Slide1: National Telecommunications Summit - Sydney 30th May, 2005 Rosemary Sinclair Managing Director Australian Telecommunications Users Group


Benchmarking: Benchmarking Australia against the rest of the world: G7 European Union OECD Japan/Korea Technologies and services: economy, growth and productivity gains mobile prices broadband


Growth Competitiveness: Growth Competitiveness Finland (1) United States (2) Sweden (3) Taiwan (5) Denmark (4) Norway (9) Singapore (6) Switzerland (7) Japan (11) Iceland (8) United Kingdom (15) Netherlands (12) Germany (13) Australia (10) Canada (16) United Arab Emirates (—) Austria (17) New Zealand (14) Source: World Economic Forum - Davos


Network Readiness: Network Readiness Singapore Iceland Finland Denmark United States Sweden Hong Kong Japan Switzerland Canada Australia United Kingdom Norway Germany Taiwan Netherlands Luxembourg Israel Austria France New Zealand Ireland Source: World Economic Forum - Davos


e-Government readiness: e-Government readiness United States 0.91 Denmark 0.90 United Kingdom 0.89 Sweden 0.87 Republic of Korea 0.86 Australia 0.84 Canada 0.84 Singapore 0.83 Finland 0.82 Norway 0.82 Netherlands 0.80 Germany 0.79 New Zealand 0.78 Iceland 0.77 Switzerland 0.75 Belgium 0.75 Austria 0.75 Japan 0.73 Ireland 0.71 Estonia 0.70 Source: UNPAN


EIU e-Readiness index: EIU e-Readiness index Denmark (1) USA (6) Sweden (3) Switzerland (10) UK (2) (tie) Hong Kong (9) (tie) Finland (5) Netherlands (8) Norway (4) Australia (12) Singapore (7) (tie) Canada (11) (tie) Germany (13) Austria (12) Ireland (16) New Zealand (19) Belgium (17) South Korea (14) France (18) Source: EIU


Costs of using Telecoms: Costs of using Telecoms leased lines business basket residential basket mobile basket Australia is either close to average of the OECD 30 or a little worse.


Leased Line charges (2Mbps): Leased Line charges (2Mbps)


Basket of Business charges: Basket of Business charges


Basket of Residential charges: Basket of Residential charges


Basket of Mobile charges: Basket of Mobile charges


Network development: Network development Not a leader, tracking close to OECD averages Australia looks more European than Asian Fixed telephone networks: ITU world rankings 1990 18th 2000 28th persistent dominance by Telstra Mobile telephone networks: ITU world ranking 1999 – 24th 2000 – 29th modest competitive dynamics driving the market far from rapid growth Poor performance on cable TV


Mobile penetration: Mobile penetration


Cable Television: Cable Television


Broadband in the OECD: Broadband in the OECD


Where is Australia?: Where is Australia? OECD (30 countries) June 2001 – 12th June 2002 – 18th June 2003 – 20th June 2004 – 21st World Rankings: 20 OECD members plus Hong Kong, Taiwan, Singapore & Estonia, etc.


Broadband and GDP: Broadband and GDP ◄You are here


100 kbit/s as % of monthly income: 100 kbit/s as % of monthly income Source: International Telecommunication Union ▼You are here


France: France A surprisingly competitive market Often includes flat rate charge for calls to fixed numbers in France (not mobile or premium) Cegetel € 14.90 for 20 Mbits/s plus € 10 for calls Free.fr €29.99 for 20 Mbits/s down, 1 Mbits/s upstream 100 TV channels + telephone calls France Telecom wanadoo.fr €29.90 for 8 Mbits/s (after 6 months €39.90) Telecom Italia Alice in France €29.95 for 8 Mbit/s unlimited download including calls in Italy €39.95 for 4 Mbit/s AU$ 1 = €0.60, so €30 = AU$ 50


Hong Kong, SAR: Hong Kong, SAR very densely populated competition through access to the wiring cabinets of apartment buildings highly competitive market HKBN launched residential Gigabit Ethernet in April 2005: 1Gbit/s for HK$ 1,680 100 Mbits/s for HK$ 268 10 Mbits/s for HK$ 148 also pressing forward on wireless technologies AU$ 1 = HK$ 6.08


Fibre To The Home (FTTH): Fibre To The Home (FTTH) already some FTTH deployments: significant in Japan and USA patchy in Sweden and Italy sometimes just near to the home, then copper or WiMAX do the access and unbundling regulations for copper networks work for fibre? or, do we need something different to ensure investment and competition? can we avoid a decade of lobbying and litigation? which countries will achieve mass markets for: services equipment


General telecoms reviews: General telecoms reviews Australia DCITA Ireland Commission for Communications Regulation New Zealand Ministry of Economic Development United Kingdom: OFCOM review of the review by Parliamentary Select Committee Seems to be a popular activity in Anglophone countries, not elsewhere


Canada: Canada Best comparison for Australia: a post-imperial, former dominion large spaces, small population, few cities but diffusion from an important near neighbour Long history of success in broadband Competition in urban areas Aggregated purchasing in rural areas Satellite and FWA in “outback” SSI Skyline – Northwest Territories 1.5/0.25 Mbps, 5GB/month for CA$59.95+GST 90 per cent of homes in Yellowknife with 20 miles radius using 2.5GHz band non-directional AU$ 1 = CA$ 0.975


Canada versus Australia 2004: Canada versus Australia 2004 Telus ADSL basic offer 1.5/0.5 Mbps 6 GB download CA$ 24.95/month office offer 2.5/0.6 Mbps 15 GB download CA$ 79.95/month Telstra Bigpond basic offer 0.256/0.06 Mbps 0.2 GB download AU$ 29.95/month highest offer 1.5/0.256 Mbps 20 GB download AU$ 149.95/month AU$ 1 = CA$ 1.045 6x and 9x 30x 0.8x


Canada versus Australia 2005: Canada versus Australia 2005 Telus ADSL Basic offer 1.5 Mbps CA$ 29.95 Office offer 4.0/1.0M Mbps 30GB CA$ 159.95 Telstra Bigpond Basic offer 256k/64k 200 MB then 0.15 per MB AU$ 29.95 Highest offer: 1.5/0.256 Mbps “unlimited”, but penalty after 10 GB AUS$ 99.95 AU$ 1 = CA$ 1.045


United Kingdom users: United Kingdom users UK users continue to report: lack of availability poor quality absence of SLAs unresponsiveness and lack of care reality is not at all like the hype many users still waiting for broadband SMEs confused by broadband, not aware of benefits after twenty years of liberalisation, rural areas want government aid, not competition Don’t follow us. We’re lost.


Telstra (2): Telstra (2) long history of dominance through vertical integration record of anti-competitive behaviour: few surviving competitors, especially in the bush this is a strong disincentive to market entry globally unique in having: xDSL and cable CDMA and GSM/UMTS satellite primary factor in the poor performance of Australia when compared with other countries


Telstra (3): Telstra (3) finally, the privatisation but the prospect of its enduring dominance market structures: uncompetitive unattractive for market entry playing tough politico-regulatory games needs only a modest level of competition to pacify regulators


OECD Rural broadband: OECD Rural broadband the market is: generating innovative services responding to increasing demand in those areas prices sometimes lower and speeds higher than in urban areas competition is emerging in rural areas governments should take this into account before embarking on programmes to subsidise infrastructure multiple answers, multiple technologies, multiple levels of economies of scale


Serving the Outback: Serving the Outback requires competitive backhaul and IP interconnections many new technologies and business models aggregation of demand can boost market entry leading countries are combining satellite and Fixed Wireless Access (FWA): Sioux Valley Wireless (South Dakota) GCI Broadband Services (Alaska) Xtratyme (Minnesota) Prairie Inet (Iowa & Illinois)


Where are Australian FWAs?: Where are Australian FWAs? is the spectrum available? is there sufficient entrepreneurial spirit? is there a backhaul bottleneck? is the incumbent behaving anti-competitively? are there pilot projects?


EU Regional policy: EU Regional policy To promote the development and structural adjustment of regions Geographical targeting Technological neutrality Open to all operators and service providers: closed infrastructure is subject to state aid rules (Article 87 of EC Treaty) unless a “Service of General Economic Interest” Open calls for tenders Cost accounting rules for transparency Evaluation and monitoring Approval of some initiatives, e.g., GSM infrastructure for zones blanches broadband for rural Spain and for Limousin (France)


Electricity companies: Electricity companies long-term investors large customer bases strong billing platforms skilled workforces Fibre To The Home (FTTH) Tokyo Electric Power Company (TEPCO) 100Mbps FTTH ¥6,480 (AU$ 77) per month Powerline Communications (PLC) supporting decisions by EC and FCC interference problems Endesa in Spain


Best practice for Broadband: Best practice for Broadband Infrastructure competition: separate ownership of cable TV from xDSL open up spectrum for WLAN and FWA get utility companies into the market allow ISPs to construct infrastructure Service competition: make local loop unbundling work provide regulated wholesale products bitstream access Wholesale Line Rental (WLR) Open access for content: especially “must have” content (e.g., AFL) Benchmark against the best and the most appropriate, not the weak and the convenient


Conclusions: Conclusions Market forces could deliver a lot more needs a strong policy direction: Setting tough goals Pro-competition Market opening Built on global experiences


Issues: Issues Ensuring a competitive outcome despite the privatisation of Telstra Maximising market entry Maximising market delivery of services Improving the ranking of Australia: nationally regionally


Slide37: Ofcom’s Strategic Review of Telecommunications Phase 2 analyst briefing Clive Ansell & Anne Heal 25th November 2004


Phase 1 questions - Ofcom’s conclusions: Phase 1 questions - Ofcom’s conclusions 1. Attributes of a well-functioning market ? Innovation and choice are now more important - as are consumer information and the ability to switch easily 2. Effective and sustainable competition? Achievable in core and backbone networks, but more difficult in local access and other bottlenecks 3. Scope for reduction in regulation? Yes, as focus on bottlenecks to guarantee genuine equality of access creates scope for withdrawal from regulation elsewhere 4. Incentives for investment? Ofcom proposals should encourage investment in scale and reach by BT’s competitors and allow BT appropriate rates of return for 21CN etc 5. BT separation or equivalence still relevant questions? Yes, but separation would be difficult; equality of access is preferred


Phase 2 - Summary of Ofcom’s message: Phase 2 - Summary of Ofcom’s message Telecoms is an important economic sector in its own right, with a growing impact on our lives The industry has delivered for business and residential customers over the last 20 years But the fixed sector is fragmented and dominated by BT And a “complex regulatory mesh” has led to micro-management of BT and competition based on regulatory arbitrage “Faced with the technology shift to digital, it is becoming clear that the current market and regulatory structure is unsustainable. It is that challenge that our Phase 2 proposals seek to address.” (Ofcom, November 2004)


New regulatory principles: New regulatory principles Promote competition at the deepest levels of infrastructure where it will be effective and sustainable Focus regulation to deliver equality of access beyond those levels As soon as competitive conditions allow, withdraw from regulation at other levels Promote a favourable climate for efficient and timely investment and stimulate innovation Accommodate varying regulatory solutions for different products and, where appropriate, different geographies Create scope for market entry that could, over time, remove economic bottlenecks Light touch regulation in the wider value chain


Ofcom’s three options: Ofcom’s three options Option 1: across-the-board deregulation and reliance solely on competition law to police the market Option 2: market investigation reference under the Enterprise Act Option 3: focus regulation on enduring bottlenecks, and require BT to deliver ‘real equality of access’ to its networks Ofcom prefer Option 3 but, if this does not work, will reconsider Option 2


The driver behind “equality of access”: The driver behind “equality of access” Negative perceptions dating back to the time of privatisation around wholesale….. product quality product development transactional processes transparency


Two dimensions to “equality of access”: Two dimensions to “equality of access” Equivalence: BT’s wholesale customers to have access to: the same or a similar set of regulated wholesale products as BT’s own retail activities at the same prices as BT’s own retail activities using the same or similar transactional processes as BT’s own retail activities Behaviour: substantial internal changes to BT including: changes to organisation and management structures removal of inappropriate incentives better control over information flows transparency of internal policies and processes Ofcom expect BT to provide prompt and clear proposals for delivering equality of access


Five-stage withdrawal from voice regulation: Five-stage withdrawal from voice regulation Stage 1 (ongoing): BT to deliver fit-for-purpose WLR Stage 2 (2005): review the withdrawal of fixed retail voice regulation Stage 3 (2005): review the withdrawal of regulation in certain wholesale markets, e.g. wholesale IDD Stage 4 (2008-2010): review the evolution of remaining fixed wholesale voice markets in light of 21CN implementation Stage 5 (ongoing monitoring, review by 2008): assess whether a single inter-platform voice market including fixed and mobile should be defined. This could lead to complete removal of SMP voice regulation


The regulatory “contract” and BT’s returns: The regulatory “contract” and BT’s returns Regulated returns must give BT the right incentives Core considerations are: relative importance of incentives for BT to invest scope for investment by competing network providers need to protect consumers from excessive charging 21CN - the more this facilitates competition, the greater the risk to BT and the higher the permitted return should be Migration to 21CN/NGNs - next Network Charge Control must consider incentives and regulatory certainty Current generation access networks - little new investment in prospect so consumer protection is the priority - hence the ‘cost of copper’ study


Next generation access networks: Next generation access networks Ofcom raise several possibilities that could support the deployment of local access fibre and wireless technologies in a competitive environment: equality of access - i.e. mandated sharing of BT duct - with standard rate of return equality of access with risk-adjusted rate of return time-limited forbearance time-limited forbearance plus open access to BT’s ducts Ofcom also float the idea of a separate new entity which would provide next generation local access: this could involve divestment of dark fibre and duct assets by BT None of these is singled out as Ofcom’s preference


Consumer protection options: Consumer protection options Better consumer information leave provision of information to the market Ofcom to provide comparable pricing information promote provision of basic information by intermediaries encourage a responsible approach to comparisons in advertising restrict the range of tariff packages and structures in the market bill formats that are easier to understand and help comparison Simpler processes for switching supplier regulating retail switching costs positively encouraging switching encouraging migration between tariff plans encouraging providers to reduce the complexity of switching processes


USO: USO Importance of the USO as a safety net for vulnerable consumers is reaffirmed There are no proposals for change now But the USO may need to evolve in the future: new funding mechanisms new ways of providing the USO extension to cover broadband


BT’s assessment of the Phase 2 document: BT’s assessment of the Phase 2 document The document reflects BT’s key Phase 1 messages that: regulatory micro-management is part of the problem regulation should be focused on bottlenecks infrastructure competition and investment must be encouraged Ofcom recognise the radical transformation underway and highlight key transitional issues, including: evolution of a wider communications value chain migration to Next Generation Networks implications for regulated products, potentially with a geographic dimension greater importance of innovation to consumers


BT’s assessment of the Phase 2 document: BT’s assessment of the Phase 2 document Many detailed proposals are positive, for example the clear path for deregulation of voice services - although we believe some of the timescales are conservative possibility of an early review of business services Some are very complex to implement equivalence and behavioural/organisational change Some options would be problematic in principle and practice potential requirements for duct sharing possibility of intrusive consumer regulation


In summary...: In summary... We welcome Ofcom’s call for a new settlement where regulation is tightly focused on bottlenecks, with deregulation elsewhere This would be a real prize for the industry, consumers and UK competitiveness We will engage constructively with Ofcom and the industry during the final phase of the Strategic Review, looking forward to achieving regulatory certainty that will encourage investment and innovation


Slide52: BT unveils proposals to stimulate the UK telecoms industry “Formula for world class services and value for everyone” Analyst briefing 8 February 2005


Key BT proposals: Key BT proposals BT to set up an Access Services division to provide transparent and equal access to BT’s local network BT to cut a range of wholesale broadband prices and introduce faster services BT reaffirms its commitment to LLU and proposes a further price cut (subject to the completion of other consultations) BT to increase the commercial attractiveness of WLR BT to offer fair access to 21CN


BT’s principles for a new regulatory strategy:: BT’s principles for a new regulatory strategy: Increase transparency, focus regulation on bottlenecks, reduce regulation elsewhere Encourage infrastructure-based competition Ensure successful investment in next generation networks is rewarded Provide companies with the confidence to innovate Ensure regulation benefits the consumer Enable BT to compete fairly and on a level playing field Commit to creating a climate of confidence for infrastructure competition, investment and innovation


Access Services Division: Access Services Division Responsible for assets and services relating to the local loop To demonstrate equality of access for all parties This division to be “fenced off” and subject to high levels of regulation and governance whilst remaining inside BT Revenues of c.£3bn, assets of c.£8bn and c.26k staff Aligned incentives to deliver equality of access


Equality of Access Board: Equality of Access Board To oversee the delivery of equal access Oversight and reporting, including KPIs Two independent members, appointed in consultation with Ofcom (potentially one from Ofcom)


Wholesale Access Price Cuts: Wholesale Access Price Cuts Approx 8% cut in prices for IPStream customers in areas where there is high demand, high take-up and lower costs Cut in Datastream prices to ensure continued compliance with the regulatory margin rule Price cuts for Full LLU customers of a similar percentage to IPStream (subject to the conclusion of other Ofcom consultations and normal regulatory processes) Price cuts to ensure service providers can sell competitive services in all parts of the UK through a variety of routes to market BT committed to ensuring LLU is a success


Faster broadband services announced February 3, 2005: Faster broadband services announced February 3, 2005 Higher broadband speeds in order to meet increasing demand for more bandwidth hungry applications such as video Trials for speeds of up to 8Mbits begin in April Higher speed services expected nationally in the Autumn Trials of ADSL 2+ technology to test even higher speed services – up to 18Mbit/s


Wholesale Line Rental: Wholesale Line Rental BT to increase the margins that WLR operators will have between what they pay for line rental and BT Retail’s market price to customers (beyond that originally agreed with Oftel) BT to continue to develop the systems and processes around WLR to support expected demand


Rapid growth in WLR: Rapid growth in WLR


Ofcom needs to play its part: Ofcom needs to play its part Focus regulation on BT’s local loop through its Access Service Division Roll back other regulation on a progressive and rapid basis to simplify the complex mesh of regulation built up over the last twenty years Ensure successful investment in next generation networks by all is properly rewarded Recognise BT’s investment in 21CN depends on BT receiving assurances it can generate appropriate economic returns


Slide62: Telecommunications Competition Regulation Issues Paper - April 2005 “Government is considering options for limited reform”


Slide63: “Go Easy on Telstra” Senator Minchin Australian Financial Review, May 20 2005 http://www.finance.gov.au/scripts/Media.asp?Table=MFA&Id=589


Slide64: “The Nationals' priority in telecommunications is to make sure that regional Australia has the services it needs now -- and in the future -- regardless of who holds Telstra shares” John Anderson, Deputy Prime Minister BUILDING AND CONNECTING AUSTRALIA NATIONAL PRESS CLUB, 25 MAY 2005 www.ministers.dotars.gov.au/ja/speeches/2005/AS10_2005.htm


Policy work in hand: Policy work in hand Full implementation of Estens - REGIONAL COMMUNICATIONS Consideration of the adequacy of CONSUMER PROTECTION measures - USO, service quality Consideration of PRICE CONTROLS report - extension will allow line rentals to increase YET AGAIN Policy and regulatory settings for next generation networks - JAM TOMORROW Telecommunications Competition Regulation Review - “options for limited reform” Scoping study into the further sale of Telstra


Competition regime : Competition regime Access - XIC Timeliness Access disputes Undertakings abuse - Mobile termination Effectiveness - Telecommunications Adjudicator Backhaul - WISPs Anti-competitive conduct - XIB Broadband decision - about conduct not access prices Regional/WISP experience


Structural Issues : Structural Issues The Government has ruled out forced structural separation of Telstra. Recent suggestions have been for “operational” separation. Suggestion that OS be “confined to future new networks - MISSES THE POINT OS IS ABOUT DEALING WITH EXISTING ENDURING BOTTLENECKS


Accounting Separation: Accounting Separation Will NEVER BE effective DOESN’T DEAL WITH REAL INFORMATION Notional allocation of costs, revenues and assets IT IS NOT DIRECTED TO CHANGING INCENTIVES Does not require any change in the nature of commercial transactions between Telstra’s various business units, internally or externally Changes to BEHAVIOUR AND GOVERNANCE are key to the UK proposals


ATUG Concerns: ATUG Concerns Management of market power post T3; Consumer protection - buying power, information, regulation Where markets fail to deliver what is the role for government Availability of capital for investment post T3


Thank You: Thank You Rosemary Sinclair PO Box 1500, North Sydney, NSW, 2060 Email: rosemary.sinclair@atug.org.au Skype: rosemary.sinclair