Eligible Revenue Information Sessions 2012

Overview  Purpose of session  Legislative framework  Reporting requirements  Levies and Charges based on eligible revenue  Cutover to TUSMA legislation  period update  reporting  audit requirements  Tools

 assist industry participants to meet their statutory reporting requirements  assist auditors to understand the audit requirements in relation to carrier returns  update carriers and auditors on any changes to the regulatory framework for eligible revenue reporting and related levies and charges

Set out in  Telecommunications Act 1997 (Telco Act)  Telecommunications (Consumer Protection and Service Standards) Act 1999 (TCPSS Act)  Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003  Telecommunications (Participating Persons) Determination 2011 (No.1) (Participating Persons Determination)  Telecommunications (Period for Providing Return of Eligible Revenue) Specification 2010  Telecommunications (Approved Auditor) Determination 2010  Telecommunications Universal Service Management Agency Act 2012 (TUSMA Act)  Subsidiary instruments to TUSMA Act – under development

What is a carrier? Under section 7 of the Telecommunications Act 1997, a carrier is the holder of a carrier licence. Not all carriers have to submit an eligible revenue return.

For each eligible revenue period, a carrier is either:  a participating person - and must submit an Eligible Revenue Submission to the ACMA by 31 October OR  a USO non-participating person – and must submit an eligible statutory declaration to the ACMA by 31 October

 A participating person for an eligible revenue period is an entity that was a carrier at any time during that eligible revenue period [section 20A of the TCPSS Act].  However, the minister has determined that a person is not a participating person when the person (or “grouped carrier”) has: initial sales revenue; gross telecommunications sales revenue; OR eligible revenue of less than AUD$25 million for the eligible revenue period and the person submits an eligible statutory declaration to the ACMA by 31 October [part 4 of the Participating Persons Determination].

Requirement TCPSS Act /Telco Act [Subsidiary Legislation] Participating person must lodge return of eligible revenue in form approved in writing by the ACMA Section 20 [Handbook on Eligible Revenue Portal on ACMA website] Participating person (vs exempt person) Section 20A / Section 7 [Participating Persons Determination] Due date to provide returns by as specified by the ACMA (31 Oct) Paragraph 20(2)(a) [Telecommunications (Period for Providing Return of Eligible Revenue) Specification 2010] Verification [of return] by statutory declaration Subsection 20(2) Calculation of eligible revenue Section 20B [Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003] Audit report on return by approved auditor Section 20D [Telecommunications (Approved Auditor) Determination 2010]

Lodge return in approved formSection 91 TUSMA Act Participating person (vs exempt person) Section 92 TUSMA Act Due date for returnsSection 91 TUSMA Act Verification of return by statutory declaration Section 91(3) TUSMA Act Calculation of eligible revenue Section 93 TUSMA Act [equivalent instrument to Eligible Revenue Determination] Audit report on returnSection 94 TUSMA Act From

 Eligible revenue based on an eligible revenue submission (including substantially compliant eligible revenue return and supporting documents) or otherwise as estimated by the ACMA  Used to calculate fees and charges  Penalties and enforcement if non-compliant

Key concepts  Carrier revenue includes revenue of Declared Related Parties (DRPs) and consolidated related parties  Grouped carrier – for revenue calculation  Declaration of revenue must be verifiable to financial statements or other evidence on request or notification from the ACMA

and future periods  Telecommunications Industry Levy (TIL)  Annual Carrier Licence Charge (ACLC) (variable component)

/ FY(11-12)- Eligible Revenue Period period of assessable activity FY2 (12-13)- Eligible Levy Period 31 Oct Eligible Revenue Submissions due for FY1 Before EOY ACMA makes ER assessments for FY1 under TCPSS Act FY3- Invoicing Period Levy cap set by Minister under TUSMA Act TIL levy assessment by ACMA and invoicing in Sept/Oct under TUSMA Act

>Total claimed total eligible revenue ($ billion) >Total assessed eligible revenue ($ billion) >Understatement of eligible revenue for industry (by $89.3 mil in , $48.9 mil in and $71.1 mill in >Partnerships and joint venture earnings disclosure >Mergers and acquisitions and changes in accounting period (evidence requirements) >Evidence for significant deductions

Key reporting concepts  All participating persons to report  Eligible Revenue Submission on a group basis vs individual basis  Disclose revenue of Declared Related Parties (DRPs) and consolidated related parties

Key reporting concepts cont.  Evidence for revenues and deductions  Financial statements of carrier and related parties  Audit report OR Audit Waiver granted by the ACMA

Revenue Allocation Schedule – when submitting ERR Form for more than one carrier Table 1: Eligible Revenue allocation Note Ref Name of Carrier ABN/ACN (without spaces) Eligible Revenue allocation in $AUD R11 BIGTelco $19,000,000 R12 MedTelco $6,000,000 R13 Total $25,000,000 Total Eligible Revenue $25,000,000 Unallocated $0

Include related party revenues Consolidated related party an entity: (a)that is not the participating person; and (b)the revenue of which is included in the annual consolidated financial statements of the participating person’s ultimate Australian parent entity ( whose revenues are fully accounted for in the ERR Form)

Include related party revenues Declared related party Any entity that earns telecommunications sales revenue from the Australian telecommunications industry and that is not a participating person or a consolidated related party and is owned at any time during the eligible revenue period (>49%) by the owner of the carrier

Multiple Parties Schedule in ERR Form Table 1: Ownership Group Name: Note Ref Carrier Name Carrier Licence Number ABN/ACN (without spaces) M1 BIGTelco M2 MedTelco M3

Ultimate holding company Bluetone 50% Carrier X

Multiple Parties Schedule in ERR Form Table 2: Declared Related Parties Please refer to Sections 6 and 7 of the Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003 to determine if you have any Declared Related Parties Declared Related Party (DRP) Name (A) Proportion of carrier owned by body with greatest interest in the carrier (participating person interest) (B) Proportion of DRP owned by body with greatest interest in the DRP (party interest) DRP Factor (A x B) M % M % M % M % Bluetone 50% 25%

Carry through to revenue and deductions sheets – example: Table 1: Sales Revenue (per financial statements) AB DE Note Ref Name of Group/Carrier or name of DRP DRP factor % if applicable (automatically applied from "Multiple Parties" sheet) Total Revenue in $AUD Carrier/Group Portion of Revenue R1 Bluetone R2 25% $100,000$25,000

Carrier A Holding Company Co X Co Y Co Y1 Co Z Co M Co N1 Co N2 Co N3 Co N 100% 45% Co J Co K 90% 80% 49% 50% 100% 50% 90% 50% 30% Holding Coy interest in Co N2: =(90%x100%x50%) +(90%x80%x50%) =45% + 36% =81% Holding Coy interest in Carrier A: =90%x80%x80% =58% Declared Related Party Factor for Co N2 = Co J interest in Co N2 of 90% Multiplied by Co K interest in Carrier of 80% = 72%

Multiple Parties Schedule in ERR Form Table 2: Declared Related Parties Please refer to Sections 6 and 7 of the Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003 to determine if you have any Declared Related Parties Declared Related Party (DRP) Name (A) Proportion of carrier owned by body with greatest interest in the carrier (participating person interest) (B) Proportion of DRP owned by body with greatest interest in the DRP (party interest) DRP Factor (A x B) M % M % M % M % Co N2 80%90%72%

A complete Eligible Revenue Submission (ERS) is made up of two parts: 1.A Return  Eligible Revenue Return Form (ERR Form)  Final Financial Statements for carrier and related parties  Outline of Business Structure 2.Supporting Documents  Independent Audit Report  Statutory Declaration – Management Certification ERS

ERR Form >Eight sheets – incorporates related party percentage formulae >Prepare ERR Form in accordance with relevant Australian Accounting Standards >whole Australian dollars (AUD$) and English >exclusive of GST

Calculating Eligible Revenue  Initial sales revenue  Less Non-telco sales revenue and revenue earned whilst not a licence holder =  Gross telecommunications sales revenue  Less Deductions: -Overseas Activities and Acts in Australia for services outside Australia -Customer equipment -Content services -Exempt base station -Infrastructure revenue -Inter-Person Input Payments

What is telecommunications revenue? >Revenue earned from the telecommunications industry from carrying on business as a carrier or carriage service provider, or...

What is telecommunications revenue? … supply goods or services for use in connection with the supply of a listed carriage service; supply a content service using a listed carriage service; manufacture or import customer equipment or customer cabling; or install, maintain, operate or provide access to: (i)a telecommunications network; or (ii)a facility; used to supply a listed carriage service.

Audit report on return An eligible revenue return given to the ACMA under section 20 must be accompanied by a report of an approved auditor that: (a)is in a form approved in writing by the ACMA; … This is the ACMA independent audit report template published for the relevant year on the: ACMA Eligible Revenue Portal

Approved auditor >Subsection 8F(1) of TCPSS Act – meaning of approved auditor: A reference in this Part to an approved auditor is a reference to a person included in a class of persons specified in a written determination made by the ACMA for the purposes of this section

Approved auditor Telecommunications (Approved Auditor) Determination 2010 specifies the following as approved auditors: 1. Registered auditors under Part 9.2 of the Corporations Act Authorised audit companies registered under Part 9.2A of the Corporations Act 3.Auditors-General Find an approved auditor or check approved auditor status by using the professional registers on the ASIC website:

Audit Report on Return - s20D TCPSS Act The approved auditor must provide an audit opinion on the complete Return, not only the ERR Form Only exception is where an audit waiver or a conditional audit waiver has been granted by the ACMA.

Requesting an Audit Waiver (may be a conditional audit waiver) >Applies to only one eligible revenue period >Request prior to lodging all other documents in an Eligible Revenue Submission >Audit waiver is more likely to be approved where: -other sufficient and appropriate evidence is provided -when carrier did not hold the licence for the full eligible revenue period -no significant errors in prior period returns -administrative expense is prohibitive for carrier compared to expected revenue from telecommunications activity in Australia

Other Reports from Auditors -based on conditional audit waiver >Limited subject matter audit reports >Agreed upon procedures reports >Review Reports >Client may need to provide methodology for revenue recognition to the ACMA >Early contact with the ACMA Revenue Assurance Section recommended

Single Point of Contact for Audit >Specific carrier representation – use ACMA contact form >Personnel nominated as point of contact for the ACMA and the carrier for: >Notification of general issues >Discussion regarding the form of the audit report

 First stop: ACMA Eligible Revenue Portal  Future information sessions where there is interest  ACMA Revenue Assurance Section Ph: