Senator the Hon Helen Coonan was Minister for Communications, Information Technology and the Arts from 18 July 2004 to 3 December 2007. This site is available for archival purposes only.

Senator Stephen Conroy is the current Minister for the Department of Broadband, Communications and the Digital Economy

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Senator the Hon Helen Coonan
Minister for Communications, Information Technology and the Arts

Deputy Leader of the Government in the Senate

Communications Day Summit 2007

Sydney

3 April 2007

Introduction

Thank you very much, it is my pleasure to address the Communications Day summit this morning.

As always it is a very busy time in the Communications Portfolio.

Today I would like to reflect on a couple of different things: firstly, the pace of developments in the telecommunications sector and secondly, the dangers of attempting to pick technological winners and the role that Government has to play in shaping this environment.

Telco industry – a dynamic environment

Looking back over the last 10 years, the Howard Government’s work in liberalising the telecommunications sector and encouraging competition has produced profound benefits for the Australian economy and for consumers.

Sector revenues have grown from $20.9 billion in 1996-97 to $35.7 billion in 2004-05, an increase of some 70 per cent.

In 2006, production in the Australian economy was $15 billion higher as a result of the Government’s telecommunications reforms of 1997.

But it is the pace of technological change of this period that has been truly phenomenal.

Putting aside the huge price reductions for consumers and the explosion in the number of competing firms – there has been a revolution in the technological service offerings as well.

Consumers have been the major beneficiary of competition reforms. Fixed line prices have fallen by 18.9 per cent and mobile service prices have fallen by a whopping 36 per cent. In fact, since 1997, the overall average price of telecommunications services has fallen by 26.2 per cent.

In 1997, broadband was in its infancy - but now Australia has almost six million Internet subscribers, with close to 4 million using broadband.

Likewise, use of VoIP has been exploding. There are now 238 VoIP providers and almost five per cent of the population are now using VoIP services.

Over the last 10 years, four major carriers have built competing mobile networks.

As a result the number of mobile services has risen from about 5.9 million at the end of 1998 to almost 20 million. Eight per cent of those mobile phone users are using 3G.

A clear testament to why we should never pick technologies, in the late 90s the debate was about whether a minimum dial-up speed should be mandated! I’ll have more to say about this in a moment.

Today, 90 per cent of the population can access speeds ranging from around 1.5 to 20 Mbps.

This provides bandwidth to download movies, conduct video-conferencing, play games, teleconference and undertake everyday Internet and email use.

In addition, around 2.7 million households in Australia can also access up to 17 Mbps through Optus or Telstra’s HFC cable networks.

And wireless technology just keeps improving and expanding. With the investment from Telstra, Hutchinson and others, wireless is getting faster all the time and allowing consumers to read newspapers, check e-mails and even update their ‘blogs’ – all whilst being on the move.

The incredibly fast pace development of technology poses some tough policy challenges for Government and industry.

Despite these impressive technological advances, we all know that there will be an ever increasing demand for bandwidth and, in a country such as Australia, this will inevitably require a mix of fixed line and wireless solutions to meet the demands of a scattered population and varied terrain.

I mention these current technological advances because a short while ago there was a debate about whether access to dial-up internet should be mandated.

And a few years back the Labor opposition were lecturing the Government on their plan to spend $5 billion on rolling out dial-up internet to every Australian household.

Labor Policy

In fact, apart from opposing the sale of Telstra, Labor has had only two proposals in telecommunications in the ten years they have been in opposition.

One policy is technologically redundant and the other is uncosted, unfunded and unworkable.

I am of course referring to Labor’s proposal to pour $4.7 billion of public funds into a joint venture company which they claim will lay fibre end-to-end across Australia.

They have claimed that this will provide 98% of Australians with a minimum speed of 12 megabits per second for a total cost of around $8 or $9 billion. I want to test some of these claims.

Light on detail

Many people here will no doubt share my disappointment that the Labor proposal is so light on detail.

Labor two weeks ago released a 22 page document on their proposal. However, only 1 of those pages related to their actual plan!

It provided no maps, no detailed costing, no modelling, no analysis.

And does anyone know what Labor means when it says major regulatory and legislative reform is required? I assume they mean they will abolish the telecommunication competition laws.

But not many people are asking these questions of Labor and Labor is certainly comfortable in not having to answer them.

It is for this reason that I have referred to the Labor plan as pie in the sky.

But let’s assume for the moment that we could suspend reality and actually build Labor’s proposal. What are some of the things we would need to know?

How far will the $8 billion get you?

Firstly, the proposal is badly let down by the fanciful nature of its costings.

Let’s look at how far the $8 billion will go.

The two commercial proposals already on the table for fibre in Australia both highlight that it will cost $4 billion just to get to five capital cities – and this doesn’t reach into outer metro areas.

How much further will the remaining $4billion allow the network to reach given the fact that the network will require, not only tens of thousands of nodes, but also upgraded and new fibre-optic links throughout Australia.

I think it is pretty clear that you need a lot more money than Labor is claiming, to get anywhere near rural Australia, let alone to reach 98% of all Australians.

Funding commercial areas

The second major problem is where the funding is proposed to go.

Much of the criticism of Labor’s proposal has been that it pours taxpayer funds into subsidising a fibre network in commercial areas.

As you are aware, both Telstra and a group of nine telecommunications companies, known as the G9, have put forward commercial proposals for a fibre network.

So whilst industry players may well welcome a cash handout of $4.7 billion – it does serve to highlight Labor’s preparedness to interfere in the market by throwing taxpayers money at a distorted solution.

Labor has not only suggested that they need to throw money around to get a high-speed network built in commercial areas, but they have additionally claimed that there will be a revenue stream to Government from this investment.

This is inherently problematic given the claim that this network is also to service unprofitable regional, rural and remote areas.

This highlights the duplicity of their argument – either it is a revenue earner, in which case it should not need funding assistance from the Government, or it is a case of market failure. It can not be both.

The Government believes that the use of taxpayer funds should be reserved for where the market is not already prepared to invest.

This is not an argument about whether or not Australia should have a new high speed broadband network. We should and we will. This is an argument about who and how we will deliver it.

Picking a winner

The third major problem lies with Labor again trying to pick a technological winner - despite the embarrassment that must be felt regarding their 40 kilobits per second dial-up proposal of just two years ago.

The list of advancements that the telecommunication industry has made over the last ten years is impressive and inexorable.

In a brave move – Sir Humphrey would describe it as courageous I am sure – Labor has proposed mandating a 12 megabit per second fibre to the node network to be rolled out over 5 years.

But this speed is already widely available in Australia today.

And as technological advancement is not showing any sign of slowing down – 12 megabits per second is not likely to be sufficient in five years time.

It is a brave person that would believe that they knew the needs and demands of consumers and technological capabilities five years from now.

This serves to demonstrate that the commercial sector is best placed to provide these services.

There is a long list of examples of Labor Governments trying to run commercial enterprises and the taxpayers footing the bill for their failings.

There was the State Bank of Victoria and the Tricontinental Group which lost about $3 billion.

There was the State Bank of South Australia which lost $3.3 billion and cost the taxpayers of South Australia around $2.2 billion.

And who could forget the Pyramid Group, which the Cain Labor Government assured the Victorian public was sound a mere two weeks before it collapsed!

Governments have a very poor record of picking winners and quite frankly – in the year 2007. I think we have had enough experience to know that Governments just don’t run companies very well.

Conflict between asset owner and regulator

ABN AMRO has warned the proposal “re-establishes a conflict between Government as owner, whose dividends rely on access prices, and as regulator of access.”

The Government has worked hard to extract itself from this conflict, so it can set a balanced competitive framework and allow the market to work, whilst maintaining a robust consumer safety net.

I know because I have lived through it.

The Labor proposal reverses all of this in a leap back to the future.

It re-establishes the well known outcomes from regulated monopolies, including tendencies to gold-plate, over design, over spend and under-serve.

The Labor proposal asks potential investors to simply demand the regulatory changes they require to the competitive framework in order to join Labor in owning a network.

This is a terrible conflict of interest and it is little wonder that industry experts suggest that this would take the industry back 20 years.

This is just unprecedented. The broader industry and consumers have every right to be nervous – particularly as Labor is so light on detail and barely limits what competition protections may be sacrificed.

No one doubts that the regulatory issues around access and pricing for a new fibre to the node network are complex, no matter who builds it.

Both Telstra and the G9 rightly require an adequate commercial return on such a build, where an investment of this magnitude is fraught with risk.

Competitor’s proposals for a fibre to the node network are based on fundamental regulatory conditions.

Firstly, the builder will need access to Telstra’s existing nodes and exchanges to connect its fibre. In addition, the builder will require access to Telstra’s “last mile” copper network that connects homes to the nodes and then force Telstra to use the network.

Secondly, it would require legislative intervention to prevent a competitor overbuilding in the same manner of the cable wars debacle of the early 1990s.

So what are Labor’s proposals to overcome these obstacles?

So far the only explanation from Labor on what is being contemplated is this answer from their spokesman to a question from a journalist at the Press Club, I quote:

“We will say, tell us what regulatory reforms you need. Now, G9 may say, look, we need an overbuild clause, so that Telstra, if they were not to get it can't, you know, build us around like they did famously in '98 when they did the pay TV roll-out. Now that would be an ambit claim.

Even the most ardent supporters of Labor’s proposal would hardly call this a deep piece of thinking on how to tackle the complex regulatory issues.

Essentially Labor has said that they will not talk about regulation before the election. This is a major shortcoming, does not advance the debate on how best to deliver fast fixed line broadband in Australia and, on any neutral appraisal, blows Labor’s credibility on how to deliver such a fundamental economic enabler such as broadband, without dismantling the competition regime.

Source of funding

Finally I would like to comment on Labor’s proposal as it relates to the proposed sources of the funding.

A great deal has been said about Labor getting up to its old tricks by dipping into the Future Fund for such a problematic scheme.

Less has been said about Labor walking away from its 10 year opposition to the sale of Telstra in order to fund its reckless plan.

I guess it’s easy to make promises if you abandon principle.

But in abolishing the $2 billion Communications Fund, Labor appear to be reverting to form in entrenching its legendary neglect for rural and regional and remote Australia.

The Australian Government established the $2 billion Communications Fund to provide an income stream to fund the Government’s responses to recommendations of the Regional Telecommunications Independent Review Committee.

The first statutory review into the adequacy of telecommunications services in regional, rural and remote Australia will commence in 2008.

The income from the Communications Fund will be used to ensure that service levels in regional and rural Australia are continually improving and that blackspot areas are addressed as a matter of urgency.

However, Labor’s proposal destroys all of this good work.

Draining the fund completely ensures that a digital divide will be created between metropolitan and regional and rural Australia

In fact, when Labor’s spokesman was announcing the policy he was asked how he would fund “basic rural needs” such as a mobile phone tower in a blackspot if he has taken the cash flow away associated with the Communications Fund.

The lack of a meaningful response to this legitimate question was telling.

The removal of the Communications Fund essentially abandons the bush.

The Communications Fund was to provide an income stream to protect and advance services in the bush such as:

  • Extending mobile phone coverage;
  • Providing low cost satellite mobile phone services in the most remote parts of Australia; and
  • Improving communications services in remote indigenous communities, such as community phones, payphones and online access centres.

Labor will ensure that not only is a digital divide created, but it will be entrenched by removing the funding specifically designed to improve services in regional and rural Australia and for that neglect alone this proposal deserves to be condemned.

Industry analysis

Whilst you probably won’t find it surprising that I am not a fan of the Labor proposal, I do find the comments of industry analysts, who have no particular axe to grind, very revealing.

It is proposals like this that lead Terry McCrann to observe that Labor - “has committed to damaging the economy in the short-term and destroying it in the longer-term.”

ABN-AMRO said that Labor’s proposal:

  • “Takes the industry back 20 years to Government provision, gold-plating and restricted rollout”;
  • is “inefficient”;
  • “does not resolve access regulation issues but entrenches them and adds new inefficiencies”; and
  • “re-establishes a conflict between Government as owner, whose dividends rely on access prices, and as regulator of access.

And the damning reviews have just kept rolling in.

Telecommunications researcher, Market Clarity has criticised the ALP’s plan in the Australian newspaper, as failing to do its homework and “under-shooting the mark”.

It’s Chief, Shara Evans said: “Nothing in the Labor plan really addresses the backhaul issue. It doesn’t seem to be addressing what I see as the most critical problem – getting high-speed pipes into the regions so these access networks actually have something to connect to.”

Eminent Professor of Information Economics at Melbourne University, Joshua Gans, has conceded the proposal is “overkill” and Ross Gittins, the Economics Editor of the Sydney Morning Herald has dismissed the plan as “a waste of taxpayers’ money” and “a cynical bribe”.

In the Financial Review, the global research firm Ovum has predicted Labor’s broadband proposal wont have any impact until after 2010 and will be more than likely bogged down in commercial and competitive wrangles for years.

According to Ovum, a raft of issues have not been addressed under Labor’s plan such as:

  • “which part of the network will be unbundled and how;
  • how the multiple stakeholders - other than Telstra - will have access to the consumer; and
  • how they will share the revenue from the services offered on the jointly built network.”

The Economics Editor of the Australian Financial Review Alan Mitchell says “Rudd’s political commitment to the high speed broadband network has been made without any serious evaluation of the likely costs and benefits.”

Indeed, Alan Mitchell is right in suggesting consumers will pay the price for this bidding war. Under Labor’s proposal, every Australian will be asked to pay for a broadband pipe to the nearest node, irrespective of whether they use it or want it.

Government Action

Whilst this has been going on, the Government is getting on with the job of targeting taxpayer investment where it is most needed so we can ensure all Australians can access essential communications services.

Australia now ranks number two in OECD tables for growth in take-up of broadband services and with an insatiable appetite for both broadband and bandwidth, we cannot afford to leave consumers stranded without access.

The Government’s approach focuses on getting the investment incentives right to enable a new fibre fixed network rollout in the commercial areas, whilst reserving taxpayers fund for under-served areas.

I am continuing to consider the commercial fibre to the node proposals and the extent to which the regulatory framework is capable of achieving flexible solutions for the investor that does not destroy competition and continues to deliver for the long term interest of consumers.

Those of you who have followed this debate will recall several occasions where I have publicly stated that I do not consider regulation to be a ‘set and forget’ exercise.

I have invited would be participants, of whatever hue, to discuss with me the barriers to investment as they see it so that, where warranted, adjustments can be made. Both of the commercial proposals have merits.

I will continue to work to advance a successful outcome. I have previously said I believe my personal involvement at this stage to be justified in assisting to facilitate a major new network investment in broadband in Australia.

And as I indicated – the Government is committed to equitable telecommunication services in regional and rural areas.

The Coalition has invested more than $4 billion in telecommunications and broadband services since 1996.

Our commitment to ensuring all Australians can access broadband, regardless of where they live could not have been made any clearer than the announcement I made recently with the Prime Minister.

To ensure universal access to broadband the Government has committed $162.5 million to the Australian Broadband Guarantee.

This brings together our incredibly successful Broadband Connect subsidy program with its metropolitan equivalent – Metropolitan Broadband Connect – to ensure any household or small business that cannot now access an affordable broadband service will get access whether they live in metro, outer metro, regional, rural or remote Australia including, for example, the Christmas and Cocos Islands.

For households and small businesses in metro Australia, this means there will be a five-fold increase from the existing $500 subsidy to $2750.

Previously these higher subsidy levels were only available for people in rural and remote areas.

It is now available for every Australian household and small business including those in outer metropolitan areas and major regional centres.

This higher subsidy will ensure two things:

  • That the incentive is sufficient enough, even in outer-metropolitan areas, for industry to invest in high speed broadband; and
  • That even as a last resort option, two-way satellite broadband is available to anyone who cannot already receive an affordable service.

With a subsidy, fast two-way satellite broadband is already available for as little as $29.95 per month and the speeds are now comparable with the most common broadband packages available in the market.

While outer metropolitan residents receive large increases in the subsidy level under the Australian Broadband Guarantee, rural and regional Australians will also benefit by continuing to enjoy high subsidies to ensure ongoing broadband access in transition to the $600 million Broadband Connect infrastructure program.

Infrastructure Program

And I am working towards an announcement on the outcome of the $600 million Broadband Connect infrastructure tender which will significantly enhance the quality and speed of broadband services in this country.

The infrastructure program will provide for a state of the art open access network in regional and rural Australia.

The networks will be expected to provide fast broadband speeds, scalable in the future up to higher speeds for the majority of regional and rural Australia.

In the transition to larger scale infrastructure projects it is important to give industry and consumers the confidence that people who can’t access broadband will be taken care of.

The Australian Broadband Guarantee is the Government’s guarantee to both industry and, in particular, consumers – that they will not be left stranded.

Put together, the Australian Broadband Guarantee, the Broadband Connect Infrastructure Program and the income stream generated by the $2 billion Communications Fund represent the single largest and most comprehensive investment made in telecommunications by any Government in Australia’s history.

This investment will ensure that Australia is one of a few countries where the Government has guaranteed universal broadband for 100 percent of the population.

The significance of this commitment can be seen in context.

Australia is the sixth largest country in the OECD with the third lowest population density.

The Netherlands for example, long touted as an exemplar when it comes to broadband – is the size of Tasmania.

And so, notwithstanding our challenges we will continue to make investments that make a palpable difference to broadband speeds and access in Australia.

Conclusion

It is true that the difference in broadband approaches between the two parties is stark.

Whilst Labor have committed to a reckless spend of taxpayers funds by throwing money at commercially bankable areas –to the disadvantage of regional and rural consumers – the Government is committed to subsidising services to rural, regional and remote Australia in the knowledge that with the right settings a new commercial rollout will meet the needs of urban Australia.

The pace of change in telecommunications is far too quick for any Government to be able to say, even 5 years from now, what the industry should look like.

The Government is committed to ensuring that we are not standing in the way of industry rolling out a next generation network that will deliver Australians the services they need and demand, both now and into the future.

For our part, we will continue to work with the proponents of fibre networks in Australia to ensure that the investment incentives are right - and focus financial support in the uncommercial areas which would be underserved if the market were to left to itself.

We will achieve this by building on $4billion we have already spend in telecommunications and committing to programs like the Australian Broadband Guarantee and the $600 million Broadband Connect infrastructure program.

We have also committed to future-proofing the bush by a continuation of the Communications Fund.

This is our commitment to consumer safeguards which deliver basic, vital telecommunications services to Australians, regardless of where they live.

This is the Australian Government’s commitment – that consumers, anywhere in Australia, will be able to access the services they need, at a price point they can afford.

Thank you.