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

Technology: Applying the Revolution

Address to the Comms Day/Media Day Summit 2006: Reloading the Communications Revolution

Sydney

Wednesday 22 March 2006

Thank you Richard [Chirgwin, CommsDay Guest Editor] and good morning.

You might have heard people say that technology has changed how we live, how we work and how we communicate with our loved ones.

While we are all aware of the technology that surrounds us – the computer on our desk, the laptop at home, broadband internet connections, the mobile phone or even the Blackberry in your purse or pocket, what impact is all of this technology having on our productivity and what contribution does it make to the Australian economy?

I think we can all recognise how connected to the workplace we have become, that the lines between personal and work time are blurring and even disappearing – people can access you anywhere at anytime. So if we are working longer and harder, even anecdotally we can see that there is a productivity benefit from technology.

But on a much larger scale, technology has been a key driver of both economic growth and social change in Australia over the last two decades.

The impact of ongoing technological innovation is obvious across my portfolio in the ICT industry, telecommunications and media, even film and the arts. More broadly ICT has transformed sectors across the entire economy.

Assessing the benefit of technology

But technology for technology's sake will not achieve anything.

At the forefront of our minds should always be the question: what are we actually trying to achieve with our investment in technology?

Both business and Government need to have clear objectives.

There are significant risks if you make the wrong technology choice or if the investment fails to align with your strategic goals.

I was intrigued to find a simple checklist on technology investment for small business in a trade magazine called Australian Broker.

This checklist ran as follows:

Will this investment enable me to increase revenue?

Will this investment enable me to reduce costs?

Will this investment enable me to serve my customers better?

Will this investment enable me to be more competitive?

This is just as relevant to the use of technology across the broader Australian economy. But I would add one final point to this broader checklist – Will this investment in ICT help Australia solve some of its major challenges as a nation?

Again I believe the answer to this question is yes.

We can clearly demonstrate that technology investment has increased the size and productivity of the Australian economy and reduced the costs of doing business.

The use of ICT has also led to significant benefits for Australian consumers and workers.

There have been some challenges in translating this success into a world leading ICT production sector.

Economic Benefits

As we look back on ten years of the Howard Government, it is widely acknowledged that t he Australian economy has performed exceptionally well over the last decade.

Over the last ten years:

More than 1.7 million jobs have been created;

Real wages have grown 22 per cent or about $185.20 per week over nine years;

The unemployment rate has now been below six per cent for 29 consecutive months.

The Australian economy has also proven itself to be one of the world's most robust.

We have weathered the Asian financial crisis, uncertainty around oil prices, international terrorism and stagnant growth in the economies of many of our major trading partners.

Our strong productivity growth over the past decade has often been attributed largely to micro-economic reform.

The impact of technology, particularly on economic development and productivity growth, is often overlooked because of a lack of concrete data.

As the Nobel award winning economist Professor Robert Solow commented in 1987:

“You can see the computer age everywhere these days, except in the productivity statistics.”

19 years later we are attempting to rectify this situation.

The breakthroughs in technology of the last few decades – distributed computing, mobile phones, e-mail, digital media and the Internet – is historically significant.

But a t the same time, far less noticeably, the economic system itself is undergoing a generational transformation.

The increasingly intensive use of information and knowledge is driving value creation, productivity and economic growth.

ICT is the underlying technology enabling this information and knowledge to be better utilised and is therefore a driver of much of the innovation that occurs across the economy.

This transformation is far from over.

The benefits of ubiquitous high-speed broadband and greater computing capacity and the long-heralded convergence of ICT with the media and broadcasting industries provide even more opportunities for industries to innovate.

Encouraging ongoing competition, investment and innovation in the media and telecommunications sectors is an economic imperative.

Nevertheless, just how important ICT has been for the Australian economy has not been widely appreciated.

By 2003, the OECD had observed that ICT was an important driver of growth and productivity and that Australia was second only to the United States in gaining benefits in both labour and multi-factor productivity growth from the use of ICT.

Recent research commissioned by my department and undertaken by Diewert and Lawrence shows that technology has contributed up to 85 per cent of productivity growth in the manufacturing sector over the 17 years to 2001-02; and

ICT has also directly contributed up to 78 per cent of productivity growth in the services sector.

More importantly these benefits are forecast to continue.

The Forecasting study that I am releasing today suggests that ICT, along with emerging technologies like nanotechnology and biotechnology will continue to be a major driver of productivity improvements over the next 20 years. We cannot afford to ignore this.

Based on conservative assumptions, it predicts that the mean annual labour productivity growth rate attributable to technology will be 6.1 per cent in the communications sector, 2.6 per cent in manufacturing, 1.9 per cent in trade, 2.3 per cent in finance and 1.5 per cent in transport.

Clear Benefits for Industry

These broader economic figures look good – but what does it mean for individual businesses.

In a more tangible sense, this same research has demonstrated that an investment in ICT delivers around 40 per cent in added value for companies.

And businesses clearly recognise the benefits – as investment across the economy in ICT has been increasing dramatically.

Recent ABS figures show that total investment in ICT has been growing significantly to the point that $26.7 billion or nearly 14 per cent of all business and Government investment in Australia in 2002-03.

Estimates from the Australian Information Industries Association (AIIA) point to an overall ICT industry value of almost $90 billion, making Australia the fourth largest market for ICT in the Asia Pacific and 13th in the world.

But it's not just business that is embracing the technological revolution.

In the same period the ABS found that households spent on average around the same amount on ICT as they did on education, clothing, alcohol and cigarettes.

The average Australian now spends as much on technology as they do on beer!

If you needed any more proof that technology was very much mainstream then that is it.

ICT Key to Future Innovation

ICT is also underpinning much of the innovation that occurs across the Australian economy.

Business Research and Development in ICT across the economy was around $2.6 billion in 2003-04 which was an amazing 40 per cent of all business R&D investment.

Government is also contributing significant amounts of funding towards innovation in ICT – most notably in our $380 million commitment to NICTA.

CSIRO recently reviewed its research agenda and the mathematics and ICT areas have had their annual budget boosted by nearly $8 million and is now hiring 30 new scientists in this area.

There are a couple of good reasons for this increasing investment in ICT research and development across the economy.

Firstly, research by DCITA has shown that the rate of return on ICT R&D is much higher than on other forms of R&D conducted in Australia.

Secondly, because ICT is a general purpose technology, innovation in one sector or field often has broader applications. It is often hard to get a handle on because ICT is so deeply embedded across the economy.

These numbers provide strong justification for continued government efforts to stimulate the diffusion of ICT across the economy.

The strategic use of technology is key to Australia 's ongoing competitive advantage.

Australia faces an increasingly challenging global environment, especially with the emergence of India and China as major economies and their increasing movement into higher value-added products and services.

The use of technology and ongoing innovation will be critical to ensure that Australian industry responds by moving even further up the value chain.

Strategic Government Reform

I am acutely aware of the Government's role in fostering an environment where innovation can occur and technology forms a platform for future growth.

In my portfolio – the most explicit example of the impact of Government policies is in telecommunications.

Through targeted reforms a lot has been achieved since March 1996.

Then, there were only three telecommunications companies – now there are 153 carriers.

In 1996 the value of the communications sector was $12.6 billion. Today, it is more than twice that at $25.5 billion.

The Australian economy has grown by an additional $12.4 billion since 1997 as a direct result of the liberalisation of the telecoms market.

The simple benefits of Australian firms being able to conduct business across the country and with the world much more cheaply and effectively are harder to quantify.

I can say that a three minute call to China in 1996 cost $7 and that same call today can be made for as little as 56 cents.

The benefits of this in the middle of a resources boom cannot be underestimated.

The roll out of next generation broadband over the next 20 years has also been forecast to generate broader economic benefits of between $12-30 billion per annum.

In a more tangible sense it has had a dramatic impact on globally-focused Australian businesses.

An Australian architect or engineer can now send modified designs to a construction firm in China almost immediately.

An Australian digital effects studio can be working on a big budget Hollywood blockbuster and shoot the finished film back to the USA in minutes or hours over high speed broadband rather than days or weeks.

This has opened up enormous export opportunities for Australian-based design firms.

Media and Content Industries

The economic argument also rings true for my recently proposals for reform to the media sector.

The current stagnation in the Australian media market means that we may be missing major international opportunities.

Encouraging investment and innovation in this sector is critical.

The emerging digital content industry is generating high value digital products and services across film, games, broadband, mobile content, broadcasting and ICT sectors.

Currently the industry is valued at $21 billion or almost 3.5 per cent of Australian GDP and employs around 300,000 people.

The industry plays an important role in ‘enabling' or adding value to other industries with a gross value added multiplier of 1.58, placing it ahead of other traditional industry sectors.

Digital content activity is also underpinning the development of new business models and advanced visualisation techniques across fields such as architecture, education, defence, agriculture, manufacturing and design as well as property and business services.

T he recent Digital Content Industry Action Agenda – an industry group with some Government input - found that the industry in Australia is growing much slower than the sector globally and at 3-4 percent is a smaller percentage of GDP than the digital content sectors of nations such as Canada, UK, NZ, Ireland and Korea which sit at 7-8 percent of GDP.

This is a concern.

The global media and entertainment sector is forecast to grow at 7.3 per cent per annum over the next four years to be worth $2.4 trillion by 2009 – so the potential is enormous and we don't want to miss out.

But if new investment in the Australian media sector is not able to occur, if the Australian industry doesn't embrace digital technologies – then we risk missing this enormous global opportunity.

With a coordinated strategy and the right regulatory and investment framework the Action Agenda predicts that the digital content industry in Australia could grow by around six per cent per annum over the next ten years.

This could add 150,000 jobs and increase output of the sector to between $36 billion and $37.6 billion placing digital content ahead of agriculture.

However, stifling the development of this sector could have broader implications for the economy as innovation in the media and entertainment sector is rapidly flowing into other areas of economic development.

As a good case in point, local Australian company Mediaware, whose core business has been in developing digital video compression technology for broadcasters, has increasingly found its digital video technology in demand by the defence sector.

As I've said before ICT can be front and centre of solving major national challenges.

Late last month it was awarded a $2.2 million contract from the Australian Department of Defence to develop video exploitation technologies in areas such as object tracking and recognition.

By having a client list that includes the ABC, CNN and NBC as well as Raytheon, General Dynamics and the US Airforce demonstrates a very different form of convergence.

Ongoing Government Activity

At the end of the day technology policy, just like the rules for investing in technology that I mentioned at the start of this speech, is often a matter of keeping it simple.

Essentially this can be boiled down to:

Getting the settings for investment right - across infrastructure, companies and technology;

Creating an environment that fosters innovation and competition; and

Ensuring that Australian industry and the broader economy remains internationally competitive and continues to grow.

I know that there has been a lot of commentary about the ICT industry's woes being purely and simply a matter of Government policy.

I think this is an overly simplistic way of looking at the issue.

The ICT trade deficit is made up predominantly of hardware and Australia will always find it difficult to compete with low cost manufacturers – not just in ICT but right across the economy.

Australian industry must focus on the things that we can do well in Australia , instead of trying to be a generalist.

For instance in the higher value-add area of computer and information services we have grown exports by 8.3 per cent per annum over the last five years to $1.2 billion in 2004-05.

We have also operated a surplus in these services since 2001-02.

Domestically, business is investing more in ICT than ever before and the opportunities to capture both domestic and export opportunities abound.

But I do acknowledge that there remains an issue in Australia in growing locally-based ICT companies.

However, I do see a way forward.

User and Producer Working Together

As I have pointed out – Australia is one of the world's most effective economies when it comes to utilising ICT for economic benefit.

There are strong linkages between the successful use of these technologies and the development of related products and services.

But how do you improve these linkages between domestic market opportunities and locally-grown technology with the ultimate aim of growing exports?

The difficulties in growing a small business, especially in an area like ICT, are significant.

Getting access to capital, finding good staff willing to join the ride that working for a start-up brings, trying to open up export markets without stretching the organisation too thin is not an insignificant challenge.

The Government has attempted to improve the access to capital through the Innovation Investment Fund, the Pre-seed fund, the ICT incubators program and changes to venture capital structures in Australia.

The ICT incubators program alone has seen more than 350 ICT related start-ups assisted and raised about $170 million in private sector co-investment from the $122 million that the Australian Government invested in the program.

The Government is also currently reviewing the operation of the Venture Capital market in Australia and my department has been actively investigating the operation of Business Angel investors.

Ultimately, it is the need to build scale amongst the local industry that is critical to having sustainable Australian-grown technology companies.

Collaboration

If local industry can combine forces to share market intelligence, network, launch joint marketing initiatives and export promotion and even look at joint tendering opportunities then I am confident that their ability to capture market opportunities will be improved dramatically.

The most successful niches have been in sectors where Australia has some competitive advantage with innovative local users, which fosters the technology sectors working with them.

You have probably heard the figure that Australia provides 60 per cent of the world's mining software.

On the back of its strength in the minerals sector, the largest Australian company in this area - Mincom - is now seeing increasing revenue growth in areas like transport, logistics and defence industries.

I was also pleased to see that the construction boom is having an effect on the Australian software industry.

Aconex - one of Australia's fastest growing ICT companies only last week won a major multi-million dollar contract in Vietnam to manage the flow of information and documents on the largest ever property development in Ho Chi Minh City.

Aconex's systems are now in use by 22,000 companies worldwide on construction projects that are worth a combined total of $60 billion.

And this company was only formed in 2000.

Focusing on our strengths, linking with major technology users and building scale through clustering activities will be critical if the Australian ICT industry is to take advantage of the huge opportunities out there.

Lets focus on what we do well and build on that.

It was in this context that I am undertaking an ICT Priority Setting Exercise – to focus our industry development activities in areas where major market opportunities are emerging and Australia already has some competitive advantage.

If our researchers in CSIRO, NICTA and Universities can work more effectively with these emerging clusters to contribute valuable intellectual property and the necessary research support – then I believe we will start to build the scale in key technology areas and market segments that we currently lack.

Already I am encouraged by activity in the sector.

The Government's $380 million ICT centre of excellence NICTA has taken a very user-inspired approach to its research agenda.

Wherever possible, the organisation has been looking at involving local industry - building clusters of interest around projects such as spatial information, intelligent transport systems and sensor networks.

All of these research areas have markets in mind and NICTA has also been building partnerships with users to ensure that the research is targeted to meeting their specific needs.

The organisation now has strategic relationships with the NSW Roads and Traffic Authority on traffic management systems and Goulburn Murray Water on the use of wireless sensor networks to better manage irrigation water usage.

The Peter MacCallum Cancer Centre is working with NICTA on the use of predictive computing techniques to assist in the speedier diagnoses of cancer patients.

The broader industry is also looking at how it can be better collaborate and align itself with emerging technological and sectoral opportunities.

To this end, the Australian Information Industry Association in Victoria has launched an initiative known as Collab-IT.

This partnering program seeks out to identify like-minded ICT companies in Victoria and facilitate the formation of collaborative networks, or clusters, and look actively at ways in which they might work together to source new markets and increase sales.

Some of the activities they are looking to generate out of this approach are in the following areas:
expanding market opportunities by building a ‘team' approach to go after emerging market opportunities, joint tendering and building joint market intelligence.

I welcome this approach and I look forward to working with the AIIA to see if intelligence gained out of the CollabIT exercise in Victoria could feed into a broader national approach on fostering collaboration and prioritising industry development activities.

These are simple and relatively inexpensive strategies that could have a dramatic impact on the future of the Australian IT industry.

When Australia combines its ability as one of the most effective users of technologies with its given ability to innovate and generate ideas – then the sky really is the limit for the Australian technology industry.

Conclusion

As the poet, T.S. Eliot once wrote:

Where is all the knowledge we lost with information?

It is an important distinction to draw.

The information overload of the technology sectors can be overwhelming unless you have a simple appreciation of what it is you are trying to achieve.

The knowledge that technology is delivering huge benefits for Australia is critical.

That it continues to deliver these benefits and more into the future is a challenge for us all.

I will continue to try and get the settings right to allow this technological revolution to continue.

I encourage industry - be it in media, telecommunications or the broader economy - to continue to innovate, continue to invest in technology and have a serious look at the capabilities of the local industry.

The potential pay-off for our partnership is enormous.

Thank you.