, structural features of those markets, access to broadband services and bundling of services supplied by NBN Co.12 12 Section 49 of the National Broadband Network Companies Act 2011. 45

Regulatory Burden Measurement Options Preferred Regulatory Burden Measurement 1: Status quo No If, under this option, NBN Co does not seek authorisation through ACCC processes and/or carriers do not seek access to additional POIs or unbundled services, there are unlikely to be any additional costs. If access or unbundling is however sought, the following costs would apply: Administrative Cost - NBN Co may need to seek authorisation for conduct from the ACCC, which would then need to consider whether to authorise the conduct. Delay cost - If the ACCC takes time to authorise conduct, there may be a delay in the rollout of the NBN and a delay to access the benefits of the NBN. (The Vertigan review concluded that one of the benefits of the MTM model was that it would be able to deliver the economic benefits of faster broadband sooner). If the ACCC decided not to provide any authorisations sought, there could be considerable resulting uncertainty and complexity that would be likely to impose further administrative and delay costs to the network and industry, the costs of which may be comparable or greater to the authorisation process. 2: Repeal Division 16 in its No Administrative Cost - NBN Co may entirety need to seek authorisation from the ACCC for its conduct, and the ACCC would then need to consider whether to authorise the conduct. Delay cost - If the ACCC takes time to authorise conduct, there may be a delay in the rollout of the NBN and a delay to access the benefits of the 46

NBN. (The Vertigan review concluded that one of the benefits of the MTM model was that it would be able to deliver the economic benefits of faster broadband sooner). If the ACCC decided not to provide any authorisations sought there could be considerable resulting uncertainty and complexity that would be likely to impose further administrative and delay costs to the network and industry, the costs of which may be comparable or greater to the authorisation process. 3: Amend Division 16 to Yes No additional costs. authorise NBN Co to limit the number of POIs and to supply a 'bundle' of service elements to support the timely and cost- effective roll-out of the NBN. 4: As with options 3, but No No additional costs. authorisations continue until after the roll-out of the NBN is completed. Assumptions (option 1)  The NBN will be substantially completed by 2020.  NBN Co will employ 3.0 FTE over a period of 3 months to develop its authorisation applications. It will only need to do this once, however, multiple authorisation applications may be necessary.  The ACCC will employ 2.0 FTE over a period of six months conduct a review of NBN Co's authorisation applications, although this is speculative and depends on the number of authorisation applications that NBN Co makes.  5 carriers are likely to make a submission to the ACCC review of NBN Co's authorisations. These carriers are likely to employ 1.0 FTE over the 2 months to work on the submission and follow-up consultation.  Costs in relation to any delays that may result following ACCC consideration of an authorisation application have not been considered as there is too much potential variability in these costs. 47

 This option does not consider the cost impact of any ACCC regulatory decisions which would arise through Part XIC processes, however these costs would be expected to be comparable or greater. Average Annual Regulatory Costs (from Business as usual) Change in Community Total change in costs Business Individuals Organisations cost ($million) Total by ($0.038) $0 $0 ($0.038) Sector Assumptions (option 2)  The NBN will be substantially completed by 2020.  NBN Co will employ 3.0 FTE over a period of 3 months to develop its authorisation applications, however, multiple authorisation applications may be necessary.  The ACCC will employ 2.0 FTE over a period of six months conduct a review of NBN Co's authorisation applications, although this is speculative and depends on the number of authorisation applications that NBN Co makes.  5 carriers are likely to make a submission to the ACCC review of NBN Co's authorisations. These carriers are likely to employ 1.0 FTE over the 2 months to work on the submission and follow-up consultation.  Costs in relation to any delays that may result following ACCC consideration of an authorisation application have not been considered as there is too much potential variability in these costs.  This option does not consider the cost impact of any ACCC regulatory decisions which would arise through Part XIC processes, however these costs would be expected to be comparable or greater. Average Annual Regulatory Costs (from Business as usual) Change in Business Community Individuals Total costs Organisations change in ($million) cost Total by ($0.038) $0 $0 ($0.038) Sector 48

Assumptions (option 3 (preferred) and option 4)  Option 3 assumes that NBN Co retains the ability to rely on statutory authorisations. This would mean that there is no additional cost on industry to implement the changes as there is no change to existing outcomes or arrangements.  Option 4 similarly assumes that NBN Co would retain the ability to limit POI access and to bundle services. The key difference is that these authorisations would not cease when the network is completed. However, as option 4 does not require any changes to existing arrangements within industry it does not impose a regulatory burden. Regulatory Burden and Cost Offset Estimate Table Average Annual Regulatory Costs (from Business as usual) Change in Business Community Individuals Total costs Organisations change in ($million) cost Total by ($0.0) $0 $0 ($0.0) Sector Cost offset Business Community Individuals Total by ($million) Organisations Source Agency ($0.0) $0 $0 ($0.0) Are all new costs offset? yes, costs are offset no, costs are not offset deregulatory, no offsets Total (Change in costs - Cost offset) ($million) ($0.0) As the preferred option proposes a cost neutral regulatory framework, there are no costs to offset. 49

ABBREVIATIONS The following abbreviations are used in this explanatory memorandum: ACCC Australian Competition and Consumer Commission ACMA Australian Communications and Media Authority Bill Telecommunications Legislation Amendment (Access Regime and NBN Companies Bill) 2015 CCA Competition and Consumer Act 2010 Department Department of Communications and the Arts Minister Minister for Communications NBN National Broadband Network NBN Co NBN Co Limited NBN Companies Act National Broadband Network Companies Act 2011 NTN Sale Act National Transmission Network Sale Act 1998 SAOs Standard Access Obligations SAU Special Access Undertaking Tel Act Telecommunications Act 1997 51

NOTES ON CLAUSES TELECOMMUNICATIONS LEGISLATION AMENDMENT (ACCESS REGIME AND NBN COMPANIES BILL) 2015 Clause 1 - Short title Clause 1 provides that the Bill, when enacted, may be cited as the Telecommunications Legislation Amendment (Access Regime and NBN Companies) Bill 2015. Clause 2 - Commencement Clause 2 provides for the commencement of the Bill. All of the provisions contained in the Bill commence on the day after this Act receives the Royal Assent. Clause 3 - Schedules Clause 3 provides that legislation that is specified in a Schedule to the Bill is amended or repealed as set out in the applicable items in that Schedule, and any other item in a Schedule has effect according to its terms. There is one Schedule to this Bill, comprising eight parts. 52

Schedule 1--Amendments Part 1--Facilities access Competition and Consumer Act 2010 Telecommunications Act 1997 Item 1 - At the end of Part 3 of Schedule 1 Item 1 would insert new clause 19A at the end of Part 3 of Schedule 1 to the Tel Act. New subclause 19A(1) would provide that a carrier must not request access to supplementary facilities under Part 3 of Schedule 1 to the Tel Act if the service of providing access to the facilities is a declared service under Part XIC of the CCA. The default mechanism for obtaining access to a supplementary facility is through the facilities access regime in Part 3 of Schedule 1. However, in accordance with proposed subclause 19A(1) of Schedule 1, if a particular service of giving access to a supplementary facility is declared under Part XIC, the person seeking access will be able to do so under Part XIC and will no longer be able to rely upon Part 3 of Schedule 1 to obtain access. This avoids the uncertainty of having two competing access regimes operating simultaneously. If the ACCC has declared access under Part XIC, it also needs to determine benchmark prices for access. Proposed subclause 19A(2) provides that an obligation to supply access to facilities under Part 3 of Schedule 1 to the Tel Act ceases if the service of giving access to the facilities becomes a declared service. The clause is to be read as referring to specified facilities (the facilities) and not broadly as referring to all facilities. This subclause is required to ensure that both the ex ante right to seek access under Part 3, and the obligation on a carrier to provide access, cease upon the declaration of a specific facilities access service. New subclause 19A(3) would provide that the terms and conditions of existing agreements entered into under Part 3 of Schedule 1 of the Tel Act are effectively grandfathered at the time of declaration. New subclause 19A(4) limits the meaning of 'declared service' for the purposes of the clause. A declared service means a service that has been declared by the ACCC under subsection 152AL(3) or (8A) of the CCA. This means that clause 19A will not apply to active declared services being supplied under a special access undertaking, or to declared services being supplied by NBN Co under a standard form of access agreement. These two types of declared services are not subject to clause 19A to ensure that carriers retain the right to seek ex ante access to facilities from NBN Co under Schedule 1 of the Tel Act until a service is declared by the ACCC. All services that NBN Co supplies are declared services. They become declared through three mechanisms - through its special access undertaking, through a standard form of access agreement, or following declaration by the ACCC. NBN Co currently supplies some facilities access services under its SAU. However, those services have not been declared by the ACCC and if NBN Co's SAU supplies were not quarantined from proposed clause 19A, then the services would be taken to be declared without any 53

consideration by the ACCC. Other carriers who supply similar facilities access services would also find that their services are treated as declared. To avoid this outcome, proposed subclause 19A(4) limits the services that may switch off ex ante rights under Schedule 1 of the Tel Act to those services that have been declared by the ACCC following a public inquiry. Item 2 - At the end of Part 5 of Schedule 1 Item 2 inserts new clause 39A at the end of Part 5 of Schedule 1 of the Tel Act, which serves a similar function to new clause 19A, inserted by Item 1. New clause 39A provides that a carrier must not request access to a tower or eligible underground facility under Part 5 of Schedule 1 if the service of giving access to any such facility is a declared service under Part XIC of the CCA. The default mechanism for obtaining access to a tower or eligible underground facility is through the access regime in Part 5 of Schedule 1 of the Tel Act. However, in accordance with proposed subclause 39A(1), if a particular service of giving access to a tower or eligible underground facility is declared by the ACCC under Part XIC, the person seeking access will be able to do so under Part XIC and will no longer be able to rely upon Part 5 of Schedule 1 to obtain access. This avoids the uncertainty of having two competing regimes operating simultaneously. If the ACCC has declared access under Part XIC, it also needs to determine benchmark prices for access. Part 5 covers giving access to a tower, the site of a tower or an eligible underground facility. Proposed clause 39A only extends to towers or eligible underground facilities, as the ACCC's powers to declare eligible services under Part XIC may not extend to granting access to a site for the purpose of installing a new facility. Proposed subclause 39A(2) largely mirrors proposed subsection 19A(1) but it applies to the obligation under Part 5 of Schedule 1 of the Tel Act relating to access to a tower or eligible underground facility ceases. That obligation would be switched off in relation to any facilities access service that becomes a declared service. Proposed new subclause 39A(3) will ensure that existing agreements entered into under Part 5 of Schedule 1 of the Tel Act.are effectively grandfathered at the time of declaration of the particular service. Proposed new subclause 39A(4) limits the meaning of 'declared service' for the purposes of the clause. A declared service means a service that has been declared by the ACCC under subsection 152AL(3) or (8A) of the CCA. This means that clause 39A will not apply to active declared services being supplied under a special access undertaking, or to declared services being supplied by NBN Co under a standard form of access agreement, for the same reasons as set out under item 1. Item 3 - Application and transitional provisions Item 3 would set out rules for the application of existing and potential future obligations under Parts 3 and 5 of Schedule 1 to the Tel Act, as a result of the amendments proposed in Schedule 1 of the Bill. Item 3 differs from items 1 and 2 as those items establish obligations that apply to a service after it becomes a declared service, after those items have commenced, whereas item 3 deals with the possible scenario that a service supplied under Part 3 or 54

Part 5 of Schedule 1 has been declared under Part XIC of the CCA prior to the commencement of the item. Proposed subitem 3(1) sets out the circumstances under which the obligation under Part 3 or 5 of Schedule 1 will cease. If the obligation is an existing obligation to give access to a facility, tower, or eligible underground facility, and on commencement of item 3, the service of giving access to the facility, tower, or eligible underground facility is a declared service under Part XIC, the obligation will cease. Proposed subitem 3(2) provides that subitem 3(1) does not affect the continuity or terms and conditions of any agreements entered into under Schedule 1 of the Tel Act, determinations made under clauses 9 or 27 of Schedule 1, or agreements or determinations between carriers for the supply of a service. Proposed subitem 3(2) additionally would provide that new subitem (1) does not apply in relation to a carrier supplying a service to another carrier if the relevant agreement or determination relates to that supply. This ensures there will be no cessation of obligations to provide access to a facility, tower, site or eligible underground facility under Parts 3 or 5 of Schedule 1 to the Tel Act, if a relevant agreement or determination mentioned in proposed subitem 3(2) is in force. Part 2--Access to customer cabling Competition and Consumer Act 2010 Item 4 - Subsection 4(1) Item 4 inserts the definition of 'customer cabling' into the CCA, adopting the same definition used in the Tel Act, for the purpose of proposed items 5 and 6. Item 5 - After subsection 152AR(5) Carriers and carriage service providers who provide active declared services, in accordance with Part XIC of the CCA, are required to comply with SAOs in relation to the supply of those services. Customer cabling is usually controlled by the building owner or manager. However, in some circumstances, an access provider may own the cabling or have legal or operational control over customer cabling. The current SAOs under sections 152AR and 152AXB of the CCA do not impose a clear obligation on the access provider in these circumstances to provide access to that cabling. Item 5 would insert a new subsection 152AR(5A) after subsection 152AR(5). The new subsection seeks to implement recommendation 5 of Statutory Review Report, that Part XIC of the CCA be amended so that giving access to in-building cabling controlled by a carrier or service provider for use in conjunction with a declared service is included in the SAOs. The purpose of the proposed new subsection is to remove the potential for a single carrier or service provider who controls customer cabling from being able to create an access bottleneck as a result of its control over the cables, thereby favouring its own operations over those of its competitors. Importantly, under the new provision, an access seeker would only be able to request access to customer cabling in relation to the supply of a declared service. For example, this means that if access has been declared to a service that needs to use in-building cabling for its delivery, the access 55

provider would also need to provide access to that in-building cabling for the purpose of the access seeker using that declared service to provide its service. The amendment is not intended to create an obligation on a person controlling in-building cabling to provide access to that cabling as a thing in itself in the absence of a declared service dependent on that cable for its supply. It is not intended, for example, to enable a carrier to seek access to the cabling to operate its own digital subscriber line access multiplexer or DSLAM, using the cabling, in the absence of an associated declared service. Proposed subparagraphs 152AR(5A)(a) and (b) set out the conditions that must be met by an access provider when an access seeker requests access to customer cabling. These are: - access to customer cabling for the purpose of supplying carriage and/or content services, and - fault detection, handling, and rectification of a technical and operational quality and timing that it provides to itself. Proposed paragraphs 152AR(5A)(c) to (e) set out the circumstances that require an access provider to comply with the access requirements at paragraphs 152AR(5A)(a) and (b). These circumstance are where: - the service supplied by the access provider is an active declared service, and - the access provider owns or otherwise controls physical access to the cabling, and - the access provider already uses the cabling and a telecommunications network to supply the active declared service to itself or another person. The concept of 'control' in proposed paragraph 152AR(5A)(d) is intended to be broad and capture circumstances where a person, by virtue of an agreement with the legal owner or some other arrangement or understanding (express or implied by conduct) between the person and the owner of the cabling, is able to determine who can access and use the in-building cabling. It also captures circumstances where the access provider owns the cabling, with ownership having its ordinary meaning. Item 6 - After subsection 152AXB(5) Item 6 would insert a new subsection 152AXB(5A), which largely mirrors the provisions in item 5 but amends the Category B SAOs, which apply to NBN corporations, except for one item which is unnecessary in an NBN corporation context, given their separate non-discrimination obligations. Item 6 ensures that an NBN corporation will also be required to give access to customer cabling it owns or controls and to which access needs to be provided to supply an associated active declared service. As noted above, the provisions are not intended to require NBN Co or any other access provider to provide access to in- building cabling as a thing in itself, independent of any associated declared service. 56

National Transmission Network Sale Act 1998 Item 7 - Paragraph 16(1)(c) Item 7 would insert in paragraph 16(1)(c) of the NTN Sale Act, a reference to new subsection 152AR(5A). This would ensure that proposed subsection 152AR(5A) does not apply to nominated services under the NTN Sale Act, consistent with the other exclusions listed in subsection 16(1) of that Act. This change will mean that the new customer cabling access requirement will not apply to the access regime in the NTN Sale Act. That access regime is based on the telecommunications access regime as it existed prior to 2011 and the item ensures it will be preserved in that form. Part 3--Pilots and trials Competition and Consumer Act 2010 Item 8 - Subsection 152ARA(1) (note) Item 11 - Subsection 152AXC(1) (note) Item 13 - Subsection 152BCB(4A) and (4G) and 152BDA(4A) and (4G) (note) Items 8, 11 and 13 would remove the note accompanying each respective section which reminded readers that section 152CJH dealt with explanatory material. As Item 15 would repeal Division 6B of Part XIC of the CCA, these notes, which refer to section 152CJH contained in Division 6B are redundant. Item 15 discusses the repeal of Division 6B in greater detail. Item 9 - At the end of section 152ARA Item 14 - At the end of section 152CJA Items 9 and 14 would insert a note immediately after sections 152ARA and 152CJA respectively to remind readers that proposed section 152F deals with pilots and trials. This represents a consequential change as a result of new item 16 which would insert proposed section 152F into the CCA. Item 10 - Subsection 152ARB(2) (note) Item 12 - Subsection 152AXD(1) (note) Items 10 and 12 would substitute the existing note accompanying subsections 152ARB(2) and 152 AXD(1) with a note informing readers that section 152F deals with pilots and trials of new eligible services or enhanced declared services. Item 15 - Division 6B of Part XIC Item 15 would repeal Division 6B of Part XIC of the CCA, which requires the ACCC to publish explanatory material relating to anti-discrimination provisions. The repeal of this division implements the Government Response to the Statutory Review, which stated that the requirement be repealed. This is to ensure there can be no divergence between the statutory provisions and such explanatory material. 57

Item 16 - At the end of Division 11 of Part XIC This item 16 would insert proposed section 152F at the end of Division 11 of Part XIC of the CCA. Sections 152AXC and 152AXD of the CCA impose strict non-discrimination obligations on NBN corporations (which includes NBN Co), requiring that they do not discriminate between access seekers except in limited circumstances. Similar non- discrimination obligations are imposed by sections 152ARA and 152ARB of the CCA to non-NBN corporations supplying a Layer 2 bitstream service using a designated superfast telecommunications network and that service is declared. New section 152F would alter the non-discrimination obligations applying to access providers, allowing them, subject to a notification regime, to discriminate when they undertake pilots and trials. This is achieved by essentially 'switching off' the non- discrimination obligations that apply under sections 152ARA, 152ARB and 152AXD of Part XIC for the duration of the pilot or trial which is the subject of the notice. At the same time, the obligation on NBN Co not to supply a service unless it is declared through one of the three mechanisms set out in section 152CJA is 'switched off'. The effect of these provisions is that a service supplied under a pilot or trial will not be a declared service. Consequently, section 152AXC would not apply to the relevant service (which is why that section is not listed in proposed section 152F as one of the sections that is necessary to be 'switched off' for the purposes of the pilot or trial). Specifically, section 152F would provide that the prohibitions under section 152ARA, 152ARB, 152AXD and 152CJA do not apply to the conduct of a person if the conduct relates to a pilot or trial of a new eligible service or an enhanced declared service. In order for an NBN corporation, carrier or carriage service provider to obtain the benefit of the new arrangements, specific conditions must be met, namely: - the pilot or trial must not be more than 12 months in duration (unless the ACCC has agreed to a longer period) (proposed paragraph 152F(1)(b)); - the ACCC is notified of the relevant conduct (in accordance with proposed subsection 152F(3) before the pilot or trial begins and the person has published the notice on its website (proposed paragraph 152F(1)(c)); and - the notice remains published on the person's website until the end of the pilot or trial (proposed paragraph 152F(1)(d)). In relation to proposed subparagraph 152F(1)(c)(ii), it is expected that the notice will be in a reasonably accessible part of the website of an access provider such that an average person, looking for that particular information, would be able to find it - either through the website's search function or by following the appropriate links. A note accompanies new subsection 152F(1) to assist readers. The note provides that sections 152ARA, 151ARB and 152AXD prohibit discrimination in relation to certain services. The note additionally informs readers that section 152CJA relates to standard forms of access agreements formulated by an NBN corporation. Proposed subsection 152F(2) would confer power upon the ACCC to agree to a longer period for the pilot or trial, for the purposes of proposed paragraph 152F(1)(b). The ACCC may agree to a longer period if it is satisfied that the longer period is required in order for the pilot or trial to be conducted properly. 58

Proposed subsection 152F(3) specifies the requirements for all notices given to the ACCC under new subsection 152F in order to obtain the benefit of the new provision. The notice must: - be in writing (proposed paragraph 152F(3)(a)); - be in a form approved in writing by the ACCC (proposed paragraph 152F(3)(b)); - specify the conduct and the person's reasons for engaging in the conduct 152F(3)(c). (In this regard, it is expected the conduct that might otherwise be regarded as discriminatory under sections 152ARA, 152ARB or 152AXD would be identified together with the person's reasons for engaging in the conduct); - describe the pilot or trial (subparagraphs 152F(3)(d)(i)-(v)), by:  specifying the expected scale and duration of the pilot or trial (proposed subparagraph 152F(3)(d)(i)). It is expected this would include the number of end-users that will be able to access the services provided through the trial and the length of time, in months, of the pilot or trial);  specifying the parties involved in the pilot or trial (proposed subparagraph 152F(3)(d)(ii)). It is expected this would include details of any companies contracted to provide goods or services in connection with the pilot or trial as well as the providers that will be supplying retail services to end-users through the pilot or trial;  specifying the geographical scope of the pilot or trial (proposed subparagraph 152F(3)(d)(iii)). It is expected this would include specifying the geographical areas in which the trial will operate;  specifying the prices of any services the person supplies as part of the pilot or trial (proposed subparagraph 152F(3)(d)(iv)); and  describing any discount, allowance, rebate or credit the pilot or trial involves, including the reason for the discount, allowance, rebate or credit (proposed subparagraph 152F(3)(d)(v)). It is expected that the information provided by the person giving the notice will be sufficiently detailed and accurate, but in any event the provision for the form to be approved in writing by the ACCC provides that regulator with the opportunity to specify a sufficient level of detail. Proposed subsection 152F(4) would provide that the details in a notice under subsection 152F(3) relating to prices of any services under proposed subparagraph 152F(3)(iv) and any discounts or equivalent things described in proposed subparagraph 152F(3)(v) would not need to be published on the relevant person's website. This provision recognises that these details have the potential to be commercially sensitive and are therefore not suitable for publication. However, given the details relating to price and discounts of the services are pertinent to the ACCC's role in regulating the conduct of the pilot or trial, it is appropriate that the ACCC be provided those details. 59

Proposed subsection 152F(5) would set out that a pilot or trial service being supplied under a contract, arrangement or understanding for the purposes of the pilot or trial would not be a declared service if the ACCC declares the service after the commencement of the pilot or trial. This clause grandfathers contracts entered into on commercial terms from subsequent declaration. The clause is included for the avoidance of doubt that a person can complete a pilot or trial even if the service is subsequently declared. The exemption for pilots or trials that would be granted under proposed section 152F is reliant upon the relevant person properly meeting all of the conditions set out in that section. If, at any stage, the ACCC was to reach the view that the conduct purportedly engaged in for the purposes of the pilot or trial was not conduct falling within the parameters of the conduct permitted by proposed subsection 152F(1) (for example, the purported 'pilot' or 'trial' was not a genuine one within the ordinary meaning of the applicable term), the ACCC would be able to commence enforcement action against the party or parties concerned for breach of sections 152ARA, 152ARB, 152AXD or 152CJA where applicable. Sections 152AZ and 152BA make compliance with the non-discrimination provisions in sections 152AXC and 152AXD of the CCA a carrier licence condition and service provider rule respectively. Accordingly, if the ACCC formed the view that an access provider was not undertaking a legitimate pilot or trial under proposed section 152F, it could take court action under the Tel Act for breach of the licence condition (or service provider rule, as the case may be). The ACCC could also apply to the Federal Court for an injunction to stop a carrier from engaging in the infringing conduct (under Part 30 of the Tel Act). Furthermore, the ACCC or any affected party (for example, a prospective access seeker not part of the pilot or trial) could also take court action for breach of the non-discrimination obligations under section 152BB (judicial enforcement of standard access obligations) of the CCA. A note is included after proposed subsection 152F(5) to specifically advise readers that if a service is not a declared service, then the service provider to whom the service is supplied cannot be an access seeker (within the meaning of that term in section 152AG). The purpose of the note is to provide further clarity that services supplied under a pilot or trial are supplied on the terms of the pilot or trial, and normal Part XIC access rights (such as set out in the SAOs) do not apply. Part 4--Access determinations Competition and Consumer Act 2010 Item 17 - After subsection 152BCA(2) Item 17 would insert two new subsections 152BCA(2A) and 152BCA(2B) after subsection 152BCA(2). Section 152BCA currently sets out matters the ACCC must take into account when making determinations relating to access to declared services, known as access determinations. New subsections 152BCA(2A) and (2B) would each include an additional matter that must be taken into account by the ACCC when making access determinations, as described below. 60

The amendments made by this item seek to implement recommendation 17 of the Statutory Review Report, which stated that in setting access charges through an access determination for infrastructure providers other than NBN Co, the ACCC should be required, along with other factors, to take account of the manner in which it sets charges for NBN Co. The new subsections item goes beyond the recommendation of the Statutory Review Report by applying the same principle, but in reverse. That is, the ACCC must also consider the manner in which charges are set for providers that are not an NBN corporation when considering charges to apply to an NBN corporation as part of an access determination. This is designed to better promote regulatory consistency in the ACCC's approach to setting any access price for an access provider (both NBN corporations and non-NBN corporations). This should ensure that no one access provider is treated more favorably than another. New subsection 152BCA(2A) requires the ACCC, in making an access determination that applies to a non-NBN corporation access provider, to have regard to the method it uses to determine terms and conditions in access determinations that apply only to an NBN corporation. For example, as cited in the Statutory Review, if fixed principles apply to NBN Co, the ACCC would need to consider whether those fixed principles should also apply in respect of future access determinations for other infrastructure providers. New subsection 152BCA(2B) complements proposed subsection 152BCA(2A) and requires the ACCC, in making an access determination that applies to an NBN corporation, to have regard to the method it uses to determine terms and conditions for similar services in access determinations that apply to access providers other than an NBN corporation. Item 18 - After section 152BCG This item would insert a new section 152BCGAA after existing section 152BCG. Under existing section 152BCG of the CCA, the ACCC is not required to observe any requirements of procedural fairness in relation to the making of an interim access determination. In practice, the ACCC consults extensively in making interim access determinations and new section 152BCGAA seeks to codify that practice. It thereby implements in part, recommendation 20 of the Statutory Review, which recommended that Part XIC of the CCA be amended so that the ACCC must make reasonable efforts to consult with affected parties, including in relation to interim access determinations and binding rules of conduct but the mere fact it fails to do so should not invalidate the decision by the ACCC. The ACCC will be required to consult those persons it considers appropriate, rather than 'affected parties'. This discretionary approach has been adopted because it may be difficult for the ACCC to determine all persons likely to be affected by the determination. In this regard, it would be sufficient in most cases for the ACCC to provide necessary details of the consultation on its website--as is its usual practice-- and in some cases engage in targeted consultation with those persons to whom the interim access determination is particularly relevant. 61

Proposed subsection 152BCGAA(2) clarifies that any failure by the ACCC to comply with the consultation requirement under proposed subsection 152BCGAA(1) does not affect the validity of a decision made in relation to an interim access determination. Proposed subsection 152BCGAA(3) provides that proposed section 152BCGAA does not affect the operation of the rule under subsection 152BCG(4), which specifies that the ACCC is not required to observe procedural fairness when making an interim access determination. Item 19 - After section 152BDAA This item implements the other part of recommendation of 20 of the Statutory Review, relating to binding rules of conduct. The item would insert a new section 152BDAB into the CCA, which mirrors proposed section 152BCGAA (discussed at item 26 above) but applies when the ACCC makes binding rules of conduct. Item 20 - Application of amendments Item 20 is an application provision which sets out particular circumstances where the amendments proposed to be made by items 17, 18 and 19 will not apply. Subclause (1) provides that the amendment proposed to be made by item 17 does not apply to making a final access determination in relation to access determinations made following a public inquiry, and where that public inquiry has already commenced at the commencement date, or where the ACCC makes the determination without a public inquiry but within 28 days of the item's commencement (being the day after the Act receives the Royal Assent). Subclause (2) similarly provides that the amendment proposed to be made by item 18 does not apply to making interim access determinations made following a public inquiry, and where that public inquiry has already commenced on the commencement date, or where the ACCC makes the determination without a public inquiry but within 28 days of the item's commencement. Under most circumstances the ACCC would hold a public inquiry before making an access determination. However, it is possible, under subsection 152BCH(5), for the ACCC to make an access determination without holding a public inquiry if: - a declaration is in force; - an access determination has previously been made in relation to access to the declared service; - the declaration is extended for not more than 12 months; and - the ACCC decides to allow the declaration to expire without making a new declaration. The application provisions in item 20 reflect both potential scenarios at paragraph (a). Consistent with the application provisions for access determinations, subclause (3) provides that the amendment made by item 28 does not apply to binding rules of conduct where the ACCC makes the rules within 28 days of the item's commencement. Having regard to subsection 33(3) of the Acts Interpretation Act 1901, the application provision also applies in relation to revocations and amendments to interim and final 62

access determinations and binding rules of conduct, subject to the matters set out in section 152BCN of the CCA relating to variation or revocation of determinations. Part 5--Special access undertakings--variation notices Competition and Consumer Act 2010 Item 21 - Subparagraphs 152CBC(6)(aa)(ii), (ab)(ii) and (ac)(ii) Item 21 would insert additional words in subparagraphs 152CBC(6)(aa)(ii), (ab)(ii) and (ac)(ii) as a consequence of the amendments proposed by item 24 (refer to discussion below). Item 22 - Subsection 152CBD(6) This item would clarify that the reference to "special access undertaking" in subsection 152CBD(6) is to a varied special access undertaking. Item 23 - Paragraphs 152CBD(6)(a) and (b) This item would remove the expression "specified in the notice" from paragraphs 152CBD(6)(a) and (b). This represents a drafting change to streamline the language. Item 24 - Subsections 152CBDA(2) and (3) This item would repeal subsections 152CBDA(2) and (3) and insert four new subsections. The proposed subsections clarify the process by which the ACCC can request variations to a SAU or variation to an SAU that replaces a SAU which it has previously approved. These proposed amendments respond to recommendations 22 and 23 of the Statutory Review. Those recommendations aimed to increase certainty for a person giving a SAU by requiring the ACCC to specify variations to a SAU that it considers are essential for it to accept that undertaking, as opposed to variations it may consider desirable. The amendments also provide flexibility for the person giving the SAU to be able to respond to a variation notice by proposing variations that did not have exactly the same wording as the ACCC's notice but had the same effect or substance. Proposed replacement subsection 152CBDA(2) would require the ACCC to give the person a written notice that specifies a range of matters, including variations to the relevant SAU document and the time period for the person giving the SAU to provide the updated variation. Proposed subsection 152CBDA(2A) requires that the notice issued by the ACCC must not specify variations under paragraph (2)(a) unless the ACCC would accept the undertaking if the variation, or variations having the same effect are made. The notice may also suggest other variations to the original undertaking that the Commission considers desirable (proposed subsection 152CBDA(2B)). Proposed subsection 152CBDA(3) provides that the ACCC must treat a varied undertaking as if it was the original undertaking if the varied undertaking was 63

provided in response to an ACCC notice to vary, within the timeframe specified, and the variation consists of the required elements as specified. Item 25 - Application of amendments Item 25 provides that the amendments proposed to be made by Part 5 of Schedule 1 of the Bill only apply to SAUs given to the Commission on or after the commencement of the item. For any SAUs subject to a variation notice prior to this time, the original provisions will continue to apply in respect of that variation process. Part 6--Fixed principles Competition and Consumer Act 2010 Item 26 - After subsection 152BCD(1) This item would insert proposed subsection 152CBD(1A). The new subsection would require the ACCC to have regard to any relevant fixed principles terms or conditions included in other access determinations when considering whether to include a fixed principles provision in an access determination. This item seeks to implement paragraph (c) of recommendation 25 of the Statutory Review, with a view to promoting consistency and equity in Part XIC decision-making. Item 27 - Paragraph 152CBAA(5)(h) Section 152CBAA allows for a particular class of terms or conditions to be specified in an SAU, known as 'fixed principles'. If a term or condition is identified as a fixed principle, and accepted by the ACCC, the ACCC is prevented from rejecting identical terms or conditions in future SAUs or variations of those undertakings, subject to the rules set out in section 152CBAA. Fixed principles provide long term certainty for service providers and access seekers. This has particular significance in the telecommunications industry given that there can be substantial up-front costs in rolling out or upgrading telecommunications networks, with those costs often recouped over a lengthy period. Currently under subsections 152CBAA(5) and 152CBAA(6) the ACCC cannot reject an SAU or a variation to an SAU "for a reason that concerns" a corresponding fixed principles term or condition that the ACCC has previously accepted in relation to a service. The Vertigan review was concerned that because the phrase "for a reason that concerns" is so broad, it could discourage the ACCC from accepting a fixed principles term or condition in the first instance, thereby reducing the effectiveness of fixed principles in providing industry certainty. The phrase was seen as discouraging the acceptance of fixed principles because when the ACCC had to consider a new SAU or variation with that fixed principles term or condition, the ACCC would not be able to reject the new SAU or variation "for a reason that concerns" the fixed principle, even if there was a matter that was previously unforeseen, but warranted the SAU or variation to be rejected. In this context, the ACCC was likely to take a cautious approach in accepting a fixed principles term or condition in the first instance. Paragraph (a) of recommendation 25 of the Statutory Review proposed the provisions be amended to address this concerns. Item 27 does this. 64

Item 27 would omit the phrase "for a reason that concerns" from paragraph 152CBAA(5)(h) and substitute the phrase, "on the basis of the inclusion or effect of". The amendments would, in effect, narrow the basis upon which the ACCC could reject a SAU or variation containing a fixed principles term or condition by only preventing rejection of the undertaking in circumstances where the rejection is "on the basis of the inclusion or effect" of the relevant fixed principle, the corresponding notional fixed period, or any specified qualifying circumstances in relation to the fixed principle. This would provide that the ACCC would have more certainty about the implications of accepting fixed principles in the first place as it should have a high degree of certainty as to the principles themselves and their likely effect, as opposed to "a reason that concerns" which could be difficult to know upfront. Item 28 - Subsection 152CBAA(6) Item 28 complements item 27 above and would omit the expression, "for a reason that concerns" from subsection 152CBAA(6) and substitute "on the basis of the inclusion or effect of". Again, this amendment would have the effect of narrowing the basis upon which the ACCC could reject an SAU variation if the varied undertaking contains a fixed principle that is identical to the original fixed principle contained in the undertaking. Item 29 - At the end of section 152CBD Item 29 would insert proposed subsection 152CBD(7) and 152CBD(8), which relate to consistency in consideration of fixed principles terms and condition in SAUs. Proposed subsection 152CBD(7) makes clear proposed subsection 152CBD(8) is not intended to limit the matters to which the ACCC must have regard in deciding whether to accept or reject an SAU. Proposed subsection 152CBD(8) would provide that the ACCC must, however, have regard to any relevant fixed principles term or condition specified in another SAU accepted by the ACCC in considering fixed principles in an undertaking. Like Items 17 and 50, this item is intended to promote greater consistency and equity in Part XIC decision-making. Part 7--NBN Corporations Division 1--Line of business restrictions National Broadband Network Companies Act 2011 Item 30 - At the end of Division 2 of Part 2 NBN Co's line of business restrictions are set out in Part 2 of the NBN Companies Act and cover the supply of eligible services, the supply of other goods and services and investment activities. Item 30 would insert a new section 22B into the NBN Companies Act which provides that the following sections of the NBN Companies Act: - section 18 (restriction against the supply of non-communications services), - section 19 (restriction against the supply of non-communications goods), and 65

- section 20 (restriction on investment activities), do not apply in circumstances specified in the regulations. This would enable the Governor-General, in reliance on the regulation making power under section 101 of the NBN Companies Act, to specify circumstances when one or more of the restrictions do not apply. This item implements recommendation 29 of the Statutory Review. The Statutory Review noted that there could be developments that warrant modifications of the line of business restrictions, and a regulation making power would allow such developments to be dealt with flexibility without needing to amend the NBN Companies Act. As regulations are subject to Parliamentary disallowance they would be ensured appropriate scrutiny. Section 22B(2) is intended to make clear that any regulation made under the new provision could not overturn the prohibition set out under section 9 of the NBN Companies Act which requires the supply of eligible services to be on a wholesale basis. Division 2--Supply of goods and services Item 31 - Section 19 Section 19 of the NBN Companies Act limits the circumstances under which NBN Corporations can supply non-communications goods to another person. Item 31 would replace the current version of section 19 of the NBN Companies Act with a new version. The revised section would retain the existing provisions relating to goods for use in connection with supplies of eligible services, and add two new bases on which an NBN corporation would be entitled to supply such goods. Currently an NBN corporation can only supply goods to another person if the goods are in connection with the supply, or prospective supply of an eligible service by the NBN Corporation. This restriction means that currently an NBN corporation cannot sell off surplus assets (for example, office equipment, vehicles) unless it also supplies eligible services to the person who buys the asset. As a result, an NBN corporation's ability to dispose of surplus assets at market rates is unduly restricted. The amendments made by item 31 would permit an NBN corporation to supply goods to another person if the NBN corporation: - did not obtain the goods for the purpose of supplying the goods; or - obtained the goods for the purpose of supplying the goods in connection with the supply, or prospective supply, of an eligible service; or - considers the goods to be excess to the NBN corporation's requirements. These additional grounds will allow NBN corporations to manage their asset holdings in a more efficient and financially effective manner. 66

Division 3--Authorised conduct Competition and Consumer Act 2010 Item 32 - Subsection 4(1) Item 32 inserts definitions for 'listed point of interconnection' and 'point of interconnection' by reference to subsections 151DB(2) and proposed subsection 151DB(1A) as a consequence of the proposed repeal of those definitions in item 39. Item 33 - Paragraph 151DA(1)(b) Section 151DA of the CCA authorises NBN corporations for the purposes of competition law to engage in specific forms of conduct, including restricting interconnection to the NBN, bundling designated access services and other conduct reasonably necessary to achieve to uniform national pricing. The objects of subsection 151DA in authorising such conduct are set out in subsection 151DA(1). Item 33 alters one of the stated objects of section 151DA in paragraph 151DA(1)(b) from promoting "uniform national pricing of eligible services supplied by NBN corporations" to instead promoting "access to superfast carriage services by all people in Australia, wherever they reside or carry on business." This amendment is proposed as a result of the Telecommunication Regulatory and Structural Reform policy which indicated that NBN Co would be subject to a wholesale price capping requirement rather than a uniform pricing requirement. Notwithstanding this change, the authorisations in Division 16 in relation to points of interconnection and the bundling of services still remain relevant to the efficient and effective rollout of the NBN as it has been planned and is being constructed, and need to be retained in a modified form. As such, the objects clause will be amended to relate to NBN Co's broader mission of providing "access to superfast carriage services by all people in Australia, wherever they reside or carry on business". This object in turn, justifies the authorisations provided for in Division 16, once amended. The need for the authorisations is discussed in detail in the regulation impact statement for these provisions. The proposed replacement object uses language that is consistent with the language used to describe the current Universal Service Obligation in section 9 of the Telecommunications (Consumer Protection and Service Standards) Act 1999. This reflects the Government's position, as outlined in the Telecommunications Regulatory and Structural Reform policy, that NBN Co is to operate as a broadband infrastructure provider of last resort. Item 34 - Paragraph 151DA(2)(d) Item 34 would remove the word 'and' from paragraph 151DA(2)(d) of the CCA, as a consequence of the change proposed in item 35, below. Item 35 - Paragraph 151DA(2)(e) Item 35 would repeal paragraph 151DA(2)(e) of the CCA. It is proposed this paragraph be repealed given that it requires all refusals by an NBN corporation to permit interconnection of particular facilities at particular locations to be reasonably necessary to achieve uniform national pricing of eligible services supplied by the NBN corporation. As indicated above in the discussion relating to item 33, NBN Co is 67

now subject to a price capping requirement. Therefore, it is not appropriate that refusals under subsection 151DA(2) continue to be subject to the requirement that the refusal is reasonably necessary to achieve uniform national pricing of eligible services supplied by an NBN corporation. This amendment will nevertheless leave in place for the time being the authorisation in relation to points of interconnection. Item 36 - Paragraph 151DA(3)(b) Item 36 would omit the word 'and' from paragraph 151DA(3)(b) of the CCA, as a consequence of the change proposed in item 37, below. Item 37 - Paragraph 151DA(3)(c) Item 37 would repeal paragraph 151DA(3)(c) of the CCA. It is proposed this paragraph be repealed given that it imposes a restriction on an NBN corporation that it may not place bundling conditions on the supply of a designated access service to a service provider or utility, unless the condition is reasonably necessary to achieve uniform national pricing of eligible services supplied by an NBN corporation. As indicated in the discussion relating to item 33, NBN Co is now subject to a price capping requirement. Therefore, it is not appropriate that NBN corporations continue to be subject to the requirement that bundling of designated access services only be permitted if it is reasonably necessary to achieve uniform national pricing of eligible services they supply. This amendment will nevertheless leave in place for the time being the authorisation in relation to the bundling of designated access services. Item 38 - Subsection 151DA(4) to (8) Item 38 would repeal subsections 151DA(4) to (8) of the CCA. Subsection 151DA(4) is not consistent with the price capping requirement. Subsections 151DA(5) to (8) are definitional provisions that are no longer required given the other amendments to section 151DA Item 39 - Subsection 151DA(9) Item 39 would repeal a number of definitions from subsection 151DA(9) of the CCA as a consequence of the proposed repeal of subsections 151DA(4) to (8) proposed by item 38 (see above discussion). The definitions for "listed point of interconnection" and "point of interconnection", would be re-located to subsection 4(1) with associated references to subsection 151DB(2) and proposed subsection 151DB(1A) of the CCA, given their continued significance (refer to item 32 for further information). Item 40 - After subsection 151DB(1) Item 40 inserts proposed subsection 151DB(1A), containing a definition of 'point of interconnection'. This definition is being re-located, as a consequence of the repeal of the definition of the term in subsection 151DA(9) at item 39. Item 41 - Subsection 151DB(2) Item 41 would omit the words 'For the purposes of this Division, a' and substitutes 'A', the effect being that the definition of 'listed point of interconnection' in section 151DB(2) is no longer limited to use for the purposes of Division 16 of Part XIB of the CCA only. This item is consequential to items 32 and 39. 68

Item 42 - Subsections 151DB(2B) and (2C) Item 42 repeals subsections 151DB(2B) and (2C) of the CCA as a consequence of item 43. Item 43 - At the end of Division 16 of Part XIB Item 43 would add proposed section 151DC to the CCA. Proposed section 151DC specifies the circumstances under which Division 16 of Part XIB will cease to have effect. The proposed section recognises that once the NBN has been declared fully built and operational by the Minister under section 48 of the NBN Companies Act, Division 16 will have no further use. This subsumes the cessation provision in current subsections 151DB(2B) and (2C) which are proposed to be repealed (refer to item 42). These provisions currently provide that the ACCC's power to vary listed points of interconnection with the agreement of an NBN corporation under subsection 151DB(2A) will cease to have effect once the NBN has been declared fully built and operational by the Minister under section 48 of the NBN Companies Act. The cessation arrangements reflects the Government's approach that the authorisations enabled under this Division 16 should only be in place during the construction phase of the NBN. This is because, as noted above, the authorisations are intended to provide certainty during the build phase to enable NBN Co to construct its network as planned in the most cost-effective and efficient manner. Item 44 - Subsection 152AXB(4A) Item 44 omits the words 'within the meaning of' in subsection 152AXB(4A) of the CCA and replaces them with the word 'see', as a consequence of the changes concerning the definition of 'listed point of interconnection' made by items 32, 39 and 41. Section 152AXB sets out the Category B SAOs. Item 45 - Subsection 152BCB(3B)(b) Item 45 repeals paragraph 152BCB(3B)(b) of the CCA and replaces it with a new paragraph as a consequence of the proposed repeal of paragraph 151DA(3)(c) by item 37. Section 152BCB sets out restrictions on access determinations. Item 46 - Subsection 152BCB(3C) and (3D) Item 46 repeals subsections 152BCB(3C) and (3D) from the CCA, as a consequence of the changes made by item 33. Section 152BCB sets out restrictions on access determinations. Item 47 - Paragraph 152BDA(3B)(b) Item 47 repeals paragraph 152BDA(3B)(b) of the CCA and replaces it with new paragraph, as a consequence of the proposed repeal of paragraph 151DA(3)(c) by item 37. Section 152BDA sets out restrictions on binding rules of conduct. Item 48 - Subsections 152BDA(3D) and 152CBD(5A) and (5B) Item 48 repeals subsections 152BDA(3C) and (3D) and 152CBD(5A) and (5B) as a consequence of the changes made by item 33. Section 152BDA sets out restrictions on binding rules of conduct. 69

Part 8--Declared services and eligible services Division 1--Definition of declared service Competition and Consumer Act 2010 Item 49 - Section 152AC (definition of declared service) Item 49 omits the reference to section 152AL from the definition of 'declared service' in section 152AC and substitutes it with references to sections 152AL and 152AQA and subsection 152F(5) as a consequence of the proposed introduction of new section 152AQA and new subsection 152F(5), by items 50 and 16 respectively. Item 50 - After section 152AQ Item 50 inserts new section 152AQA after section 152AQ of Part XIC of the CCA. New subsection 152AQA(1) provides that specified agreements or arrangements to access facilities that would otherwise fall under section 152AL, are not affected by the declaration of those facilities if the specified agreement or arrangement is in place prior to ACCC declaration of those facilities. Exempt services cover those services that are supplied under a contract, arrangement or understanding, at the commencement of the section and either: - the relevant contract is a contract to which a determination made under subsection 577BA(9) of the Tel Act applies; or - the relevant contract is the contract entered into between NBN Co and Optus Networks Pty Limited on 23 June 2011 and restated on 14 December 2014; or - the relevant service is being supplied by an NBN corporation as part of an arrangement between an NBN corporation and another carrier. These three classes are discussed in further detail below. A note is included at the end of subsection 152AQA(1) to alert readers that the relevant contract, agreement or understanding may not necessarily describe the provision of access to facilities as a service. Despite this, the description used in the relevant contract, agreement or understanding does not prevent the provision of access to a facility from being regarded as a service and treated accordingly. For the purposes of new paragraph 152AQA(1)(a), there has been one determination made under subsection 577BA(9) to date known as the Telecommunications (Agreements for Compliance with Structural Separation Undertaking) Determination 2014 (here, referred to as 'the Determination'), which commenced on 14 December 2014. There are six contracts, arrangements or undertakings to which the Determination applies, including: - the four agreements originally entered into by Telstra and NBN Co in June 2011, collectively known as the 'Definitive Agreements' including amendments to those agreements which commenced on 14 December 2014; and 70

- two deeds associated with the Definitive Agreements, known as the 'Continuity Deed' and the 'Deed of Amendment and Restatement', which commenced on 14 December 2014. Proposed paragraphs 152AQA(1)(a) and 152AQA(1)(b) are intended to capture the commercial agreements made between Telstra and NBN Co, and Optus and NBN Co. The proposed paragraphs will ensure that these agreements, which are designed to facilitate the roll-out of the NBN, will continue to operate in accordance with their existing negotiated terms and conditions, even if the ACCC later declares one or more of the facilities access services which are supplied as part of the agreements. This protection applies for the life of the agreements, thereby giving certainty to the parties concerned on the matters covered. Therefore the exemption in section 152AQA grandfathers the commercial terms in the agreements between Telstra and NBN Co, and Optus and NBN Co. Accordingly, if the ACCC were to declare a facilities access service that is also supplied under the agreements, then, if an access seeker makes a request to Telstra, Optus or NBN Co to supply that service on ACCC determined terms and conditions, those access providers would be required to supply the service in accordance with the provisions in Part XIC of the CCA (i.e. access would need to be provided but on terms and conditions determined by the ACCC or otherwise negotiated, and not in accordance with those in the relevant agreements). Proposed paragraph 152AQA(1)(c) is intended to capture any arrangement between an NBN corporation and another carrier (such as a commercial contract made under access granted in Schedule 1 to the Tel Act). This will provide certainty to NBN Co and industry in relation to existing agreements (that are not those agreements set out in 152AQA(1)(a) or 152AQA(1)(b)), and avoids any confusion that might arise as a result of the application of a competing access regime. The contracts covered by the Determination discussed above are not intended to be captured by this third class as they are covered by the specific listing in proposed paragraph 152AQA(1)(a). Proposed subsection 152AQA(2) would provide that new subsection 152AQA(1) does not apply to any changes made to the specified contracts, arrangements or understandings (set out at proposed paragraphs 152AQA(1)(a)-(c)) after the commencement of proposed section 152AQA, unless it is a change that ends the contract, arrangement or understanding. This means any amendments made to an agreement under subsection 152AQA(1) after the commencement of the provision would not be exempted from the operation of 152AL. For example, if a new access obligation for a new facility was added to an agreement covered by 152AQA(1) after the commencement of section 152AQA, the provision of access to that facility would be treated as a declared service under section 152AL if the ACCC declared the service, provided the service satisfies the definition in section 152AL. Proposed subsection 152AQA(1) is intended to operate only in respect of the actual supplies made under the specified agreements, contracts or arrangements, not the class of services more generally. Accordingly, to avoid any confusion in respect of the status of classes of facility access services, in terms of their ability to be declared under Part XIC of the CCA, subsection 152AQA(3) provides that subsection 152AQA(1) does not apply to an eligible service simply because the eligible service is 71

of the same class as an eligible service supplied under a particular contract, arrangement or understanding covered by those subsections. For example, if there were existing commercial agreements between Telstra and NBN Co within the ambit of subsection 152AQA(1), and under those arrangements Telstra agreed to commercial terms to lease its underground duct infrastructure to NBN Co, that access would be unaffected. However, that agreement would not affect another carrier's access to these ducts if duct access was declared by the ACCC. In those circumstances, the owner of the ducts would be required to supply access to the ducts, if requested by an access seeker, in accordance with the terms and conditions of the ACCC access determination. The immunity in relation to providing access is intended to only apply to the particular services covered by an agreement captured by proposed paragraph 152AQA(1)(a), (b) or (c). At the same time, however, NBN Co's access to the services under its agreements would be unaffected. Item 51 - At the end of subsection 152CJA(1) Item 51 would provide that an NBN corporation can supply an eligible service to another person if new section 152AQA applies to that service; that is, if they are supplied under specified agreements or arrangements. Section 152CJA sets out restrictions on when an NBN corporation can supply eligible services to access seekers. Normally, an NBN corporation can only supply services that are declared services. However, new section 152AQA clarifies that some services supplied under the specified agreements or arrangements are not 'declared' services. As a result, item 51 is a consequential amendment to add such eligible services to the list of services in section 152CJA that an NBN corporation may supply. Division 2--Definition of eligible service Competition and Consumer Act 2010 Item 52 - Subsection 4(1) Item 52 makes a house-keeping change. The item inserts a definition for "eligible service" into the Interpretation (definitions) subsection 4(1) in Part I of the CCA. The definition replicates, by cross-reference, the definition of "eligible service" contained in subsection 152AL and also repeals that definition. It does not vary the definition in any way. Moving the definition to section 4 streamlines the CCA by applying the definition across the Act, rather than defining it for the purpose of different parts of the CCA. Item 53 - Subsection 151DA(9) (definition of eligible service) Item 53 repeals the definition of "eligible service" in section 151DA(9), and represents a consequential change as a result of Item 52. Item 54 - Subsection 152AL(1) Item 54 replaces the word "section" with "Act" to reflect that the definition of 'eligible service' is being applied across the CCA, not just section 152AL. Refer also to item 52. 72

Item 55 - Subsection 152ARB(6) Item 56 - Subsections 152AXD(6) and 152BCA(5) Item 57 - Subsection 152BDAA(6) Item 60 - Subsection 152EOA(1B) Items 55, 56, 57 and 60 would repeal the subsections which contain a definition of "eligible service" as a consequence of the change proposed by item 52, which would include the definition of "eligible service" in subsection 4(1). Item 58 - Paragraphs 152BE(2)(a) and 152CBA(3C)(a) Item 59 - Subsections 152CJA(1) and 152CJB(1) Items 58 and 59 would omit the expression "(within the meaning of section 152AL)" as a consequence of the change proposed by item 52. 73

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