Australia: Customer Service Guarantee (CSG) reform: negotiable timeframes with safety net and no waivers?

Key Points:

Feedback on proposed changes to the Customer Service Guarantee are due on Monday 5 May 2014.

Reform of the Customer Service Guarantee to repeal mandatory performance benchmarks and allow CSPs to negotiate connection and fault rectification timeframes and compensation with their customers is being considered for the second Parliamentary Repeal Day in September or October 2014.

What are the proposed changes to the Customer Service Guarantee?

The Customer Service Guarantee (CSG) is a consumer protection measure which has been part of the Australian telecommunications landscape for almost two decades. The CSG regulations apply to carriage service providers (CSPs) who supply a "standard telephone service" to residential and small business customers. Mobile phone, satellite and internet services are not caught by the CSG regulations.

Earlier this month, the Federal Government released a Consultation Paper, "Proposed measures for the Telecommunications Deregulation Bill No. 1 2014". The proposed measures include reforming the CSG regime to:

  • allow CSPs to negotiate connection, fault rectification and appointment timeframes and compensation arrangements directly with customers;
  • remove the ability of CSPs to request customers to waive their rights to CSG compensation; and
  • repeal the enforceable CSG performance benchmarks.

Regulatory framework

The CSG regime is provided for in Part 5 of the Telecommunications (Consumer Protection and Service Standards) Act 1999, however most of the detail is currently found in the following regulations:

  • Telecommunications (Customer Service Guarantee) Standard 2011 (CSG Standard) which contains the relevant performance standards and CSG compensation rates; and
  • Telecommunications (Customer Service Guarantee - Retail Performance Benchmarks) Instrument (No. 1) 2011 (CSG Benchmarks) which contains enforceable CSG performance benchmarks for larger CSPs.

The case for reform

The Customer Service Guarantee was introduced in 1996 in the lead-up to the privatisation of Telstra. Since that time, the telecommunications sector has undergone significant change which culminated in the introduction of a new non-vertically integrated, wholesale-only, open access national broadband network. There has also been a substantial increase in the use and reliance by consumers on mobile phones and cellular networks for voice communications. Mobile services are not covered by the CSG Standard.

The Consultation Paper identifies three "overarching issues" which are limiting the effectiveness of the current CSG Standard:

  1. outdated terminology and provisions;
  2. inability of CSPs to guarantee connection and repair timeframes when supplying services using wholesale inputs from another party; and
  3. significant costs faced by CSPs in complying with the CSG Standard and CSG Benchmarks.

The CSG Standard applies only at the retail level and not to wholesale services which are used as an input into the supply of standard telephone services. The wholesale/retail timeframe mismatch is an issue which many CSPs grapple with today and has resulted in CSG waivers being sought from customers. In 2012-13, CSG compensation payments totalled $7.89 million. A number of CSPs today will only supply services to consumers who provide a CSG waiver, which is often included in the CSPs standard terms and conditions.

The Consultation Paper recognises that "the current CSG Standard was developed when the Australian telecommunications market was dominated by a single vertically integrated monopoly provider, Telstra, which owned a near-ubiquitous copper telephone network. The market was characterised by limited competition and alternative infrastructure."

Today, there is both greater competition at the retail level and alternative infrastructure. There are many CSPs who provide standard telephone services using Telstra's copper network. In the long term, the NBN is likely to mean that CSPs will no longer own their own infrastructure. Reform is considered necessary because "CSPs generally only meet CSG timeframes where they have their own infrastructure in place" and "where CSPs rely on wholesale inputs to deliver services, they will either negotiate longer timeframes or ask their customers to waive the CSG".

In these circumstances, the Consultation Paper proposes reforming the CSG to improve its effectiveness and help reduce the administrative burden on the telecommunications industry.

Proposal 1: CSPs to negotiate timeframes and nature of compensation

The CSG Standard sets maximum timeframes (known as "performance standards") for CSPs to connect a standard telephone service, repair faults or service difficulties and attend appointments with customers. The timeframes vary depending on whether the customer's premises is located in an urban, rural or remote area.

CSPs who fail to meet the prescribed CSG performance standards are required to pay financial compensation to affected customers, unless a CSG waiver is in place or an exemption applies (eg. natural disaster). CSG compensation is calculated in accordance with the CSG Standard.

Under the reforms proposed:

  • CSPs would be required to include timeframes for connection, fault repair and appointment-keeping in their retail service contracts, and to compensate customers when these timeframes are not met;
  • CSPs could negotiate the precise timeframes and nature of compensation with their customers;
  • the Government is considering keeping a set of default timeframes and compensation rates as a safety net; and
  • a transition period for rural and remote areas may be necessary so that the existing requirements are retained until the NBN rollout is complete.

The proposed changes would help address any wholesale/retail timeframe mismatch, help consumers compare CSP service levels more transparently and allow consumers to choose a service which best suits their needs, particularly in relation to fault rectification.

Proposal 2: Remove ability of CSPs to request CSG waivers

CSPs can request customers to waive their rights under the CSG Standard after providing them with sufficient information to make an informed choice. The Consultation Paper suggests that "the use of waivers has increased substantially in recent years and it now appears that only a few CSPs are actually supporting the CSG timeframes" which "casts doubt on the effectiveness of the Standard as a consumer safeguard".

The Government is proposing to remove the ability of CSPs to request customers to waive their rights under the CSG Standard because CSPs would be given the flexibility to negotiate timeframes and compensation with their customers.

Proposal 3: Repeal CSG performance benchmarks

The CSG Benchmarks were introduced in October 2011 and require larger CSPs to meet the applicable CSG performance standards at least 90 per cent of the time. A CSP's performance is assessed each financial year on a national, urban, rural and remote area basis.

In addition to paying CSG compensation to affected customers, CSPs who fail to meet the CSG Benchmarks are in breach of the Service Provider Rules under the Telecommunications Act 1997 and are exposed to financial penalties.

By way of example, earlier this year Telstra paid a $510,000 penalty for failing to meet the following two CSG Benchmarks in the 2012-13 financial year:

  • new connections in urban areas (88.6% performance vs 90% benchmark); and
  • new connections in remote areas (89.0% performance vs 90% benchmark).

There are significant record keeping and reporting obligations associated with the CSG Benchmarks. The Government is proposing to repeal the CSG Benchmarks in an effort to reduce the regulatory burden on the industry.

Next steps

The Government will consider feedback on the Consultation Paper (due by 5pm on 5 May 2014) and then prepare a draft of the Telecommunications Deregulation Bill No. 1 2014 for introduction on the second Parliamentary Repeal Day in September or October 2014.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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