Friday, October 30, 2020

Regulators and hammers - recent folly of the ACMA

In the great wash up of regulatory analysis, one of the reasons why regulation should be avoided is because it requires regulators. And regulators have a tendency to supplant the objective of the regime they are regulating with the objective of regulating.

The Telecommunications Act 1997 expressly recognised this regulatory risk, and specifies a regulatory policy at section 4.

The Parliament intends that telecommunications be regulated in a manner that:

                     (a)  promotes the greatest practicable use of industry self‑regulation; and

                     (b)  does not impose undue financial and administrative burdens on participants in the Australian telecommunications industry;

but does not compromise the effectiveness of regulation in achieving the objects mentioned in section 3.

Way back in the late 1990s the then Australian Communications Authority labelled the regime 'co-regulatory' to reflect the fact that the regulator had significant powers to require the development of codes, to register and enforce codes and to make 'standards' in the absence of codes. The Minister can direct the ACMA to make a standard.

The regime also very clearly delineates three kinds of entities covered by the legislation - carriers, carriage service providers and content service providers. To own network infrastructure that is used for supply to the public a person needs a carrier licence, which you obtain from the ACMA. Anyone who supplies services is a service provider, and there are obligations under the Act that then apply including being a member of the TIO, but you don't need to apply to be a service provider.

In 1999, for no other reason than the Government was trying to highlight the extensive consumer protections in the regime, some Parts of the TA were deleted and re-legislated as the Telecommunications (Consumer Protections and Service Standards) Act 1999. (By recollection the current Minister for Communications was at the time an Adviser to the then Minister). This largely pointless, and unsuccessful, political gesture has simply made interpretation of the regime difficult. As a simple example the concept of a 'standard telephone service' does some heavy lifting in both Acts, but is defined in s6 of the T(CPSS)A. 

That the existing legislative structure is complex and confusing has been demonstrated recently by the regulator (the Australian Communications and Media Authority) itself, that in a submission to a review of legislation has simply made errors in its own interpretation of its powers. The conclusion the ACMA reaches is, as suggested by my introduction, that the regulator needs to regulate more, writing:

We consider that clearly drafted and properly enforceable rules made by the regulator—rather than the current co-regulatory arrangements— are required to deliver these essential consumer safeguards. Simple, clear and better-defined commitments would also provide more certainty to industry of its obligations to consumers than current code requirements, which are often confusing and not necessarily well-understood or applied by all providers.

The ACMA starts its Executive Summary by asserting that self-regulation was chosen as policy because the focus of the Act was introducing competition and 'the framework prioritised the use of industry selfregulation so that the then nascent industry could develop rules as real-life issues emerged.' Noting there are now some 1400 providers the ACMA concludes the Act has achieved that goal and self-regulation is no longer appropriate. 

This is simple bunkum - the Explanatory Memorandum to the Bill states:

The Bill also contains a statement to the effect that the Parliament intends that telecommunications be regulated in a manner that promotes the greatest practicable use of industry self-regulation and does not impose undue financial and administrative burdens on participants in the industry, but does not compromise the effectiveness of regulation in achieving the objects of the legislation (see clause 4).  This is intended to guide the telecommunications regulators in the performance of their functions and the exercise of their powers.

The ACMA then informs us that telecommunications is now an essential service - which perhaps comes as a surprise since the Acts include the Universal Service Obligation created because they already were an essential service. What the ACMA may be trying to address, and doing pooorly, is that broadband internet access is now an essential service not just voice telephony.

It was in recognition of this development that the Rudd Government introduced the National Broadband Network - universal wholesale access to the NBN provides universal broadband and telephony access. 

The NBN, we are then told by the ACMA, is part of complex supply chains which somehow or other are also meant to be new. Once again this is not the case -- apart from Telstra everyone else was providing most broadband over infrastructure that had similar supply chains (the ULL for access plus acquiring transmission from exchanges to internet nodes). The ACMA shows the ongoing confusion about carriers vs service providers by listing as different modes of supply:

> licensed carriers that provide services to customers and carry other retail providers on their networks
> retail providers that do not own their own network infrastructure.
Only Telstra as a carrier was ever carrying the majority of its traffic end-to-end over its own infrastructure. The industry works through interconnection, an activity undertaken entirely on the basis of processes agreed through the self-regulatory framework - with pricing determined by the ACCC in some circumstances.

In reality it is only carriage service providers that provide services to the public, in some cases that uses some infrastructure owned by the provider who also therfore is a carrier.

The ACMA also thinks there is a need for 'transparency of the performance of carriage service providers (CSPs) against key metrics related to essential consumer protections.' As a citizen I don't need to provide a report to anyone on a peridic basis that I haven't stolen anything, or that I haven't littered, or how often I've treated others as I would like to be treated. 

The ACMA says its research shows 'In addition to the factors identified in the consultation paper, recent ACMA data and research reveals an increasing misalignment between matters that are important to consumers and the performance of industry in these areas. Unsurprisingly, our research shows that the majority of Australian adults, households, and small and medium-sized businesses consider customer service and faults management to be important telco issues.'

There is a real problem in the telco market because consumers either have such a low expectation of customer service that they buy regardless or they have such a high level of expectation they buy regardless. More regulation only creates more of the latter, while the ACMA's survey only provides more of the former. What is needed is clarity for consumers that service provider quality is a variable and how to find out about it. I made my own suggestions for how to do this back in 2009. But you solve nothing through reporting on 'essential' consumer protections.

The issue with the ACMA research process is that it doesn't help consumers in exercising choice. The survey needs to be about actual providers and rate providers on their performance on things that matter to consumers. To do this effectively the ACMA needs to use a biased sample to make sure enough customers of smaller telcos are sampled to be statistically significant. 

The ACMA further asserts 'The absence of an ability to exit providers that are responsible for repeated or egregious failures to comply with essential consumer protections from the market has made it easier for some unscrupulous providers to continue to operate. This is to the detriment of consumers.' This is an interesting observation, but no evidence was provided of the magnitude of the problem. The provisions to be able to get a carrier to exit or prohibit return were all to do with the liability of the carrier to pay licence fees and USO levies - not customer service outcomes.

The ACMA is also wrong to assert that in energy providers have to register. Retailers do, because they have financial obligations to settle in the market. But to date thousands of 'embedded network operators' haven't been required to do so.

While personally I support the idea of a 'register of carriage service providers' the only criterion that should apply to the register is providing evidence of TIO registration. However, a similar outcome could be achieved by a simple determination that carriers (including NBN Co) can only provide services to a service provider once the provider has demonstrated their membership of the TIO.  

Further the ACMA makes what are simply ludicrous claims about the state of competition, saying:

There is also evidence that impediments exist for a significant number of consumers to take advantage of Australia’s competitive telecommunications sector by changing provider. Our 2020 telco consumer experience research shows that 47 per cent of Australian adults had not changed their mobile service plan or provider in the previous two years. A little over half (53 per cent) of Australian adults have been with their current telco for their mobile phone for more than five years.

Given that plans that include the bundling of handsets are still widely prevelant it is unsurprising that consumers don't churn at durations less than contract terms. Secondly, mobile coverage is not uniform between providers and for this reason alone a degree of 'stickiness' is to be expected. 

The ACMA also still seems to be tying itself in knots over artificial distinctions between 'over the top' services and 'telephony' and the archane description of a 'standard telephone service.' There is a far simpler approach than empowering the ACMA to make some additional rules - simply change the definition of the STS. A 'standard telephone service' is any service that enables the establishment of a communications channel to another person by means of a telephone number. 

The ACMA in seeking the power to make rules provides no evidence that it has been frustrated by the existing process. Given the ACMA can make standards if requested codes are not forthcoming or there are deficiencies in existing codes, one would expect the ACMA to have exercised this power if the codes process was deficient. Similarly, if the matter was egregious and important, the ACMA would have had the opportunity to seek a direction from the Minister.

The central consumer protection code - the Telecommunications Consumer Protection Code - was initially made in 2012 when Senator Conroy was Minister and I was a new adviser in his office. The development of the code had reached an impasse over some clause (that I can't remember) and the ACMA was preparing to reject registration of the code and move to make a standard. When the ACMA understood that the Minister would regard this as a failure a new round of negotiation took place between the ACMA, CommsAlliance and ACCAN and a resolution was reached.

My personal experience is that regulations made by regulators are usually so abstracted from operational reality as to be worse than the drafting of industry codes. Once again the ACMA provides a littany of assertions about code processes without any demonstrated cases. 

I simply won't be drawn on the ACMA's poor discussion of the differences between aspects of the consumer protection regime, other than to note that providers are still bound by the Australian Consumer Law. One of the drawbacks of the telco regime has been the propensity for the ACCC and ACMA to both stand back and argue it is the other who should take action over some specific conduct. The ACCC quite rightly notes the hurdle for the ACMA direction is much lower than the legal hurdle for prosecution, while the ACMA argues its directions have little effect.

The practical matter is that increasing the ACMAs enforcement powers will only have two consequences - the first is that it will constrain the ACMA in deeper levels of legal analysis and secondly the scope of any proposed regulations will be much narrower than the existing provisions.

The ACMA's submission is a perfect case study in regulation and why regulators are the central problem in most regulatory schemes. 

Unfortunately the paper to which the ACMA was responding was also poorly constructed. It should have started with a simple question - what consumer protections required in a communications market made up of broadband, telephony over broadband and widespread mobile penetration? What is the most effective way of delivering these protections?

As the saying goes, when all you have is a hammer everything looks like a nail. The policy principle favouring self-regulation is as relevant today as it was in 1997, and the ACMA's submission provides the bulk of the evidence of why that is so. 

Life is what happens while you are busy making other plans JWL

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