CommsDay Summit Melbourne

Langham Hotel, Melbourne
Wednesday, 14 October, 2009

The historic actions we are taking here in the Australian communications sector are gaining a high level of interest around the world.

Following discussions I have had in Europe over the past week, I think it is fair to say that our activities have captured the attention of the global communications community.

There is a strong view that investing in infrastructure and ensuring a sustainable competitive structure of the communications sector will underpin future our future economy.

As you know, the National Broadband Network is a major part of the Rudd Government’s economic stimulus and productivity agenda.

It will support 25,000 jobs in Australia for each year of the eight year build – peaking at 37,000.

Additionally, it will lay the foundations for future growth, productivity and innovation across all sectors of the economy in the years ahead.

As Australia’s first truly national wholesale-only communications network, it is in itself an historic piece of micro-economic reform in the telecommunications sector.

It will support a new competitive communications market that will unleash innovation and development.

It is designed to enable efficiency and productivity growth across all sectors of the economy.

The NBN will break down barriers and ensure improved economic and social opportunities.

The communications sector has a strong understanding that as a nation we require a quantum leap in infrastructure and competitive arrangements so that all Australians have high-speed broadband supporting future needs.

This has made clear in various consultations and, in particular, in the industry response to the historic reforms announced two weeks ago.

For years industry has been calling for fundamental and historic micro-economic reform in telecommunications.

The reforms we announced boldly address those calls and address today the inherent failures of the communications regime.

I note in recent days some have argued that it makes sense to delay the debate of this legislation.

They argue that no action is required and that Australia should be satisfied with current levels of competition and service.

They say that at the very least, the legislation should be put off until after NBN discussions are completed.

This commentary ignores the fact that the regulatory reforms we have announced are critical, irrespective of the NBN.

They are of vital importance as we seek to improve competition during the eight year rollout.

This commentary also ignores the fact that the existing regime has failed, over many years, to deliver the right competitive outcomes for Australian consumers and businesses.

It fails to consider that Australia is in the bottom half of OECD countries in terms of broadband take-up (that’s 16th out of 30 countries).

It discounts that Australians pay more for broadband than most OECD countries (we’re 20th out of 29 countries) and has some of the most expensive monthly subscription packages.

Everyday of delay is another day of higher prices, less choice and less service innovation for consumers and small businesses; including those in regional Australia.

The reforms we have announced deliver fundamental change to address these problems in Australia’s long-term national interest.

They will create a more competitive market structure in telecommunications and provide improved safeguards for consumers on basic service delivery.

They will align regulation in the telecoms sector much closer with the structural and access arrangements we have in other utility sectors, such as gas and electricity.

They finally correct the mistakes of the past when successive Governments failed to address what the ACCC has described as one of the most highly integrated telecommunications companies in the world.

Additionally, the reform package addresses flaws in the telecommunications competitive framework – including the Part XIC access regime and the Part XIB provisions in the Trade Practices Act.

At the moment the regime is prone to delay, gaming and uncertainty for all parties.

To put the inherent flaws of the telecoms regime into context, consider this statistic…

Since the existing regime was put in place in 1997, there have been just three access disputes in non-telco regulated sectors, including airports and energy.

Compare that to more than 150 access disputes in telco and anyone can start to fully comprehend the inherent flaws in the system

To those in the room today, this is old news.

I know many of you here have had first hand experience with the frustrations and legal costs of this regime.

Our changes are specifically designed to create a fairer and more efficient system, that will, in turn, drive better services and prices for consumers and businesses.

Combined with the NBN and other new consumer safeguards, they represent fundamental reforms to support improved competition and service innovation into the 21st century.

Those keen to hold back these vital and historic reforms must explain how more delay would benefit consumers and our small businesses.

After years of inaction, the Government has listened to consumers, businesses and the communications sector.

We are now acting to make these reforms for the good of the country.

The fact is, that after eleven and a half years of inactivity in government, Nick Minchin and the Liberal Party have a single policy platform – delay.

Delay to hide the fact they have no other position.

Delay to deny Australians the range of communications services and prices they deserve.

Nick Minchin and his colleagues, who once derided the Government for its interest in review and consultation, now stand for more process to cover up their own lack of vision.

There has been significant discussion about our plans for action in the four weeks since the legislation was tabled.

Somewhere in the order of 100 parties have now made submissions to the Senate Committee inquiry into our proposed reform bill.

Hearings were conducted yesterday and are continuing today.

This is an important process, which we welcome.

Much of the commentary has focused closely on the implications for Telstra, including its submission to the inquiry.

I note claims by some commentators that the Government’s legislative package is an attempt to destroy shareholder value.

As I have said, the purpose of the telecommunications regulatory regime is to deliver outcomes in the interests of all consumers and businesses.

I consistently argued as Shadow Minister that the existing regime is failing to meet its goals, and it needs fundamental reform.

Those who have followed things closely will recall that in opposition Labor voted against the existing operational separation regime for Telstra and argued that it was not strong enough.

Even Nick Minchin for years argued that one of the key reasons to sell Telstra was that there was an inherent conflict of interest between owning a vertically-integrated Telstra and regulating the market.

One could argue that the direct implication of this view is that the previous Government failed to get the regulatory settings right.

With Telstra now sold we have the opportunity to design regulation in the interests of all Australian consumers and businesses.

Since coming to Government we have engaged with industry and consumer groups to shape the detail of how to address this challenge.

We have conducted two separate and extensive public consultation processes spanning almost 15 months in total.

We have received and carefully considered, over many months, almost 200 submissions from key stakeholders – many of whom are in this room.

The overwhelming message from almost every submission was that the existing regime is broken and needs fundamental reform, from the ground up.

We are now delivering that reform.

The Government’s job is to act in the interests of all Australian consumers and businesses.

Telstra made it very clear in the T3 prospectus – as was entirely appropriate – that the forward looking regulatory settings could change.

In fact, the previous Government itself had scheduled a review of the existing regulatory settings in telecommunications, for 2009.

They had scheduled a legislated review of the existing operational separation framework before 1 July this year.

They had also commenced a FTTN competitive bids process, which asked parties to put forward changes to the existing regulatory regime for consideration by an Expert Panel.

Despite these disclosures, and our extensive consultations on the regulatory reforms, some large institutional investors have expressed surprise at our recent announcements.

It is difficult to understand the analysis of some of these commentators.

Under the previous Telstra management, the Telstra share price fell almost 40 per cent from when Sol Trujillo was appointed to his departure announcement [$5.10 to $3.15].

Did we hear anything from these large institutional investors during that period?

Where was their public campaign questioning the strategy of the previous Telstra management at that time?

Now that Telstra has chosen to take a more constructive approach to engaging with Government, some large institutional investors are calling for continuation of a strategy that so effectively and demonstrably destroyed shareholder value.

The day before the Government announced its regulatory reform bill, the Telstra share price was $3.25.

Two days later, the share price had recovered to $3.24.

In recent days, it would appear, pessimistic analysis of these large institutional investors may even have generated some new downward pressure on the share price.

These institutional investors seem to ignore the fact that that many analysts in the market see the positive opportunities that are open to Telstra through a combination of the NBN rollout and the regulatory package.

I read with interest the other day, Bloomberg analysis found that found that out of 17 brokers who cover Telstra, 11 recommended a ‘buy’ and only three recommended investors a ‘sell’.

This suggests that many in the market also see a ‘win-win’ outcome is possible.

As I have said before, the Government strongly believes it is possible to achieve a win-win outcome in the interests of Telstra, its shareholders and, more broadly, all Australians.

It is interesting to reflect on the views of the newest Liberal candidate - Paul Fletcher – in his recent book – ‘Wired Brown Land’ – where he observed:

“What is good for Australia is a more efficient, competitive and fairly priced broadband market.
That may or may not damage Telstra’s share price – in fact there are good arguments that it will not – but in any event Telstra’s share price has no value as a guide to good public policy.”
[page, 194]

Importantly, the legislation provides Telstra with the flexibility to choose its future path.

It is the Government’s clear desire for Telstra to structurally separate on a voluntary and cooperative basis, however that outcome is not mandated.

You will be aware that we are engaged in very positive and constructive talks with the Telstra team.

David Thodey and Catherine Livingstone have given very strong indications of their intent to continue with that positive interaction, and we share that view.

The Government will carefully consider all the submissions made to the Senate Committee Inquiry and the report that results.

However, we remain absolutely committed to debating and passing this legislation before the end of this year.

As I have said, there is no justification for delaying these fundamental reforms.

We have consulted broadly.

The regime has failed.

We are acting now to reform communications in the interests of all Australians.

Of course, while we have been developing our market reforms, the Government and NBN Co have been making rapid progress on the development and deployment of the National Broadband Network.

As I have said, along with the regulatory reforms we have put forward, this infrastructure will be the vital platform for Australia’s digital future.

It will be the enabling foundation for a whole range of services – including future health and education applications.

I know many of you here have had the opportunity to meet with Mike Quigley at industry events in recent weeks and would have gained a sense of expertise and passion for this project.

I understand that many people want to engage with NBN Co and Government, and to assist in the planning and rollout stage of the NBN.

We welcome this interest, and I can assure you that Mike has a singular focus to drive this project forward and as he does that, he will be keeping a very close relationship with the rest of the industry and other key stakeholders.

Already, the initial physical components of this network are taking shape.

Last week, a new tender was announced for Corning to provide fibre cable supporting early NBN backbone rollouts in Tasmania.

Trench digging is already underway on the Cambridge to Midway Point section of the backbone network north of Hobart and we expect to have services available to the first three towns in Tasmania by July next year.

I am pleased to note there has already been a strong response by industry to invest in Tasmania since our announcement in April.

Investments such as Macquarie Telecom’s new data centre and Internode’s new DSLAM deployments demonstrate a positive and practical industry acknowledgment of our activities.

As Internode CEO Patrick Tapper has said, the Government’s decision to rollout fibre first in Tasmania, and the imminent availability of the Basslink cable make Tasmania a good place to expand.

Macquarie Telecom CEO David Tudehope said the Government’s activities – both infrastructure and regulatory – enabled his company to commit to new investment in Tasmania.

Meanwhile, I’m sure you are aware that NBN Co has been rapidly building its executive and management team.

Recent announcements have included appointments for CTO, CFO and executives in charge of:

• Network Operations,
• Program Delivery,
• Corporate Services,
• Human Resources,
• Commercial Strategy, and
• Industry Engagement.

There are now more than 40 permanent and contract staff on board and I expect that NBN Co will continue to quickly grow and to solidify its foundations as implementation planning continues.

As Mike said recently, there is a whole range of important work taking place in tandem to ensure NBN Co is placed to commence mainland deployment as soon as possible after the Implementation Study is complete.

As those of you who attended the recent Communications Alliance briefings and have met Mike in person will know, this work is all being conducted with certain key objectives in mind.

The NBN is, of course, geared to enable competition, differentiation and innovation by service providers.

It will be designed to offer open access and equivalence, facilitating any-to-any connectivity and promoting end-user choice for services and providers.

The NBN will deliver appropriate levels of reliability, resilience and security, while allowing the simultaneous and predictable delivery of multiple applications.

Mike has set an extremely aggressive timetable to largely complete key tasks for NBN Co in the next six months.

This includes building the organisation and engaging construction partners and workforce as the build ramps up.

It includes the important work of designing a draft Reference Offer for testing and refining with customers and the ACCC.

Mike has already raised the potential of providing a layer 2 bitstream type service, allowing the functionality to carry a wide range of traffic types and to support competition and innovation at higher levels.

This includes aligning the network with global standards to ensure competitive vendor pricing and minimise the risk of stranded technology.

NBN Co will also be evaluating and selecting technologies to underpin the fibre, wireless and satellite roll outs.

It will be designing high-level network architecture, negotiating with potential partners, and establishing an operational program management office.

Separate to this, Mike expects to have made solid progress in the next six months reaching an initial understanding with the ACCC.

He expects to be well advanced in pricing architecture discussions with customers (such as those of you in the room today), conducting supply tender processes and obtaining a carrier licence.

This is some work program, and of course, concurrent with this, NBN Co is working closely with the Lead Advisors to develop the Implementation Study, due early next year.

As I have said, and I know Mike has made clear, NBN Co intends to keep a very close interaction with industry as it continues to develop its plans and services.

You will be aware that Communications Alliance is playing a key role in these discussions and I would urge the industry as a whole to embrace this forum as a way to contribute positively to the NBN process.

In addition, I understand that ATUG is currently conducting a series of briefings on the NBN and associated reforms, and I encourage anyone with any interest in our digital future to take part in these events.

This is an historic time for Australia as we embark on what will be the country’s largest ever infrastructure rollout.

The NBN and the reforms we have introduced to parliament are vital enablers for our 21st century economy and to ensure all Australians benefit from the digital transformation taking place across the world.

These measures are fundamental platforms to release the productivity and efficiency gains on offer in the digital economy.

They directly address the structural dysfunction of the communications sector, for the benefit of all Australians.

They respond to years of frustration that competition and innovation is being held back.

The Rudd Government has made clear its intent to address those concerns with action.

The time for action is now.

Thank you.