Senator the Hon Helen Coonan

Minister for Communications, Information Technology and the Arts

Deputy Leader of the Government in the Senate

The Australian Broadband Guarantee Address to ATUG

Sydney, 8 March 2007

Introduction

Thank you Rosemary [Sinclair – Managing Director - ATUG]

I guess many of you here today are still digesting the announcement yesterday that the Government will introduce a new $162.5 million Australian Broadband Guarantee.

I am very pleased that I was able to reschedule my address to ATUG to ensure that I could keep my annual commitment to what I regard as one of the key telecommunications peak bodies.

Before touching on the significance of the Australian Broadband Guarantee, I think it is significant to acknowledge that this year marks 10 years since the introduction of full and open competition in the telecommunications market.

How far we have come. But like all things in telecommunications – the world never stays still – and we have much more to do.

10 years is a long time. It is an eternity in telecommunications. If you cast your mind back to 1997, a few of the year’s highlights puts the decade in perspective.

In 1997, Tony Blair was elected Prime Minister of the UK and Bill Clinton started his second term as US President.

OJ Simpson was found guilty by a civil court of murdering his wife and her lover and the first Harry Potter book was published.

It was the year that China took back control of Hong Kong, Stuart Diver was the only survivor of the Thredbo landslide and Princess Diana died.

From a technology perspective 1997 was also the year the Google domain name was registered and the year that the term ‘weblog’ was coined.

That all of these facts were found on Wikipedia, and that terms like ‘Google’ and ‘Blog’ have made it into the popular lexicon, just goes to show that a decade really is a lifetime in terms of technology and telecommunications.

Benefits of Liberalisation

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

The Australian economy has grown by $15.2 billion since 1997 as a result of liberalisation; more than 17, 550 additional jobs have been created.

Since 1997, the overall average price of telecommunications services has fallen by 26.2 per cent.

Fixed line prices have fallen by 18.9 per cent and mobile service prices by a whopping 36 per cent.

We have gone from only two providers in 1997, to 157 licensed telecommunications carriers. And 1170 registered carriage service providers, up from 378 at the end of June 1997.

In 1997, broadband was not even on the radar for Australian consumers but now Australia has almost six million Internet subscribers, with more than half of them 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 Voice Over IP 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.

Testament to why we should never pick technologies, in 1997 the debate was about whether a minimum dial-up speed should be mandated!

The Digital Data Service Obligation was subsequently introduced to guarantee access to 64 kbps ISDN or an equivalent.

Today, ADSL2+ broadband services, which provide speeds up to 24 Mbps, are currently being offered by at least nineteen carriers, including Telstra, Optus, Soul, Amcom, Netspace, and iiNet.

There are around 3.9 million premises in Australia with access to download speeds of more than 6 Mbps using this technology.

HFC cable networks offering download speeds up to 17 Mbps pass 2.7 million homes in metropolitan areas.

And a range of providers offer wireless services with speeds of up to 2Mbps to almost 6.5 million premises in metropolitan Australia as well as a growing number of regional areas.

All of these achievements come down to a regulatory framework that encourages both competition and investment.

When you can rattle off a list of achievements that includes more choice and lower prices for consumers as well as the ability to deliver the services they want at a price they can afford, then quite rightly, as an industry you can proud of your efforts.

That is why the Government is committed to ensuring we maintain and build on the achievements of the last 10 years.

Post T3

All of these gains in the telecommunications industry must be seen against the backdrop of the sale of Telstra.

For while we have steadily moved to a more competitive market, the Government has also moved to fully privatise Australia’s largest and most profitable telco.

In that respect, 2006 was a watershed year that culminated in the very successful T3 float.

The final public offer of Telstra shares concluded well, with 4.25 billion shares allocated and a final institutional price of $3.70 per share representing a total offer of $15.5 billion.

I think it’s fair to say that the Government managed the T3 process extremely well and an offer was designed that proved to be highly attractive to both ordinary investors and investment funds.

But what of the telecommunications landscape post T3?

The Government has always maintained that selling Telstra was in the long term interests of the industry and consumers.

It removed the inherent conflict of interest in the Government being both the majority shareholder in the largest telco in Australia and the regulator of more than 150 telco’s.

And while our ownership of Australia’s largest telco has now been removed, the regulatory framework that ensures consumers enjoy choice and lower prices remains – and this is rightly so.

It took considerable resolve to take to the Australian people on four occasions a policy to privatise Telstra.

I can admit it was not a resoundingly popular policy position. But it was the right thing to do. This is because Australian consumers were wary of what would change with a privatised Telstra.

Would the Universal Service Obligation remain, what about the Customer Service Guarantee?

And price controls, untimed local calls and the social obligations that assist low income earners and people with disabilities?

There was also considerable angst about whether a fully privatised Telstra would maintain a presence in the bush.

The Government responded by imposing a licence condition on Telstra to prepare and implement a Local Presence Plan.

Throughout the privatisation process the Government consistently maintained that we did not need to own Telstra to regulate it.

In fact, we can better regulate the entire telco industry now if we don’t own Telstra and no longer have a conflict of interest.

But despite loud cries to the contrary we do not regulate for regulation’s sake.

We regulate to protect consumers and to ensure they have affordable access to essential telco services. It really is as simple as that.

Competition and consumer safeguards are the bedrock of our telecommunications policy and I make no apologies for that.

But regulation is not a set and forget exercise, particularly in an industry as innovative and dynamic as telecommunications.

Regulation

Australia’s regulatory regime is by no means anomalous.

Every other developed country in the world has telco specific competition laws because telecommunications is a networked business with multiple network connections from multiple providers.

Telecommunications infrastructure is not like electricity or gas where you have one product moving in one direction and over just one platform.

That said, to keep up with the rapid pace of technological change, the laws require flexibility and need to be tailored to telecommunications.

Timely regulatory outcomes are critical in telecommunications where the regulator can quickly set terms of access and respond to disputes.

Australia’s regulatory regime promotes the long-term interests of consumers.

It does this by encouraging competitive markets and investment in new infrastructure.

The substantial reduction in telecommunications prices and the increased choice of new services since the market was opened to full competition in 1997, demonstrates very clearly why it is so important that competition is preserved in Australia.

Where there is no competition there is no incentive to invest or innovate and prices remain inflated.

For example, if it wasn’t for the competitive pressure from Optus, it is not likely Telstra would have dropped its entry level broadband prices in 2005 from $59.95 to $29.95.

I have said on many occasions thatAustralia’s telco regulatory regime contains the same fundamental elements as most other countries.

It includes:
– access regulation
– rules to deal with anti-competitive conduct;
– price controls;
– and universal service obligations.

In many respects our regime has a lighter touch than other countries.

Telstra is permitted to retain a high degree of horizontal and vertical integration with ownership of a national fixed line network, three mobile phone networks, a directories arm and a Pay TV cable platform.

And unlike some jurisdictions, such as the UK, the entire telecommunications industry in Australia is required to make a proportionate contribution based on market share towards the cost of providing the Universal Service Obligation.

And Australia is by no means a lone wolf when it comes to applying an access regime to bottleneck infrastructure.

The ACCC must ensure a network owner is able to price at levels sufficient to recover costs.

In fact when setting access prices, the ACCC assumes new networks are being built – rather than just recovering the cost of the depreciated assets.

And despite public assertions to the contrary, the access regime applies to all network owners, not just Telstra.

Optus, Vodafone and Hutchison are all currently subject to regulation under the access regime.

Access providers can obtain certainty from the ACCC through the existing mechanisms in Part XIC of theTrade Practices Act.

These provisions allow the ACCC to provide a regulatory exemption if it concludes that this exemption would be in the long term interests of end users – the LTIE test.

These particular provisions were specifically introduced to allow the ACCC to make decisions before an investment is made; or before a service is regulated.

And it is not a set and forget exercise.

It is a little recognised fact that the regulatory regime has been far from static since 1997.

While established in 1997, key elements of the regime have been constantly reviewed, with subsequent refinement being made in 2001, 2002 and again in 2005.

Early next year we will have the first of a series of major independent reviews of telecommunications services. And again in 2009 another major review will occur.

As part of a regular, three yearly review, the Government will also need to look the level of subsidies paid as part of the USO by next year and it is likely that we will also consider the architecture to ensure that the USO is meeting its objectives in the most effective way.

But I want to make it very clear that I will not be winding back the obligations on industry or the rights of consumers.

I expect that review would commence later this year.

This is an opportunity to ensure that the USO provider is being appropriately recompensed for delivery of basic telecommunications services to Australians.

It is important to remember that ongoing regulatory adjustments can be made at any time where there is a demonstrated need.

For instance, at any time the Government can impose license conditions, issue Ministerial directions, refine or improve regulatory rules and amend legislation where and when such action is considered necessary.

We have being doing this regularly since 1997 and since the last major review in 2005, including:

• implementing an operational separation regime for Telstra;
• winding back regulatory red tape such unnecessary or obsolete or reporting requirements on industry – we are doing this again now; and
• implementing a targeted investment package –the $1.1 billion Connect Australia package; and
• investing $2 billion in the Communications Fund to pay for upgrades or rollouts of new technology in rural and regional Australia so that we have a future proofing element going forward.

And we will continue to monitor the industry and the regime and, where necessary, take action to ensure that we keep up with the dynamics of the telecommunications sector.

It equally important that the industry has a level of regulatory certainty to encourage investment in new networks and services in the knowledge that the Government is not about to pull the rug out from under them.

It is highly unlikely that Australia is going to go out on a limb and become the only major country in the OECD to simply abolish telco specific competition regulation as both Telstra and now the Labor Party are advocating.

Ensuring ongoing investment

However, I do agree with the proposition that Australia’s regulatory regime should not act as a barrier to investment.

I am of the view, as is the Government more broadly, that the regime is capable of facilitating a fair return on investment.

The Government has been careful to ensure a balance of maintaining a competitive market and encouraging sufficient reward for investment in new networks.

That is why we recently amended the laws to specifically require the ACCC to consider the actual costs of a new network investment and the commercial interests of the infrastructure owner, including:

• the investment risks faced
• and the need to obtain a fair return when setting access prices.

Two proposals for fibre to the node networks to reach the most populous parts of Australia’s five major capital cities have been touted in the last 12 months.

It is indeed welcome news that the larger telcos in Australia are willing to consider how best to rollout a next generation network that would benefit millions of consumers – even if it would be contained to a major metropolitan footprint.

But I ask you this – should it come at the cost of competition and removing the regulatory regime that has delivered real results for Australian consumers? I don’t think so.

I am interested in continuing to talk to both the G9 and Telstra about their fibre-to-the-node proposals.

Clearly we cannot countenance the same inefficiencies that accompanied the duplicated rollout of HFC cable in the 90s.

It is important if we are to be serious about these proposals that both parties can clearly articulate what incentives are being sought, particularly in terms of rate of return.

This is not the time for ambit claims.

Open access on what will undoubtedly be a new bottleneck infrastructure is vital – the issue really is ‘at what price’?

Would-be providers must publicly name their price so the matter can be progressed.

I know both parties have had or are having conversations with the ACCC about their proposals – I welcome that very much and encourage all parties to continue to work towards a successful outcome.

I will be following the discussions and developments of both proposals with great interest.

Broadband Essentials

Meanwhile 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.

The Broadband Connect incentive program, and its predecessor HiBIS, have been so successful with an unprecedented level of consumer interest that the Government has already spent close to half a billion dollars on broadband subsidies alone.

This funding has seen more than 1 million households and small businesses getting access to broadband for the first time.

And we also recognise that despite a total of $2.1 billion worth of Government investment spent and foreshadowed on telco infrastructure and services to date, some people are still missing out.

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.

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 yesterday with the Prime Minister.

To ensure universal access to broadband the Government has committed to an Australian Broadband Guarantee with a further $162.5 million in funding.

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

We seriously mean a universal broadband guarantee.

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

Previously this level of subsidy was 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 for industry to roll out high quality terrestrial networks to address broadband blackspots; 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 are the big winners, rural and regional Australians will also benefit by continuing to enjoy universal broadband access as we transition to the $600 million Broadband Connect infrastructure program.

The program guidelines for the Australian Broadband Guarantee will be released at the end of March and the program will be up and running by April.

There will be a fast-track registration process for both registered Broadband Connect and Metro Broadband Connect providers.

I know there will be a lot of interest in the room today about when we might see an outcome as part of the $600 million Broadband Connect infrastructure program.

As I’m sure you will appreciate, probity reasons prevent me from giving you a comprehensive overview of where we are at. What I can say is the assessment process is progressing well.

And I am looking forward to announcing the outcome of the $600 million Broadband Connect infrastructure funding round over the coming months which will significantly enhance the quality and speed of broadband services in this country.

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 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.

And I am very proud to have secured all of this funding on my watch.

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

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 – it is about the size of Tasmania.

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

Labor’s broadband plan has gone missing

It is interesting to note Senator Conroy’s speech yesterday. He was big on the rhetoric but very short on detail.

I’ve had only had a quick look at the speech in which he appeared to focus primarily on broadband and the need for investment in fibre and other next generation networks.

But not once did Senator Conroy discuss or outline in his speech Labor’s principle broadband policy – their $2.7 billion fibre-to-the-node plan.

I have spoken with dismay many a time about Labor’s pie in the sky proposal for a fibre network that would impossibly service 98 per cent of the Australian population.

But I’m not sure what’s happened to this policy. Has Labor dumped it?

I went to Labor Party website last night when I got back from Melbourne and clicked on the policy section and noticed that Labor’s fibre plan has been airbrushed – it’s completely gone.

We all knew it was a workable policy which came under considerable fire from the industry.

It certainly has no chance of success unless Telstra changes its mind about participating in consortia upon which it is based and I don’t see that happening any time soon.

Perhaps the most glaring problem with this plan was the fact that it was based on robbing the bush of the $2 billion Communications Fund.

This is all I’m going to say about my opponent’s policy vacuum but if on reflection Labor has now dumped this plan, it has been the best decision Senator Conroy has made in his two and half years as the shadow spokesperson.

Communications Fund

This Government is wholeheartedly committed to retaining our investment in the Communications Fund.

So much so that today I can announce the longer term investment arrangements for the $2 billion Communications Fund.

The Australian Office of Financial Management will act as the fund manager for the Communications Fund and the Minister for Finance and Administration – Senator Nick Minchin - and I have executed an Investment Authorisation to enable it to be invested in a low risk, fixed interest portfolio.

On 9 February 2007, the AOFM invited applications from interested parties to join the Investment Facility Dealing Panel for the Fund.

The Communications Fund was invested in term deposits with the Reserve Bank of Australia while the longer- term strategy was being developed.

Invested in late 2005, the balance of the fund at 31 December 2006 was $2.15 billion.

That means in around 12 months the Fund has already generated $150 million – a great outcome – and one that will only continue to grow.

From next year this income stream will start to be used to implement the Australian Government’s responses to recommendations from regular reviews of telecommunications services in regional, rural and remote Australia.

It is all part of the Government’s strategic, national approach to communications services that recognises the ever-changing nature of the telecommunications sector.

Conclusion

The Australian Broadband Guarantee is about making a broadband compact with the Australian population – that we will give you subsidised access to a broadband service now if you can’t get one.

And we will use the $600 million Broadband Connect infrastructure program to help deliver a next generation network to rural and regional Australia.

We have also invested for the future to ensure the Government can afford to make the necessary investments in infrastructure into the future.

Clearly, everyone in this room will play in the part in Australia’s evolving story of broadband.

Only by working together can we achieve good outcomes for the Australian population.

And we can all benefit.

Consumers will be able to access the services they need, at a price point they can afford.

And telecommunications companies benefit by feeding the online consumer’s appetite for ever increasing bandwidth.

So in conclusion, I must say that despite all the shouting I prefer not to look for scapegoats in meeting the broadband challenge in Australia – we must all contribute to the solution if we are to be successful.

The Government, for our part, is committed to competition because of the outcomes it delivers for consumers.

We are committed to consumer safeguards which deliver basic, vital telecommunications services to Australians, regardless of where they live.

And we are 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.