Regulation impact statement

Option 3

Costs

80. 
    Option 3 is expected to result in total industry establishment costs of $xx million, with ongoing costs of around $xx million per annum. Most of these costs fall on the MNOs. During consultation, some MVNOs indicated that the compliance costs associated with this option may cause them to leave the IMR market. The cost of option 3 is expected to be slightly higher than for option 1 and significantly less than for option 2. The extra cost relative to option 1 is largely due to the requirement for spend management tools, though this is somewhat offset by the delayed implementation of the common elements under option 3. The lower cost relative to option 2 reflects the later implementation date, and the removal of certain ineffective provisions. These relate to prepaid services, voice and SMS spend management tools.
    
81. 
    The major cost involved with this proposal is the development of a communication system between the first and second provider in order to inform the latter that one of its customers is roaming within an hour of the first provider becoming aware that the consumer is roaming. This undertaking is the same as that required in Options 1 and 2. However, Option 3 allows the providers 15 months from registration to establish these communications systems and spend management tools. MVNOs then have until May 2016 to build their systems to provide on arrival cost information and usage alerts to consumers. This is estimated to be slightly less than the $xx estimate per MNO as per Option 1 due to the longer lead time to implementation.
    
    
82. 
    This requirement, as with Options 1 and 2, will also be borne by resellers who (due to their smaller size) may find this impact to be financially greater. Estimates for MVNOs are up to $xx per provider though likely lower due to the longer lead time to implementation which means that systems development can be planned in advance. As per option 1, the impact of option 3 may cause some MVNOs to leave the IMR market and may deter new entrants. The MVNOs that the ACMA has liaised with all note that IMR is not a core part of their business model.
    
83. 
    MVNOs that offer pre-paid services only, will not have to develop spend management tools (from 2016) unless they require automatic top-up payments from their customers. This should reduce compliance costs relative to option 2 and therefore reduce the likelihood of MVNOs exiting the industry. It is also worth noting that some MVNOs may be aggregators/wholesalers themselves, and will therefore be required to establish systems to pass on information to other MVNOs.
    
84. 
    Option 3 can be implemented at significantly lower cost than Option 2 because the spend management requirements apply only to post-paid data services and the implementation timeframe for the building of inter-operator systems is extended. The implementation costs for MNOs for this proposal at estimated at $xx million, assuming that the extended timeframe for the development of MNO communication systems between MNO-MVNOs falls from $xx to $xx each. This $xx million establishment cost is $xx million dollars less than the establishment costs for Option 2 and $xx million more than the establishment costs for Option 1. Ongoing costs are estimated at $xx million dollars per annum.
    
85. 
    The delayed commencement of some provisions contained within this option will lead to MVNOs who would have exited the IMR market earlier under Options 1 & 2 continuing to offer IMR services to their customers until such time as compliance costs cause them to make a business decision regarding the continued supply of IMR services. Therefore, lessening of competition in the small but growing provider sector of the IMR market remains a likely outcome despite a delayed implementation of the Standard.
    
86. 
    Those that continue to offer IMR services may increase prices for some domestic services to recoup systems establishment costs. This may have a small impact on competition in one segment of the market, although the magnitude of the impact on competition is difficult to ascertain. It is probable that in the absence of competitive pressures from smaller MVNOs, the market may become more concentrated towards the larger providers and toward alternatives to IMR services.
    

Benefits

80. 
    The benefits of Option 1 identified above also apply to Option 3. The following additional benefits are expected under this option.
    
81. 
    The proposal builds on the MNOs’ moves to improve data usage tools for post-paid customers. It acknowledges the benefits in these moves while adding value by requiring data usage estimates be converted into dollar estimates for casual use, acknowledging that charges for such use vary substantially and requiring alerts to be pushed to customers.
    
82. 
    The key benefits of this proposal are the targeted way that the measures relate to the major causes of bill shock. Disclosure of prices and charging methodology is increased and provided at an opportune time. Consumers receive a targeted and timely warning about the use of IMR services at the time their IMR service is activated overseas.
    
83. 
    In addition, consumers will be able to better manage their spending habits while overseas, via a combination of information available with various spend management tools and with the notifications they will receive (data package and post-paid customers) that alert them to usage at relevant times. The spend management tools have been focussed on those customers most at risk of bill shock - post-paid customers using their mobile devices for data. Monitoring of data usage is currently difficult for the consumer using IMR services.
    
84. 
    Behavioural economics research suggests that up-to-date information on usage is best “pushed” out to consumers, who are inclined to discount the consequences of a high bill in the future unless it is brought into their present”.
    

Specifically, Telstra customers will receive (compared to the status quo):

• 
  messages detailing pricing information for IMR services;
  
• 
  SMS information about how to opt out of IMR services; and
  
• 
  spend management alerts (as distinct from usage alerts) for included value packs and post-paid data services.
  

Optus customers will receive the following benefits (compared to the status quo):

• 
  an ‘on arrival’ message informing customers that they are using IMR services;
  
• 
  messages detailing pricing information for IMR services;
  
• 
  SMS information about how to opt out of IMR services; and
  
• 
  spend management alerts (as distinct from usage alerts) for included value packs and post-paid data services for all customers.
  

Vodafone customers will receive the following benefits (relative to the status quo):

• 
  warnings that significantly higher charges are likely to apply due to IMR services;
  
• 
  SMS information about how to opt out of IMR services;
  
• 
  push notifications of spend management alerts for included value packs and post-paid data services.
  

Customers of MVNOs will receive the entire suite of benefits under this proposal. This option allows MVNOs which choose to remain in the IMR market the opportunity to compete with MNOs in terms of service. It requires MNOs to provide MVNOs with information that gives the customers of MVNOs transparency about IMR charges and allows MVNOs to offer usage management tools. Consumers will be able to opt out of IMR services at any time, cheaply and easily.

80. 
    The benefits above compare favourably with the benefits expected in Option 2, largely targeting and mitigating the main causes of bill shock identified during the ACMA’s RTC Inquiry. The longer lead times and later commencement dates may also keep some MVNOs in the IMR market as investment can be planned and costs managed over a three year period.
    
81. 
    As travel packs purchased from MNOs revert to the more expensive casual rates once the data allowance is exhausted, customers will benefit from usage notifications and spend management tools. This is an improvement on the status quo for both the MVNOs and consumers and is likely to substantially reduce the likelihood of bill shock.
    

Risks

80. 
    Given the number of individual SMSs that a consumer may receive while overseas (including welcome messages from a visited network and pricing information for the majority of consumers), there is a risk that the impact of the warning message may be diluted. The ACMA plans to mitigate this issue by allowing a 14 day period in which a customer receiving a notification in one country will not receive the notification again from the same country within these 14 days.
    

Comparative Impacts of Options 1, 2 and 3

80. 
    In order to provide an illustration of the differences between the costs and benefits under the three options considered in this RIS, the estimated costs under each option are compared to the estimated value of complaints that would be required to be reduced in order for the “costs of reform” under each option to be paid off. For the purposes of this “break-even” analysis, the three MNOs and five MVNOs are assumed to provide IMR services over a 10-year period, while the estimated annual amount of disputed charges for IMR of about $58 million using the TIO data is used as the annual existing level of detriment (or maximum benefit to be realised). No indexation is applied over time as trends in overseas travel by Australians, IMR charges and changes in data download speeds are difficult to predict. Ongoing costs are assumed to be stationary for the purposes of comparison.
    
81. 
    Using the information and data presented in the RIS, the table below provides a guideline for the annual percentage reduction in disputed charges required for the costs to be met under each option.
    

	Option 1	Option 2	Option 3
Total establishment costs	$xx million	$xx million	$xx million
Annual costs over a 10 year period	$xx million	$xx million	$xx million
Total impact over 10 years	$45.2 million	$112.3 million	$54.9 million
Amount of disputed charges over 10 years	$580 million	$580 million	$580 million
Total reduction in disputed charges required to ‘break even’ over 10 years	7.8 per cent	19.4 per cent	9.5 per cent

80. 
    The illustrative analysis suggests that Option 1 requires a 7.8 per cent per cent total reduction over 10 years in consumer complaint value to reach a ‘break even’ point. Option 2 requires a 19.4 per cent reduction in consumer complaint value over 10 years. Option 3 requires a 9.5 per cent reduction in disputed charges over 10 years. In relative terms, Option 3 provides very similar benefits to Option 2 but with a much lower estimated “break-even”. While Option 1 has the lowest estimated “break-even”, its benefits are likely to be less than those achievable under Option 3 (and Option 2) as much of the provision of mandatory information under Option 1 is largely consistent with current practice by industry.
    

Competition impacts of Options 1, 2 and 3

80. 
    The analysis presented suggests that the feasible regulatory options (1 to 3) all restrict competition in one small but growing segment of the market because the implementation costs analysed are likely to lead some smaller businesses cease their participation in the roaming market leading to a reduction in consumer choice. The negative competition effects cannot be ascertained with confidence given the corresponding growth in Australian travellers and the emerging market in alternate suppliers of travel products.
    
81. 
    The “direct” competition impacts are focussed on MVNOs, noting that a substantial proportion of smaller MVNOs do not offer IMR services (including fast growing MVNOs such as Kogan and Aldi). Exit from the IMR market by some small providers is a likely result, and the proposed regulation is likely to increase the barriers to entry in that relatively small segment of the market. While alternative IMR products and services may result in being viable substitutes, it is difficult to envisage the extent to which these would place competitive pressure on the incumbent providers in the absence of competitive pressures from MVNOs.
    
82. 
    Restrictions on competition are contrary to the requirements of the National Competition Policy (NCP), and the Competition Principles Agreement which was put in place by the Council of Australian Governments in 1995. NCP “is based on an explicit recognition that competitive markets will generally serve the interests of consumers and the wider community, by providing strong incentives for suppliers to operate efficiently and be price competitive and innovative. A key principle of NCP is that arrangements that detract from competition should be retained only if they can be shown to be in the public interest”. NCP does recognise a need for government intervention in markets, where this is justified.
    
83. 
    The RIS requirements in the Australian Government’s Best Practice Regulation Handbook (June 2010) state:
    

Where your particular proposal restricts competition, the RIS must demonstrate that it will deliver benefits to the community that outweigh its costs, and that there are no alternative means of achieving the same objective without restricting competition. This is required to meet the Australian Government’s commitments under the intergovernmental Competition Principles Agreement, which is designed to promote competition in the economy and the benefits that it can bring to the community.

80. 
    While the Ministerial Direction and the requirement of the ACMA to implement a Standard preclude the ACMA from considering the status quo as a feasible option, the RIS has attempted to demonstrate that there are community benefits that outweigh the costs. These include:
    

1. 
   The timely delivery of better information to consumers about the costs of IMR services;
   
2. 
   Better consumer control of access and use of IMR Services;
   
3. 
   Improved information flow between MNOs and MVNOs which allows MVNOs to offer IMR services which can be used by consumers with more confidence; and
   
4. 
   Expectations of a reduction in the incidence and size of ‘bill shock’ events associated with IMR services (currently estimated at $58 million per annum).
   

80. 
    Based on the analysis presented in the RIS, Option 3 is a relatively low cost option, while delivering relatively low benefits. Overall, it is likely that Option 3 would result in a relatively low but positive net benefit. In contrast, Option 1 has lower costs than Option 3, but it is likely that benefits achievable under Option 1 would be marginal, given the narrowing gap between existing industry practice and the minimum mandatory requirements under this option. In terms of Option 2, it is expected to have the highest costs, but it is unlikely for benefits under this option to be significantly different to Option 3, given that Option 3 targets data usage as the main concern of bill shock. Hence, Option 3 is the preferred option.
    

Consultation

80. 
    Consultation is important to ensure that all affected stakeholders are provided the opportunity to provide input into the development of the Standard. In particular, the ACMA wanted to ensure that the appropriate balance is found between protecting consumers and imposing costs on industry. The ACMA was also interested to hear the views of resellers, as the IMR Direction applies to all CSPs offering IMR services, regardless of their level of market participation.
    
81. 
    There were three main elements to the ACMA’s consultation:
    

1. 
   Preliminary Consultation including stakeholder workshop
   
2. 
   Public Consultation
   
3. 
   Post-public consultation (targeted consultation)
   

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