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Monday, 18 March 2013
Page: 2403

Mr FLETCHER (Bradfield) (19:07): I am pleased to speak on the Broadcasting Legislation Amendment (Digital Dividend) Bill 2013. In the time available to me today I want to make the point that the allocation of the spectrum which is the subject of this bill arising from the digital dividend is of the first importance. The second point I want to make is that the measures contained in this bill make sense as far as they go. But I thirdly want to argue that the bill does not go far enough towards managing the digital dividend process in a way that would achieve the best outcome for Australians.

It is uncontentious that the digital dividend process is of the first importance. The digital dividend spectrum is enormously important for the delivery of mobile communications services. In particular this spectrum is expected to be used by mobile phone operators to deliver the next generation of wireless broadband services, the so-called fourth-generation or LTE, long-term evolution, services. Already millions of Australians have 3G data services on their mobile handsets, offering download speeds which are typically two to three megabits per second. 4G services are going to be much faster with download speeds typically of between five and 10 megabits per second, and theoretically the ability to go a lot higher, although, as is always the case with any wireless network, it is dependent on the number of other devices also accessing the same base station.

It is clear that the amount of data being delivered over mobile networks is exploding. According to the industry regulator, ACMA, there are estimates that data demand will be 30 times 2007 levels by 2015 and 500 times by 2020. So there is an absolute explosion in the quantity of data being sent back and forth over mobile phone networks and that is expected to continue at rates which are almost incomprehensible. Accordingly the allocation of new spectrum to support these services is absolutely critical for both economic and social reasons. Both Telstra and Optus have already launched initial 4G services on their existing spectrum but the mobile carriers need more spectrum for the enormous volumes which are expected as services continue to grow. This means that it is critical to get the policy settings right for the auction of spectrum which is forthcoming, and anything which blocks this spectrum being available as soon as possible is a significant problem. Against that backdrop, the measure contained in this bill is one which makes sense, as far as it goes—and that is the point to which I now wish to turn.

The essential purpose of this bill is to remove a potential technical impediment to some of the spectrum being used as quickly as is conveniently possible. The root cause of the problem is that the spectrum which is shortly to be auctioned falls into what is known as the broadcasting services band—that is to say, the block of spectrum that was set aside many years ago for use for television broadcasting, and that block of spectrum has been set aside to be regulated specifically under the Broadcasting Services Act.

This block of spectrum was formerly used only for analogue television broadcasting. Following regulatory changes some 12 or 13 years ago, the introduction of digital television has meant that other parts of that same block of spectrum are now also used for digital. Digital broadcasting of course is much more efficient in its use of spectrum and, amongst other things, you do not need the same kinds of guard bands that you need with spectrum for analogue broadcasting. Accordingly, you can pack the services in together more efficiently across the spectrum.

In 2015 the analog broadcasting services around the nation are due to be switched off. Of course, in some areas the switch-off has already occurred, but by 2015 it will have occurred around Australia, including in the major metropolitan areas. Once we get to that point, then we can have what is known, attractively, as 'the restack'. This is where all of the spectrum which is presently used for television broadcasting is crunched down to one end of the existing spectrum block, taking advantage of the fact, as I previously mentioned, that when you are broadcasting only in digital you can be much more efficient in your use of spectrum. Once that restack occurs, that will free up that significant block of spectrum which is going to be reallocated through an auction process and is expected, as I have indicated, to be used for 4G mobile data services.

The complexity here is that the auction is going to occur a little later this year, but that restack process will not be completed until sometime later. The specific consequence of that is that, until the restack occurs, all of the spectrum in the relevant band continues to be treated, as a matter of law, as falling within that broadcasting services band, and is therefore subject to all of the relevant provisions in the Broadcasting Services Act, including the provisions dealing with something called datacasting.

Datacasting is a concept which emerged in the late nineties. It was intended to deal with the prospect of data services being delivered within the broadcasting services band. Unfortunately, datacasting has never really taken off as we had hoped at the time it would.

When I say 'we', I speak as a former adviser to the then communications minister, Senator Richard Alston. May I note in passing what a class act he was—something that I am reminded of every day when I look at the dismal performance of the current incumbent in the office of minister for communications.

Datacasting was not intended to be a two-way activity; it was intended to be a one-way use of the broadcasting services band, with the return path, if any, to be carried over a different medium such as over the copper wires. Nevertheless, there is a good legal argument that the existing datacasting provisions would, inadvertently, if their application were not modified, apply to the new activities of the mobile phone companies and their customers should data be transmitted within the spectrum range which is shortly to be auctioned. And the practical effect of that would be that, if this act were not to be amended, spectrum which is purchased this year following the auction could not be used until 2015 for fear that those using it would be in breach of the datacasting provisions of the act, and that of course would be an undesirable outcome. It would be unfortunate indeed if the most rapid possible introduction of the new 4G services was to be delayed as a consequence of the essentially unintended quirk in the drafting that the existing datacasting provisions would capture the new activities of the mobile phone companies as they commence the provision of 4G services over this spectrum.

Accordingly, this bill would amend the Broadcasting Services Act and the Radiocommunications Act to allow telecommunications services possible access to the spectrum known as the digital dividend. This is done by introducing the concept of designated datacasting services, and this drafting technique, we are told by the government, will facilitate the commencement of telecommunications and broadband services in the digital dividend spectrum before it is removed from the broadcasting services band. As far as it goes, that is clearly a sensible policy measure because, if the amendments contained in this bill were not to be made, the datacasting provisions could potentially block the spectrum being used before 2015. This bill, should it be passed into law, would clear that blockage. That is a sensible thing to do and, so far as it goes, we on this side of the House have no objection to it.

The third point I want to come to is that, while this is a sensible measure, it does not go enough towards managing the digital dividend process to achieve the best outcomes for Australians. We have seen a series of very grave errors made in the public policy process which has been carried out by this government to give effect to the reallocation of the digital dividend spectrum. For example, the process of setting an unprecedentedly high reserve price for the spectrum auction of $1.36 per megahertz per head of population is likely to have very adverse effects as to the development of a competitive market in these 4G services. We can see that the approach that the government is taking is well out of line with the approach being taken by governments in other countries. According to research by Goldman Sachs, the average price being charged across eight countries was 80c per megahertz per head. That is a lot less than $1.36 per megahertz per head of population. I might add that that 80c was arrived at through an auction process rather than being set as the reserve price, rather than being set as the floor price. So the government is going into this process setting an extremely high price which may very well discourage significant players from bidding.

When you look at some other reference points, it appears to be an unjustifiably high number. It implies total proceeds from the auction of nearly $2.8 billion. The highest amount previously raised in an auction in Australia was a bit over $1.3 billion when the 1.8 gigahertz spectrum was auctioned in the year 2000, albeit for about two-thirds as much spectrum. It is also materially higher than the amount that was raised in the recent British spectrum auction, where the final selling price was 23c per megahertz per population, or about one-sixth of the price the government seems to be expecting here.

It is hard to avoid the conclusion that the Rudd-Gillard government's desperate search for revenue has led to a short-term decision to set a very high reserve price, with the likely consequence that long-term policy outcomes in the mobile data market will be very, very adversely affected. This is a terrible piece of policy for a government that says it wants to encourage broadband services. It is a piece of policy which tends to ignore the real reason that spectrum auctions are now widely used in most advanced economies as the means of allocating the scarce public resource of radio frequency spectrum. The principal purpose of using an auction is to allocate this scarce spectrum to the purpose which has the highest value to the community. Raising money is a secondary purpose, not a primary purpose. Unfortunately, this government seems to have got that the wrong way around. The consequences look likely to be quite severe. Already, one potential bidder, Vodafone, has said that it will not bid, and another, Optus, says it regards the prices as unreasonably high and is considering its position. Bear in mind that the government itself has noted, in the regulatory impact statement it released in February 2012, that 'the three incumbents'—namely Telstra, Optus and Vodafone—'are the entities most likely to participate in the auction'.

If one public policy error which has been made in relation to the proposed allocation of this digital dividend spectrum is to set a very high reserve price, another public policy error is the approach that the minister has taken to the so-called competition limits. These are the rules which limit the amount of spectrum which any one player is permitted to buy at the auction. Originally, in early 2012, the minister said that a maximum of 20 megahertz could be acquired by one bidder, but recently that maximum has been increased to 25 megahertz. In other words, as well as setting a very high reserve price the minister has also increased the amount of spectrum that the dominant player, Telstra, would be able to buy.

Of course, thanks to its lucrative NBN deal with the Gillard government, Telstra is expected to receive some $11 billion, so it is very well placed to spend up big on spectrum. I make no criticism of Telstra here, but I do strongly criticise the Rudd-Gillard government for the significant public policy errors it is making in relation to the allocation of this vital digital dividend spectrum. These errors will play out over a very long period of time, and the consequence is likely to be a market for the provision of mobile broadband services which is less competitive and, accordingly, less vigorous and less dynamic than it ought to be, and would be, if the government had adopted better public policy settings. We are all in agreement that the allocation of this digital dividend spectrum is a public policy issue of high importance. What this country needs is a vigorous, competitive mobile broadband marketplace with as many players as possible, and setting the auction rules is a key policy lever to achieve that outcome. Unfortunately, the government has taken a very poor approach to this vital question. So, while the measures in this bill are sensible as far as they go, they do not address the most pressing problem in this area.