Australia CCG 2004 Update: Economic Trends and Outlook

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STAT-USA/Internet * Australia CCG 2004 Update: Economic Trends and Outlook
Australia CCG 2004 Update: Economic Trends and Outlook

 
Country Commercial Guide [CCG]
ID: 126748
 Regions:  EAP;Oceania;Pacific Rim
 Country:  Australia

 Industries

by: Keith Kirkham
approver: Beryl Blecher
Report Date: 08/11/2004
Expires: 12/31/2006

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2005. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.
ECONOMIC TRENDS AND OUTLOOK
A. MAJOR TRENDS AND OUTLOOK
B. PRINCIPAL GROWTH SECTORS
1. ENERGY RESOURCES
2. AGRICULTURAL RESOURCES
3. VALUE ADDED PROCESSING, MANUFACTURING
4. HIGH-TECH INDUSTRY
5. SERVICES
6. TOURISM
7. E-COMMERCE
8. BIOTECHNOLOGY
C. GOVERNMENT ROLE IN THE ECONOMY
1. FISCAL AND MONETARY POLICY
2. ECONOMIC REFORMS
D. BALANCE OF PAYMENTS SITUATION
E. INFRASTRUCTURE
1. OVERVIEW
2. AIR TRANSPORT
3. ROAD/RAIL TRANSPORT
4. SEA TRANSPORT
5. TELECOMMUNICATIONS
6. ENERGY
7. WATER AND SEWAGE
8. CONSTRUCTION
9. INTERNET ACCESS
10. INVESTMENT IN BROADBAND TECHNOLOGY
11. E-COMMERCE
 

CHAPTER 2: ECONOMIC TRENDS AND OUTLOOK

A.            MAJOR TRENDS AND OUTLOOK

The Australian economy continues to be among the best performing in the industrialized world, and all of the forward indicators are positive.  Strong and resilient consumer demand, high capacity utilization, and strong capital spending are some of the internal strengths.  A diligent Reserve Bank of Australia has kept inflation relatively low without choking off growth.  As a trading economy, Australia is exposed to the winds of the world market, and these have been favorable as well. Strengthening economies among world trading partners, high world commodity and mineral prices, and a recovery from drought in agriculture have filled the sails of Australian exports.

Strong domestic demand has been a key driver of Australia’s recent growth performance.  Household consumption has expanded at an above-trend rate of around four percent annually in recent years.  Real estate appreciation and an attendant housing boom have created big gains in household wealth, fueled by historically low interest rates.  Several rate increases have tempered the rate of growth, but not extinguished it. Consumer spending and capital spending forecasts remain positive. Rising household wealth is primarily a result of house price growth and has supported higher household spending and borrowing.  House price growth was also associated with a construction boom, which has receded but still contributes to domestic demand as projects move through to completion.  

Business conditions remain favorable in Australia and corporate profits have been healthy.  Also, the government’s recent budget, delivering tax cuts and a variety of family payments, should provide a boost to consumer spending power.

Capacity utilization rates and productivity gains are high and portend continued new investment.

As farm production recovers from drought, commodity exports will make a stronger contribution to growth.  Business conditions remain favorable in Australia and corporate profits have been healthy.  Also, the government’s recent budget surplus, delivering tax cuts and a variety of family payments, should provide a boost to consumer spending power.

The strong Australian dollar continues to act as lead in the saddlebags of the economy’s growth, placing a drag on the price competitiveness of export reliant industries.  However, strong demand from Asia has overcome that weight in the mineral commodities sector.  Combined with continued strong import demand, Australia’s trade deficit has remained substantial.

Consumer price inflation has moderated over the last year, dropping back to two per cent in annual terms, in March 2004.  This was down significantly from the result of a year ago, when annual inflation reached 3.4 per cent.  The Reserve Bank of Australia (RBA) operates an independent monetary policy through targeting short-term interest rates with the goal of maintaining inflation at two to three percent annually, on average, over the economic cycle. 

B.            PRINCIPAL GROWTH SECTORS

1.            Energy Resources

Australia has significant oil, gas and coal resources and is also well placed to capitalize on alternative energy resources.  Australia’s gas and coal reserves are especially abundant but oil reserves are diminishing.  Hydro power is the most significant producer of renewable energy in Australia with production capacity of around 7,000 MW. Other renewable energy resources including biomass and wind are expected to grow dramatically. There are also a number of relatively new solar energy initiatives including solar tower and thin wafer solar cell technologies.
Australia’s principal oil and gas resources lie off the coast of western and northern Australia, in the Carnarvon, Browse and Bonaparte Basins and in eastern Australia in the Bass, Otway and Gippsland Basins.  There are also reserves of oil and gas onshore in the Cooper-Eromanga Basin in South Australia and Bowen-Surat Basin in Queensland.  The majority of Australia’s black coal deposits are located in the Sydney-Gunnedah Basin in New South Wales and the Bowen Basin in Queensland.  Significant brown coal reserves are located in Victoria’s Latrobe Valley. Coal seam methane gas deposits in Queensland also represent a major new energy source.  Production of this resource is based on similar geology and technology as in the United States.

A relatively high level of exploration demonstrates renewed investment interest in the sector, following sustained high oil prices.  Around twenty oil and gas exploration projects are currently in the advanced planning stage, scheduled for construction or underway in 2004.  The total value of these projects is estimated at A$9billion.  A further thirty-five projects are planned but less advanced.  These are valued at $38 billion.

Of those energy projects currently under construction two petroleum developments comprise a significant portion of current spending. In the last twelve months ConocoPhillips has completed the offshore installation in the A$3 billion Bayu/Undan Gas Recycle project in the Northern Territory, with work having commenced on the onshore receiving facility. Construction of the fourth LNG train for the North West Shelf project is mostly complete, however there are already plans for a fifth train. Other recent developments include an A$1.8 billion spend on four projects in the Otway basin.

The largest project currently proposed is the development of the Gorgon gas fields off the coast of Western Australia. A final investment decision on this A$11 billion project is expected late in 2004.  Among the less advanced projects (generally those at feasibility stage), Woodside Energy’s proposal to develop the Blacktip natural gas field and the associated 1000km pipeline to the Gove aluminium smelter represents an A$2.5 billion investment in the Northern Territory. Given the recent success of the Bayu/Undan project the Northern Territory is becoming an increasingly important element in Australia’s future energy production.

In June 2004 the Australian government released its future blue print for Australian energy called “Securing Australia’s Energy Future”. This document identifies coal, oil and gas as Australia’s prominent sources of energy for the next 20 years. A number of schemes to enhance Australia’s production of these resources were presented in the report, including the establishment of an A$500 million assistance program to look at cleaner means of production.  A further A$200 million was allocated to renewable energy sources, as well as incentives for oil and gas exploration and use of diesel powered equipment.

Anticipated increases to Australia’s Mandatory Renewable Energy Target (MRET), which currently requires that around two percent of energy be sourced from renewable energy, did not eventuate. Many see this as a setback to Australia’s renewable energy industry. Currently there is around 7.800MW of installed renewable energy projects, with a further 360MW of generating capacity currently under construction. Around two thirds of this new capacity is provided by new wind farms.

The future of Australia’s energy generation is expected to be an election issue with state and federal Labour governments prepared to invest more heavily in renewable energy projects.

2.            Agricultural Resources

Australia has a large agricultural sector that supplies a substantial proportion of domestic demand and is a significant contributor to the country’s exports.  The agricultural sector has mostly rebounded from one of the worst droughts in a century in 2002/03, which cut production of some agricultural commodities by more than one-half.  A return to more normal weather has led to an upturn in the agriculture sector in 2003/04, with the current outlook for 2004/05 also relatively favorable.  The Australian dollar has also strengthened significantly against the U.S. dollar, which lowers returns for agricultural exports.  This currency effect has been partly offset by relatively high world commodity prices.

Total crop production in 2004/05 is expected to rise slightly from the excellent year registered in 2003/04.  Grain and oilseed production in 2004/05 is expected to be down somewhat from the record level achieved in 2003/04, but still sharply higher than the severely drought-reduced 2002/03 harvests.  Wheat production in 2004/05 is expected to total 23.5 MMT, down from the record 25 MMT produced in 2003/04, but up sharply from 10 MMT in 2002/03.  Wheat and barley exports have rebounded sharply from the drought-reduced levels of 2002/03.  Summer crop output of cotton, rice and sorghum continue to be constrained by low irrigation water reserves.  Exports of these commodities have also fallen well below more historical levels.

Australia’s livestock industries continue in a recovery phase, as more normal weather improves pasture conditions and boosts fodder reserves.  Beef production is expected to fall slightly in 2004, as the number of animals going to slaughter declines while producers attempt to rebuild their herds.  Beef exports to Japan and Korea are expected to be up sharply in 2004, as U.S. product is banned in these markets because of the BSE (mad cow disease) case identified in the United States in late 2003.  Cattle exports in 2004 are expected at about 800,000 head.  However, the opportunity comes at a time when cattle herds are depleted and rebuilding. There has also been a gradual improvement in the dairy sector as a result of the more favorable weather and relatively favorable world dairy prices.

Wool prices, after rising in 2002/03, have continued a longer-term downward trend in 2003/04.  The longer-term decline in sheep numbers and the relative increase in the cost of competing fabrics provide some positive prospects for woolgrowers.  Increasing price premiums continue to favor finer wools over the medium fibers.

Australia’s wine production reached a record level in 2003/04, mostly due to increasing wine grape bearing area.  Production is expected to register another record in 2004/05.  Wine exports also reached record levels in 2003/04, with a further rise expected for 2004/05.  Australian wine continues to face stiff price competition in major export markets in the United States and Europe.

Sugar production and exports are expected to increase in 2004/05.  The sugar industry remains under severe financial pressure, which has contributed to continued significant government funding for industry support.  Cotton production and exports are below historic levels due to continued shortages of irrigation water.

3.         Value Added Processing, Manufacturing

The manufacturing industry is an important sector of the Australian economy, contributing about 13 percent of Australia’s gross domestic product (GDP) and total employment.  However, the industry’s share of GDP has continued to fall over the last 20 years reflecting the growth of the services sector.  Since the early 1990s, manufacturing production has been growing at an average annual rate of 2.5 percent.

According to the Australian Bureau of Statistics, food and beverage manufacturing holds the largest share (22 percent) of total manufacturing sales.  Other significant contributors to sales are machinery and equipment manufacturing (20 percent); petroleum, coal, chemical and associated product manufacturing (17 percent); and metal product manufacturing (17 percent).

4.         High-Tech Industry

Australia has a high level of sophistication and buying power to use high-tech products in a number of industry sectors.  High-tech products are used in industries as diverse as medical/ health services, communications networks, information technology (IT), security and defense. Although Australia has its own small, but vigorous, high-tech industry, particularly in the fields of information and medical technologies, the U.S. is seen as a world leader for many high-tech products, and Australia normally looks first to the U.S. for purchases and new technologies.

Australians are keen to maintain a leading technological edge and are continually updating their technology to avoid obsolescence.  This means that Australian firms are often open to capital investment, joint ventures and other strategic alliances, both to capture a larger share of the Australian market and to gain a competitive advantage in developing products for export to other markets, particularly in the Asia-Pacific region.

Australia is among the most mature IT markets in the Asia Pacific.  Twenty international IT firms, of which 18 are American, have chosen Australia as their regional headquarters. Their choice is based on the technical sophistication of the Australian IT market and the ease of market penetration. Australia is one of the top five countries in terms of per capita use of PCs in the world.  It is also one of the top ten countries in terms of per capita use of the Internet. Australia provides a highly active and attractive market for high-tech products from the U.S.

5.            Services

Over the past twenty years, Australia has experienced unprecedented growth in the services sector.  The sector now constitutes the largest proportion of the Australian economy in terms of both output and employment. Four out of every five Australian workers (82 percent) are employed in an estimated 1.1 million Australian service businesses.  Services are the fastest growing component of the economy -- outpacing agriculture, mining, manufacturing, and construction -- and account for around 68 percent of the country’s gross domestic product (GDP).

The Australian Industry Group Commonwealth Bank Performance of Services Index (PSI) indicated that activity was down in June 2003 after following a period of exceptionally strong growth.  This strong growth led by the strong demand for services in Australia, is so great that a substantial portion is being met by overseas firms. 

A trend common to a number of sectors has been the increasing use of outsourcing. Outsourcing has been identified as the single biggest driving force behind the growth of a number of key service areas in Australia, including business services, finance, property management services, health, education, hospitality, recreation, information technology (IT) and tourism. 

The Australian Industry Group state those in the service sector dependent on the consumer will continue to fare well in comparison to the business services segment which are being squeezed by higher input costs.  Activity has expanded in retail trade, accommodation, communications, transport and storage, and health and community services, while it has contracted in wholesale trade, finance and insurance, personal and recreational services, and property and business services.

6.            Tourism

Tourism plays a key role in the Australian economy, employing six percent of Australia’s workforce and accounting for $22 billion or 4.5 percent of Australia’s gross domestic product (GDP) in 2002-03.  Domestic tourism generated more than 77 percent of the tourism industry’s contribution to GDP while the balance was generated by international visitors. 

Tourism is Australia’s fourth largest industry and the single largest export earner, exceeding the earnings of more traditional export commodities such as coal, meat and wool. It represents 11.2 percent of total exports.

In 2003, the number of international visitors to Australia totaled 4.7 million, representing a two percent decrease compared to 2002. This is due in part to the SARS epidemic, the war in Iraq and the sluggish global economy in the early part of the year. The major source countries of visitor arrivals to Australia were New Zealand (18 percent), U.K. (14 percent), Japan (13 percent), and the U.S. (9 percent).

The current environment for travel for all sectors, inbound, outbound and domestic, is extremely fluid.  In times of uncertainty, travelers are reluctant to commit to travel.  Therefore, the Australian travel industry is constantly changing as it reacts to the latest global events. 

In 2004, international travel to Australia is forecast to increase by 9.9 percent to approximately 5.2 million visitors.  This growth is expected to reflect the realization of some pent-up demand continuing from 2003.  Furthermore, air capacity is assumed to be restored to near 2000 levels, as well as airlines discounting in order to stimulate travel.

Australia is a leading international convention destination and is ranked fourth in the world for the number of international conventions and business meetings it hosts each year. High-yield business tourism is a mainstay of the Australian tourism industry. Approximately 57 percent of convention delegates to Australia undertake pre-or post-conference touring around Australia.

In 2004, outbound travel is forecast to increase by 5.6 percent.  This is due to the fact that the Australian dollar has appreciated against most major trading partners, in particular against the U.S. Dollar.  This is expected to lead to some Australians switching from domestic travel to international travel as a result of the increased price competitiveness of foreign destinations compared to domestic destinations.

As a market for U.S. tourism, Australia is an important source of export earnings. Despite the long distance, the U.S. is the third most popular destination for Australian travelers, ranking just behind New Zealand and the U.K.

Australia is the seventh largest market for international visitors to the U.S. The Australian market has proved to be very resilient over the last few years.  Australia has consistently improved its ranking from the eleventh largest market in 1999, to the seventh largest source of international visitors in 2003.

This upward move indicates the strength of Australia's business, cultural and family links to the U.S., and a general desire to travel and see the world. Moreover, Australians generally stay longer and spend more, making their impact on U.S. tourism even more important.

Australia’s strengthening dollar should encourage overseas travel.  The stronger buying power of the Australian dollar will encourage more travel.  Travelers will see instant value, especially in the U.S, which, along with the U.K, has been an expensive destination for quite some time.  An increase in air capacity is also expected to result in increased load factors.  Security concerns have produced some seasonal shortages of capacity on the Australia – U.S. route.  The addition of increased flights by Qantas Airways and the introduction of services by Hawaiian Airlines will add 12 percent to seat capacity from the U.S.

7.         E-Commerce

E-Commerce has had a strong impact on the Australian business environment, as it has in other parts of the world.  Although the sector has lost some of its gloss over the past few years, following a stock market downturn and the collapse of some high-profile Australian companies, there is no doubt that e-commerce will continue to transform the way companies do business locally.

Current Internet usage by Australians is high.  Seventy-five percent of Australian adults accessed the Internet in the 12 months ending September 2003 with 66 percent of households having an Internet connection.

Australian businesses are also well connected to the Internet, at rates comparable to Scandinavian countries.  Over seventy percent of local businesses are connected to the Internet.  However, the uptake of Internet depends on the size of the business.  Almost 100 percent of large businesses are connected to the Internet, compared to only 64 percent of very small businesses (those employing less than 5 people).

Local growth in broadband uptake has been strong, although the numbers of subscribers are still quite low. As of March 2003, broadband services grew to 720,000 connections.  This growth was led by digital subscriber line technology, which claimed the title of fastest growing broadband service with 200 percent growth in the 12 months to March 31, 2003. Local analysts suggest that there will be 2.5 million broadband subscribers by 2005.

Medium and large-sized companies are also jumping to broadband connections, with a recent study highlighting that of a survey of 800 local companies, 58 percent have broadband or ISDN connections, and one third of the businesses not currently connected said that they expected to do so within the next year.

The market is being driven by private sector marketing and consumer preferences, along with Government initiatives to encourage businesses Internet use.  The Australian Government, through the National Office of the Information Economy (NOIE), has been actively promoting the development of Australia as an "information economy."  NOIE serves as the Commonwealth Government's policy body, and is tasked with raising public awareness and stimulating thought and discussion about the benefits and issues involved in the full transition to an information economy.

Initial estimates of the uptake of e-commerce appear now to be overly optimistic.  Companies and consumers are integrating e-commerce principles into their normal activities, albeit at a slower rate than expected.  Recent NOIE figures indicate that business-to-business (B2B) commerce equates to just over one percent of GDP.  Nonetheless, B2B e-commerce continues to expand, with many industries refining supply chains and integrating systems with suppliers to improve efficiencies in operations.  In addition, many companies are incorporating e-business into their internal operations, such as human resource management and knowledge management.

Australian consumers are increasingly moving online to make purchases of a range of products. The most popular items for online shopping continue to be books and magazines, music, software, entertainment/tickets, and vacations.  Over twenty five percent of Australians with Internet access ordered goods or services over the Internet in the six months ending September 2003.

Stock brokerage and other financial services and information are now well entrenched on the Internet.  Local on-line retailers are increasing in number: this includes both "virtual" retailers as well as existing "bricks and mortar" retailers that are developing an on-line presence.  E-commerce has also exposed Australians to retailers that have not previously supplied the Australian market, and many Australians purchase from overseas web sites.

Research released by Axiss Australia suggested that Australia ranks sixth in the world in terms of providing a successful e-commerce environment, and second in the Asia Pacific region.

8.            Biotechnology

Australia is a significant player in the global biotechnology industry.  Australia has had a long, consistent tradition of world-class research and development (R&D), particularly in agriculture and medicine.  The country’s R&D assets are based on a high-quality science education system and expertise across a range of fields.  As a result, Australia attracts a large number of major international pharmaceutical and agribusiness companies that either undertake research in Australia or enter into alliances with Australian companies and research providers.

The Australian biotechnology industry is worth over US$700 million a year and employs 6,000 people.  There are over 350 “core” biotech companies and a further 450 diversified biotech companies operating in Australia.  Most of these companies are located in New South Wales, Queensland and Victoria. Over 55 percent of new firms are spin-offs from research institutions.

Australia has an international reputation for multidisciplinary scientific excellence, early adoption of new technologies, and, increasingly, the successful translation of research to the commercial sector.  Australia's competitive advantage lies in the quality of its universities, which have a heavy emphasis on life sciences. 

Australia is well represented internationally for its capabilities in fundamental research in biotechnology and related disciplines.  Australia's scientists rank among the leading scientists in the world.  Researchers in Australia have outstanding credentials and are credited with the development of penicillin, the cochlear implant, the world's fastest AIDS test, treatment of sleep apnea, and the computerized detection of cancerous cells. Australia's technology productivity is very high with a per capita patent filing rate similar to that of the U.S.  Australia produces 2.5 percent of the world's published and patented research from just 0.3 percent of the world's population.

Australia is ranked sixth in the world for the number of biotech companies behind the U.S., Canada, Germany, U.K. and France.  Australian organizations have sufficient capabilities of manufacturing in biotechnology to match the leading companies of the world.  The increasing number of international success stories is producing confidence, entrepreneurship, and leadership in the industry.

The past year has been a challenging one for the biotechnology industry in Australia.  While there have been some great successes, overall the climate has been quiet as companies continue their research, and manage costs and cash flows.  As in other countries, equity or venture investors in biotechnology companies has been more cautious.  The public equity markets in Australia have seen very few new listings in the sector.  Because of the dearth of financing, the Australian biotechnology industry is characterized by a large number of listed biotechnology companies that are very small in comparison to U.S. counterparts.  Australian companies may continue to expand through consolidation in the form of mergers, acquisitions or alliances in order to increase revenue. 

Beyond private investors, Australian government support for biotechnology is very strong at both the Federal Government and State levels.  Australia’s 2004 Federal Budget includes a series of initiatives to develop Australia’s biotechnology sector and support for the development of a national approach to the industry.  Funding of US$3.7 billion was announced as part of the “Backing Australia’s Ability – Building Australia’s Future through Science and Innovation” program.

Funds available to the biotechnology sector, particularly small to medium size biotech companies have also been boosted under a US$70 million “Commercial Ready” program which makes funds available to biotech and other companies, who are looking to progress their innovations to commercialization. In addition, the Government is providing US$40 million to extend support for the National Stem Cell Center program until 2011.  The Center is considered to be Australia’s biotechnology flagship.

The majority of Australian firms continue to target human therapeutics and diagnostics, with 52 percent of firms targeting therapeutics and another 16 percent focusing on diagnostics.  These companies have been the "true survivors" of the Australian biotechnology industry and have been consistently earning revenue.  They have shorter times to market, good profit margins, fewer regulatory difficulties, and an excellent base of skilled people.

With regard to agricultural biotechnology, the situation is less favorable.  To date, commercial growing of biotech or genetically modified varieties of cotton, carnations and canola have been approved by regulatory authorities.  Biotech cotton is grown on an extensive area, while carnation production is relatively minor.  Research and trials are also being conducted on other biotech crops. 

However, the commercialization of GMO canola, which was only approved for widespread release in 2004, is meeting major resistance in the form of moratoriums and other restrictions being imposed by individual States.  The principal driving force behind these actions is economic, i.e., market access, trade and competition.  Of principal concern to the States is the ability to segregate GMO canola from its conventional counterpart and other conventionally-grown grain and oilseed crops.

C.            GOVERNMENT ROLE IN THE ECONOMY

1.         Fiscal And Monetary Policy

Since coming to power in 1996, the fiscal policy of the Coalition government has generally been guided by a desire to produce and maintain consistent budget surpluses and to reduce government debt.  The Coalition government is set for its sixth budget surplus outcome from eight budgets, with further surpluses projected in the future.  Combined with asset sales, such as the partial sale of Telstra, successive budget surpluses have reduced the Federal Government's debt levels from a peak of 19.1 percent of GDP in FY 1995-96 to an expected 3.2 percent in FY 2003-2004.  The current Coalition budget, framed in election environment, provided tax cuts for middle and upper income earners, as well as increased spending on social services targeted at families.  Strong economic growth and therefore tax receipts over the last year provided the government with the funding for these commitments, while maintain a budget surplus.  A more recent theme of the Coalition’s fiscal policy has been the need for Australia to consolidate its impressive rise in living standards posted over the last decade.  This will require further economic and fiscal reforms to maintain productivity growth and mitigate the fiscal impact of a projected ageing population.

Tax reform remains a work in progress.  The Federal Government’s central achievement so far has been to shift Australia’s tax mix away from income taxes, through the introduction of the Goods and Services Tax (GST) in July 2000.  The GST, which is set at ten percent on most goods and services, was accompanied by reductions in personal income tax and the abolition of various indirect taxes.  The income tax cuts provided in the current budget have increased the threshold at which the top rate of taxation applies to individuals from an annual income of $A 62,501 to $A 70,001 in and then to $A 80,001 by July 2006. 

Business tax reform, however, has been the subject of ongoing review and legislative wrangling since 1998, and progress has been slow due to the complexity of the issues.  The tax on company profits has, however, been reduced in stages from 36 to 30 percent.

The Reserve Bank of Australia (RBA) conducts an independent monetary policy with an explicit objective of containing inflation.  The RBA target is to limit inflation to two to three percent growth, on average, per annum, over the medium term.  Two successive interest rate rises of 25 basis points in mid 2002 and again in late 2003 have “tapped the brakes” on  some of this stimulus, and brought rates back toward a more neutral setting.  The RBA maintains a tightening bias however, with an eye on the high level of consumer indebtedness.

2.            Economic Reforms

Australia undertook a basic reorientation of its economy more than 20 years ago, and has transformed from an inward-looking, import‑substituting country to an internationally competitive, export‑oriented one.  This reform program is acknowledged as a key contributor to Australia’s impressive growth in income per capita over the last decade.

Key reforms during this time have included:

§         taxation reform, including the introduction of the GST;

§         unilaterally reducing high tariffs and other protective barriers;

§         floating the Australian dollar;

§         deregulating the financial services sector (including a decision in late 1992 to allow liberal access for foreign bank branches);

§         efforts to restructure the highly centralized system of industrial relations and wage bargaining;

§         increased integration of the State economies into a national federal system through such measures as the National Competition Policy;

§         improving and standardizing the national infrastructure; and

§         privatizing many government‑owned services and public utilities. 

Australia has become a competitive producer and exporter  of a diversified mix of value‑added manufactured products, services and technologies. Over the longer term, Australia's prospects depend heavily on continued fundamental economic reform, particularly once demographic trends such as projected declining fertility rates and population ageing are taken into account.  Reforms that encourage participation in the workforce and maintain healthy productivity growth will be essential.

D.            BALANCE OF PAYMENTS SITUATION

Trade is very important for Australia’s small, open economy.  Exports in 2003 totaled US$92 billion, while imports were US$107.6 billion, generating a trade deficit of US$15.6 billion following a deficit of US$7.3 billion in 2002.  Australia’s trade balance deteriorated over 2003 due to a combination of global economic weakness early in the year, the impact of the Australian drought upon agricultural production and the negative effect of the spread of Sudden Acute Respiratory Syndrome in Asia upon exports of tourism services and seafood to Asia.  On the other hand, domestic demand remained very strong, generating a robust demand for imports. 

Traditionally, about 60 percent of Australia’s merchandise exports are destined for Asia.  Japan is Australia’s largest export market, taking around 18 percent of exports in 2003.  Australia's major exports to Japan are coal, iron ore, meat, and aluminum.  The United States is Australia’s second largest export market, accounting for around nine percent in 2003.  Major exports to the United States are beef, alcoholic beverages, crude petroleum and aircraft and parts.  China, Korea and New Zealand represent the remainder of Australia’s five most important export markets.  The composition of Australia's exports has been changing gradually over the past two decades, reflecting the increasingly value‑added direction of Australian industry.  Manufactures now account for double the share of goods exports compared with twenty years ago, when Australia began its liberalization program.  Australia exports a diverse range of sophisticated transformed manufactures, including high-speed ferries, telecommunications equipment, and motor vehicles.  Primary products, however, remain the dominant export sector in value terms. 

The U.S. is Australia's single largest source of merchandise imports, accounting for 16 percent of imports in 2003.  Australia’s major imports from the United States are aircraft and parts, measuring and controlling instruments, internal combustion engines, medical products, pharmaceuticals, and computers.  Of Australia's top five trading partners, the U.S. is the only country to run a consistent bilateral trade surplus with Australia. 

Australia generally runs an even balance or small deficit for trade in services. Tourism accounts for nearly half of services exports, while services imports are dominated by transportation services and outbound tourism.  In 2003, Australia recorded a net services deficit of just under US$0.3 billion.

Overall, the recent trends affecting Australia’s exports and imports have meant that the current account deficit (CAD) has decreased in recent times to around six percent of GDP in 2003. 

E.            INFRASTRUCTURE

1.                  Overview

Australia has a well-developed civil infrastructure, advanced communications networks, a sturdy financial backbone, and road, sea, rail and air connections commensurate with its demographic pattern.  The solidity of its financial sector infrastructure has enabled it to weather the financial woes of the Asian region in the late 90’s and to underpin its current predominant growth among OECD countries.

In recent years, as Australia became wealthier and more engaged in international trade, there have been improvements in roads, and airports, with greater integration between airports and railways.  Road congestion in urban areas continues to be a problem, however, and accelerated major investment in public transport is needed.  Australia will face significant transport challenges over the next twenty years.  For example, the amount of freight moved around Australia is forecast to double by 2020.  It will have major implications for urban congestion, pollution, energy depletion and safety.  At the same time, Australia’s regions need better transport connections.  Following calls for national coordination on transport strategy to maintain the efficiency of the freight distribution system between port, rail and road modalities, the Australian Federal Government has initiated AusLink.  The first step will be the establishment of a National Transport Advisory Council, consisting of experts from the private and public sectors to provide transport ministers with strategic analysis and advice on Australia’s transport priorities.

Australia maintains one of the most extensive road networks in the world, on a per capita basis.  Forty percent of the total road network of 490,000 miles is paved with either bitumen or concrete.  Sixty-five percent of the total domestic freight tonnage is transported over the road system, with interstate haulage accounting for a significant proportion of road freight.  Average expenditure on Australian road building and maintenance is between $2.7and $3.5 billion.

The rail industry transports more than one-third of the domestic freight carried by sea, road and rail.  Bulk commodities (iron ore, coal and wheat) constitute a large share of the total freight, amounting to twenty percent of Australia's exports.  Recent developments in rail transport include light rail city projects and dedicated city-airport links.

The majority of freight volume that passes through Australia's ports is comprised of bulk cargo.  However, in terms of value, general merchandise trade surpasses bulk, ninety-three percent of which is shipped in containers.  Container trade through Australia ports approximates 40 million tons per year.

The Australian Federal Government has authority over trade between the States, although the individual States are responsible for energy, including electric power.  There was a drive in the 90’s to privatize of electricity generation and distribution in an effort to open up markets for private sector competition.  In the early days of privatization, a number of U.S. utility companies made large investments in the power generation industry.  However government restrictions on price increases resulted in some of the international electricity distribution companies withdrawing from the Australian market. 

Fossil fuels remain the main source of supply for generation (ninety-five percent), with abundant reserves, although during the next ten to fifteen years a significant increase in the use of natural gas is predicted through both competitive pressure and government policy.

The telecommunications sector is a strength of Australia's infrastructure.  Australia has a global reputation for efficiency and capacity of its telecommunications infrastructure.  It is among the world's most developed, with high levels of telephone and cellular phone connections per capita (63 percent of the population has fixed telephone lines and 61 percent of the population has cellular phones). 

Australia is second in the world in preparedness for developments in e-commerce.  At least 72 percent of the Australian population over 16 years of age has access to the Internet.  Studies have indicated that the uptake of e-commerce will boost the national economy, with developments in media, entertainment, banking and finance leading the way for expansion.  Australia has an extensive fiber optic network for telecommunications, and has invested heavily in broadband technology for business and household purposes.

2.         Air Transport

There are currently 261 licensed airports in Australia and its external territories.  Of these, 12 operate as international airports servicing scheduled international airlines. The major international gateways include Sydney, Melbourne, Brisbane, Perth and Cairns.  The majority of licensed airports are owned and operated by local councils, state government departments and private companies.  The remaining airports are owned and operated by the Department of Defense or leased by the Commonwealth to private sector companies or government corporations.

International passenger and cargo flights are frequent and reliable.  Air is used extensively for lighter cargo, small high-value items, and for urgent needs.   Domestic airlines carry about 200,000 tons of cargo per year.  An extensive network of air cargo operators, including major international companies, offers a full range of cargo services, processing of documentation relating to importation and clearance of goods, and follow-on delivery to regional centers. 

Australia is serviced by most of the world’s major air carriers, feeding into a domestic network covering the trunk commuter routes.  Regional airline services links regional centers with the capital cities.

The aviation industry is deregulated, and is dominated by long-time carrier Qantas.  Virgin Blue is operating on major routes and continues to make ground in the lower-priced end of the market.  In May 2004, Qantas launched Jetstar, its own low-fare airline to compete with Virgin Blue.  In Mid-2004, Qantas was the world’s most profitable airline. 

Australia is a member of the International Civil Aviation Organization and is represented on the Air Navigation Commission.  It has full treaty, air service agreements with forty countries.  Within Australia, Airservices Australia manages air traffic control over Australia’s eleven percent of the earth's surface, and the Civil Aviation Safety Authority is responsible for ensuring aviation safety.  Australia is a member of the International Civil Aviation Organization and is a member of the ICAO governing council. Australia is also represented on the Air Navigation Commission, which is responsible for drafting international standards and procedures for the safety and efficiency of air navigation.  In addition, Australia participates in the South Pacific Forum, meetings of the directors-general of Civil Aviation for Asia and the Pacific, and aviation-related work undertaken in Asia Pacific Economic Cooperation.  Australia has bilateral air services arrangements with 57 countries. Capacity and route rights are renegotiated from time to time to accommodate traffic growth and increase commercial flexibility for airlines on international routes to and from Australia. These arrangements enable airlines of Australia and its bilateral partners to operate a network of international air services to and from Australia.

3.            Road/Rail Transport

With its huge land mass, small population and limited tax base, the extensiveness of Australia's modern national, state and local road system is quite remarkable.  Road funding continues to feature prominently in both State and Federal Government budgets with the voting public demanding high quality roads, particularly in the Outback.  Australia's road transport industry is relatively efficient and approaches world best practice.  The majority of inter‑state goods transport is done via the road system.

A 24,000-mile network of railroads competes with road transport. Rail transport is the preferred mode to Perth in Western Australia for the transportation of freight from Eastern ports, and for the bulk transport of Australia's mineral exports.  Traditionally, rail transport has lagged behind international best practice. 

The completion of the first standard gauge rail line from Brisbane to Perth (via Sydney, Melbourne and Adelaide) in June 1995, heralded a new era in rail freight transport and the prospect of an efficient, truly national rail transportation system.  The ability to track a coal train from Queensland to South Australia was a symbolic step in Australia's reform agenda.

The mid-1990s also saw every rail administration in Australia substantially restructured with most becoming corporatized entities.  In August 1997, the Federal Government sold Australian National Railways (ANR) that operated various freight and passenger operations.  In January 1999, the Victorian State Government privatized its freight business, V/Line Freight, and franchised its passenger rail and suburban tram networks.  This was followed by the sale of Westrail, the Western Australian Government's freight business, in October 2000.  The National Rail Corporation (NRC) owned by the Federal Government and the State Governments of New South Wales and Victoria together with the New South Wales Government's freight rail business, FreightCorp, were sold to an Australian consortium in 2002.

4.         Sea Transport

Australia is a trade-dependent country, with the fifth largest shipping task (workload) in the world.  Australia trades with around 200 countries, moving approximately 550 million tons of cargo per year.  In value terms, seventy percent of its imports arrive by sea and eighty-three percent of its exports leave by waterborne transport.  Australia is serviced by major shipping lines that transport goods worldwide to and from the major ports of Melbourne, Sydney, Brisbane, Adelaide and Fremantle.  Ninety-five percent of the trade volume is carried by non-Australian flagged vessels.

Australia has modern deep-water ports.  New South Wales and Queensland account for 58 percent of all ships registered in Australia (8,246 total), the majority of which are used for non-commercial purposes.  The major Australian trading fleet is comprised of 62 ships of 2,000 tons or more.  Two-thirds of these operate on coastal routes, moving around 60 million tons of cargo annually.  Interstate trade accounts for nearly two-thirds of coastal freight, although in recent years, this proportion has shown a steady decline.  The majority of cargo shipped between Australian ports is comprised of bulk commodities.

The government business enterprise responsible for maritime safety in Australian waters including regulatory issues, the navigational aids network, aviation and maritime search and rescue, pollution prevention and clean up, and registration is the Australian Maritime Safety Authority (AMSA).  AMSA is funded mostly by levies on the shipping industry.

5.            Telecommunications

Australia's telecommunications infrastructure is sophisticated and modern with a fully digitalized network.  The main telephone lines are mostly land-based and penetrate about 97 percent of all households.  In a population of 20 million, there are over 10 million mobile phone subscribers.

Australia's telecommunications industry was fully deregulated on July 1, 1997.  In 2002, the 100th carrier registered with the Australian Communications Authority, compared to two carriers prior to deregulation. Most of the new carriers lease network capacity from Telstra, although a number have developed their own switching and network capability, particularly on the eastern seaboard and for overseas call markets.  Aside from Telstra, the most significant carriers include Optus (owned by Singtel), Primus, AAPT (owned by Telecom NZ), Orange and Vodafone.

All carriers, excluding Telstra with its 51 percent Government ownership, are private.  The Coalition Government is on record as stating its preference to sell off its remaining stake, pending a review of service to rural subscribers. Opposition parties have stated their opposition to the Government's position, or would allow the sell-off of Government shares with conditions.

The influx of smaller carriers into the telephony market has acted as one of the stimuli to producing greater competition in the deregulated market.  According to the Australian Competition and Consumer Commission (ACCC), the average price of a telecommunications service purchased fell by 17.5 percent in real terms over the three-year period following deregulation (1996-97 to 1999-2000).

Telstra, the former monopoly carrier, is the dominant provider of Australia's land-based telephony service. This network has nearly 10 million land-based connections and an annual growth rate of five percent. Telstra still dominates the telecommunications environment, and with the shake out in the worldwide telecommunications industry, Telstra has reclaimed its role as the local super heavyweight especially in the voice market.  Optus Communications, the second largest carrier, owns its own switching capability, but primarily uses the Telstra trunk and local loops.  Optus has developed a broadband network alongside the Telstra broadband network to collectively "pass" some four million homes.

Mobile phone services are well established in Australia, which has one of the highest user rates in the world.  The current number of mobile phone subscribers surpasses 10 million and are serviced by the two major technologies; GSM and Code Division Multiple Access (CDMA). Telstra, Optus and Vodafone each operate separate GSM mobile networks.  CDMA services are provided by Telstra, Orange and AAPT.  Hutchison Telecommunications, under the brand name Orange, has more than 120,000 subscribers on its Orange One CDMA network.   Telstra's share of the mobile phone market is around 48 percent with Optus at 33 percent and Vodafone at 18 percent.

Vodaphone recently rolled out the first 3G network and services in the local market. Other wireless technologies are set to introduced into the market.  ArrayComm subsidiary, Personal Broadband Australia is testing its Fixed Wireless Broadband (FWB) solution, iBurst.

Australian communications technology is historically European-based, due to Australia's historical links with the U.K., and to Swedish company Ericsson's early (1928) establishment in Australia. Land-based telephony operates according to European E1 standards, but has been modified to establish a uniquely Australian version.  However, since newer technologies or protocols are largely U.S.-developed, U.S.-made products are also in high demand.

There has been a massive development of telecommunications networks in Australia during the last 3-5 years.  Infrastructure has been established for digital mobile technology and the digitalization of land-based networks.  Hundreds of kilometers of fiber have been laid, crisscrossing the continent.

Carriers are required under the Telecommunications Act of 1997 to submit and follow Industry Development Plans, listing companies they have negotiated with for the supply of infrastructure and equipment.

6.            Energy

Australia has substantial gas and electricity generation, transmission and distribution infrastructure, modest but expanding renewable energy infrastructure, and contracting fuel-refining facilities.  Australia’s consumption of energy is forecast to grow at around 2.1 percent per year over the next twenty years.  Demand for energy is driven by the electricity, transport and manufacturing sectors.  Coal and oil are likely to remain the principal sources of energy, although the use of gas is forecast to rise.  New infrastructure will be required to meet consumption demands

Australia’s energy markets have undergone considerable reform over the last ten years including privatization of state government generating and distribution assets. Later in 2004 the Australian Government will establish two new bodies to provide national governance and regulation of Australia's energy markets. These bodies include an Australian Energy Regulator (AER) and the Australian Energy Market Commission (AEMC). The AER is to be the sole entity responsible for regulating Australia’s distribution and retailing of electricity and gas replacing the previous thirteen bodies. It will operate within but independently from the Australian Competition and Consumer Commission (ACCC).  The AEMC is to be charged with development of the Australian energy market including the making of new legislation and/or code changes.

Australia’s gas utility market was until 1997 characterized by regional (state) markets with limited interconnections. Deregulation and the development of interstate connections has enhanced the reliability of supply from Australia’s 75,000-kilometer gas distribution network, which is valued at around A$6 billion. Gas has also increased its proportion of use in Australia’s energy mix from 12% in 1997 to 20%. Some concern has been expressed recently about the long-term future supply of gas to the population centers in southeastern Australia (approx 70% of Aust. population), given gas sources in the southeast have an expected life of 15 years. The logical alternative supply is located along Australia’s northwest coast and will require significant infrastructure investment to connect to southeastern gas supply pipelines.

Gas pipelines are regulated by the National Gas Code, under which pipeline operators must submit an access arrangement to an independent regulator for approval. An access arrangement sets out the terms and conditions of access, including reference tariffs for reference services generally based on set benchmark prices. Third parties can gain access under the standard terms and conditions set out in the access arrangement. A Productivity Commission investigation into the effects of deregulation under the National Access Code is due later this year. Interim comments on draft reports of the investigation suggest that additional regulation is unlikely given the present level of regulation is seen to be promoting fair access without stifling investment.

Australia’s National Electricity Market, established in 1998, is a dynamic pricing system for electricity encompassing the states of Queensland, New South Wales (NSW), Victoria, South Australia, the Australian Capital Territory and Tasmania. Basslink which will connect Tasmania’s electricity grid with mainland Australia is due to be completed later this year. With electricity generation forecast to rise 2.2 percent per year over the next twenty years, the industry’s principal association has forecast that A$7 billion in investment in new power generation capacity is needed by 2012.  However, state government involvement in power pricing has affected the ability of investors to earn suitable returns on their assets.  In addition, the states of Queensland and NSW, which together account for more than half of power usage in Australia, retain ownership of power generation companies.  These factors have made companies cautious about investing in new generation and transmission infrastructure.  The reform of the sector, outlined above, is expected to bring greater certainty for investors.

Australia’s renewable energy industry remains small.  Generation from renewable sources in 2003/04 was 7,782MW of a total generation capacity of 50,700MW. When large-scale hydro projects (such as the Snowy River hydro project) are removed, the renewable generation capacity falls to 1,102MW. A recent government white paper has indicated Australia’s large fossil fuel reserves and existing infrastructure around these reserve are key reasons why it expects Australia’s energy needs to be met from non-renewable sources. Current estimates place coal generation costs per MWhr at around half of wind or hydro generation costs. Unless incentives to build renewable energy plant are introduced it appears that investment in renewable plant and equipment may be limited.

Australia currently produces seventy percent of its liquid fuel needs and the value of that production amounts to A$16 billion per year.  However, Australia’s refining industry faces challenges from over-capacity, imports from Asia, and ageing infrastructure.  Rationalization of the sector began in 2003, with the closure of the Port Stanvac refinery by Mobil Oil Australia. There have been significant discussions more recently about the closure of ExxonMobil’s refinery in Altona, which represents around 15% of Australia’s refining capacity.  Required upgrades to the Altona plant to meet government standards are a key input in the final decision. Australia’s other refiners Shell, BP and Caltex have either already upgraded or made plans to upgrade Australia’s six remaining refineries.

7.         Water and Sewage

Average annual expenditure on new capital works and renewal works for urban water supply and sewage treatment is estimated at US$1.4 billion.  Expenditure on reticulation (the transport of water via pipes, sewers, etc.) accounts for 50 percent of capital works.  Investment in water treatment facilities accounts for 30 percent, and expenditure on bulk storage is approximately 20 percent.

Australia's water supply and sewage treatment infrastructure is well established, and systems are being expanded to meet demand generated by industrialization and urbanization.  Water authorities are the main purchasers and users of goods and services in this sector, while private industry is the most effective developer and marketer of new environmental technologies.

In response to public demand and increasing pressure from significant salinity problems and a severe drought, the industry is moving from an emphasis on the supply of water toward a greater focus on resource usage, the quality of the water supplied to consumers, and pollution control.     

There are also significant concerns regarding the protection of the environment, particularly with regard to discharges of wastewater.  While some technologies for water treatment and sewerage systems are well established, this sector is now subject to significant technological change as the sewage to be treated becomes chemically more complex due to pollutants, and as more stringent standards are imposed on effluent discharges to protect the recipient land or water body.

National responsibility for water and environmental matters falls under the Department of Primary Industries and Energy (DPIE) and the Environment Protection Agency (EPA), respectively.  Design, construction, management and maintenance of water and wastewater treatment facilities, however, are primarily shared between state authorities, boards, county councils, local government councils, and private interests.  The roles of these parties vary from state to state.

8.         Construction

Engineering construction has traditionally been dominated by the public sector (about 65 percent) and, therefore, influenced by government financing arrangements, even when the actual construction is performed by private firms.  This domination is reducing as private sector involvement has increased in roads, water, power, and telecommunications.

The Australian Procurement and Construction Council (www.apcc.gov.au) estimates engineering construction turnover in Australia during year ended June 30, 2004 at US$16.9 billion.  Highest levels of work were in road, heavy industry, electricity, telecommunications, and rail construction.   In 2004-05, turnover is expected to increase to US$17 billion and remain stable for the remainder of the decade.

 

According to APCC, road construction in the 2003-04 year was US$4.5 billion and is projected to remain at around this level in 2004-05.    Heavy industry, US$3.1 billion in the 2003-04 year, is forecast to decline 10 percent in 2004-05.   Electricity construction, US$2.3 billion in 2003-04, is projected to fall three percent during 2004-05.   Telecommunications, US$2.2 billion in 2003-04, is estimated to rise one percent in 2004-05.   Rail construction, US$917 million for 2003-04, is forecast to have the highest sector rise in activity during 2004-05 – up 29 percent to US$1.1 billion.

9.            Internet Access

Australian Information Technology (IT) Market

Australia has one of the most mature Information Technology (IT) markets in the Asia-Pacific region.  In comparison to other countries on such indicators such as Internet access, B2B uptake, telecommunications infrastructure, etc., Australia ranks third in the world just behind the U.S. and Sweden.  According to the Allen Consulting Group, the Internet economy contributes US$28 billion or 6.4 percent to Australia’s Gross Domestic Product.

Internet Access

As of September 2003, there were 5.2 million active subscribers and in excess of 650,000 government and business subscribers (source: Australian Bureau of Statistics).

Household Use of the Internet

According to the National Office of the Information Economy (NOIE), 52 percent of Australian households are online. Forty-nine percent of households access the Internet through PCs, while the remainder access the Net through other devices such as hand-held devices and mobile phones.  The most recent Census survey (June 2002) showed that more than a third of the population (6.6 million Australians) had used the Internet.  Roy Morgan Research’s “Broadband Consumer in Australia” report indicates that 1.3 million Australians use their dial-up connection at least once per day.  Broadband uptake is also growing strongly with 720,000 subscribers in 2003, compared with 310,000 in 2002.

Business Uptake of the Internet

According to the Allen Consulting Group, Internet connectivity is almost universal, with 95 per cent of Australian businesses online.  Smaller companies (with fewer than 20 employees) are less likely to be online, with a relatively high 88 percent accessing the Internet.  Seventy-two per cent of businesses with an Internet connection have a website and 67 percent use Internet banking. A high percentage of medium and large-sized companies have now switched to broadband access.

Internet Speeds for Small Business

Sixty-three percent of small businesses access the Internet through a dial-up connection (56 K is the most prevalent speed).  Nineteen percent have net access by permanent dial-up, while five percent have cable access, and nine percent access the Internet with ADSL broadband. 

Price of Internet Use

According to NOIE analysis, on the basis of prices per 40 hours of Internet use at peak times, Australia ranked third behind the U.S. and New Zealand as of September 2000. Forty hours of Internet use at peak times in Australia costs US$42.90 compared to US$38.40 in New Zealand and US$23.50 in the United States.

ISPs

According to the Australian Bureau of Statistics, the number of ISPs in Australia decreased from 603 in 2001 to 563 in 2002 and increased to 667 in 2003.   Six major ISPs with more than 100,000 subscribers each provide Internet access to 3.1 million subscribers or 68 percent of all subscribers.  These ISPs are Telstra Bigpond, Optus, Ozemail, Primus, TGP Internet and AOL.

10.            Investment in Broadband Technology

The future of Australian communications is dynamic, as the nation embraces number portability, digital technology, greater mobility, and demands for new and innovative services requiring the use of broadband spectrum.  Consulting company Accenture has estimated that between US$7.8 billion and US$19.5 billion in extra economic activity per year could be generated if broadband is widely adopted in Australia.

Since deregulation of the telecommunications industry in 1997, there has been a great surge in the development of broadband infrastructure.  A number of telecommunications carriers have invested in fiber optic access networks, including Telstra, Optus, AAPT, and PowerTel.  Generally speaking, these networks parallel the most heavily used of Telstra's infrastructure, primarily between the state and federal capital cities.

At present, the most common forms of broadband technology in Australia are:

ADSL, which utilizes the existing copper telephone network; cable modems, which allow for broadband services to be sent over pay TV networks in Sydney, Melbourne, Brisbane, Adelaide, Perth, and some regional centers; and terrestrial wireless networks, an emerging technology.  Broadband technology is not available in all parts of Australia.  In particular, ADSL availability is limited by the type of telephone exchange technology used in an area as well as by the length and quality of the copper phone line.  However, satellite technology can also be used to provide broadband services and is available throughout Australia. ISDN is available to 96 percent of the Australian population through the Digital Data Service Obligation.

 

Australia’s broadband industry is still at an early stage of development. There is still much uncertainty regarding the speed of infrastructure deployment, which technologies will have success in which geographic areas, and what will be required of broadband in the future.

The Australian Government has been actively pursuing development of technologies. Through the "Networking the Nation" program, it provided more than US$250 million in grants to encourage the development of information services to regional and rural Australia and overcome the "Digital Divide" between the cities and remote areas.  In June 2003, the Government announced spending of US$94 million over four years to equalize the prices paid by consumers in the rural areas with those paid in the cities for access to high-speed digital broadband services.  To do so, it will provide telecommunications providers with a one-off subsidy to deliver broadband services to customers in remote areas.  In particular, the Government anticipates spending over US$10 million to fix mobile phone blackspots in regional centers and extending a satellite handset subsidy, which meets 50 per cent of the cost, for another four years.  In January 2003, the Federal Government’s Broadband Advisory Group recommended several initiatives to increase the uptake of broadband in Australia to reduce costs and improve service delivery in health, education and research. 

Notwithstanding this, there are concerns that Australia is lagging behind the U.S. and other nations in terms of broadband access for both corporate and residential customers.  According to OECD statistics, Australia has slipped from 12th to 19th place on the list of OECD countries’ use of broadband.  While ADSL technologies became available to consumers in August 2000, following the unbundling of the local loop, pricing, delivery quality and ease of access have posed problems. In addition, Telstra has been criticized for its wholesale pricing of DSL to competitors, which is higher than the retail pricing to consumers buying the service from Telstra.  However, other industry commentators attribute the slow take up of broadband to the low value proposition the technology currently represents.  As new applications become more band-intensive, the benefits of broadband will become more apparent.

 

Australia's first third generation (3G) service was launched in 2003 by Hutchison 3G Australia.   Hutchison has invested US$650 million in the network, which will cover the greater metropolitan areas of Sydney, Brisbane, Adelaide, Perth and Melbourne, and expects to invest a further US$1.3 billion.  Telstra is upgrading its CDMA network to make 3G services available.  Several other companies are investing in wireless networking technology (wi-fi) building local broadband networks.  

The main types of broadband infrastructure in place are:

§         "Fiber to the Curb (FTTC)" architecture;

§         "Hybrid Fiber Coax," an FTTC architecture deployed by Telstra and Optus for cable TV and data services;

§         ADSL technologies, available through a number of providers;

§         Wireless broadband access, including microwave (LMDS and MMDS), infrared and laser, which is being implemented in metropolitan/capital city environments; and

§         Satellite, which is offered by both Telstra and Optus, for corporate, residential and military customers to provide TV, Internet, telephony and data transmission.

11.       E-Commerce

As mentioned in the previous section, Australia has been implementing a range of broadband technologies that can be used in commercial applications.  Many of these services are available to "Small Office Home Office" (SOHO) customers, who are usually small business owners.

The Australian Government, like its U.S. counterpart, is encouraging its citizens to become literate in the on-line environment.  To ensure that regional and rural locations are not neglected, the "Networking the Nation" Commonwealth-funded grants system is providing funding to encourage e-commerce in these areas.  This funding is providing infrastructure and capacity, as well as support and training for businesses.  Some state governments also provide funding to businesses to develop a web presence.  This is particularly aimed at small business.

Australia has more than 667 ISPs servicing over 5 million subscribers.  Sixty-five percent of households are connected to the Internet, along with 69 percent of businesses.

Country Commercial Guides can be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center of the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go to one of the following websites: www.usatrade.gov or www.tradeinfo.doc.gov

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.