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STANDING COMMITTEE ON INFRASTRUCTURE AND COMMUNICATIONS
18/04/2011
Role and potential of the National Broadband Network

CHAIR —I now welcome the representative from the IT Industry Innovation Council to today’s hearing. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We have your written submission. Would you like to make a brief opening statement before we have a brief question and answer session?

Mr Grant —Certainly. I will just clarify the role of the council. It is made up of volunteers appointed, if you like, by Senator Carr. We have a dual charter. The first part is true innovation—to build products and services within Australia for resale overseas. So it is to develop the local industry and the associated products and services. Secondly, we have a charter to work with other industries outside the IT industry to adopt technology for competitive advantage. So it is a dual charter. The submission seeks to give some examples of how things currently are elsewhere and how they could be. To us, I think the most important thing is the preamble. It does not actually speak to the terms of reference, but I think the preamble really sets the agenda for all of the work that we as a council do. What it essentially says is that we as a nation need to focus on wealth creation, because if we focus on wealth creation we get the opportunity for choice downstream in terms of services, types of service delivered, how they are delivered and all that sort of stuff.

Wealth creation as a sustainable exercise is really a continuum across a number of fronts, because we operate in a context which is increasingly global and defined by an increasingly digitised economy. We see that every day in how our local businesses are competing against global businesses for market share, particularly in the retail sector, which has been an obvious one just recently. But we will see other industries similarly affected. So we are operating in a global context and our success or otherwise will depend on how competitive we are globally, and how competitive we are is determined by how productive we are. How productive we are is determined by how innovative we are, and underlying innovation is technology, and then you need infrastructure to support that. Infrastructure is the right skills, the right incentives, the right policy settings and the right hard infrastructure, a la the NBN. So we see the NBN as a foundation to build global competitiveness and hence create wealth. As I said, our belief is that when you create wealth you get the opportunity for choice downstream of that about how you deliver services to citizens.

I think there are two sides to this discussion generally. There is the service delivery side of it—how does the NBN facilitate service delivery? I am not going to go through the examples or talk about any of them specifically. I run a commercial entity and I look at things from a profit and loss or an income and expense point of view, and most of the debate around the NBN is on the expense side of it—how we deliver services. All of that needs to be funded. In the submission we have tried to put a strong emphasis on the revenue generation side, which is how businesses will use the NBN to create competitive advantage for themselves within their own marketplaces which, as I said, are increasingly global. So I want to make the point that, firstly, we operate in a continuum.

The facts are that some of the statistics on our performance are not good. You would have heard these before, but it rounds out the picture of global competitiveness. In the latest index of global competitiveness, we are the 15th nation. In OECD statistics, our multifactor productivity growth is almost zero per cent now, having declined significantly since 1996, whereas prior to that it had climbed. Each year Telstra measures what they call a productivity gap, which is the gap between businesses who say they are innovative and want to introduce innovation and those who can actually measure it. That gap went from 29 per cent to 34 per cent last year, so we are getting worse, not better.

If you believe research and development fuels innovation, which subsequently fuels productivity, which subsequently fuels competitiveness, R&D as a percentage of GDP in Australia is 1.7 per cent, which is 16th of OECD nations. In product innovation in large firms, we are 20th of OECD nations; in process innovation in large firms we are seventh; ICT expenditure as a percentage of overall expenditure in the manufacturing industry is 2.8 per cent and we are 26th; ICT as a percentage of services expenditure in the services sector is eight per cent and we are 22nd; 75 per cent of homes have access to computers, which is 15th. You can go on. The fact is that statistically we do not sit strongly today to position ourselves as a competitive nation. We have heard about the two-speed economy; I heard a remark the other day from CBA’s lead economist that we are actually a four-speed economy. He named the four sectors, but the bottom line is that we are a resources led economy at the moment, which is a great thing because it allows us to get money to invest, if we think about it in those terms. But it also saves the other three sectors when they are not doing very well, when you think about the averages we are talking about here.

The only other point which is worthwhile thinking about is not a point we make in this document. In fact, I was advised not to put it in this document but I can say it now. You have to think about building for the future in terms of what you can afford, and so you have to look at Australia in terms of its net debt as a percentage of GDP, which is essentially affordability. Our net debt as a percentage of GDP is currently 22.4 per cent, and we are 107th out of 128—and the higher you are the better. Therefore we have a capacity to fund.

When you put all that together there is a pretty compelling case that we are not positioned where we need to be in terms of our ability to compete in a globally digitised economy. Secondly, we have the opportunity to change that and we can afford to.

CHAIR —Thank you. Certainly it is a very interesting and important angle for the terms of reference of this inquiry. I take your point about the service sector, but I would say to you—and I am interested in your comment—that we have had significant evidence from regional parts of the country that to attract and retain new businesses, professionals and creative communities in those regional and rural areas they have to have high-speed broadband, as it is a fundamental expectation of those groups. For them, the capacity to have e-health, e-education and so forth is a pull factor for new employment opportunities and industries in their areas.

You talked about the various components that build innovation and one of those is the skills area. This is something that I do not think we have had any evidence on, but I am interested in your views. Are we training and developing a generation to be the innovators if we create the technology and lay the pipes? Would you make some observations about how we should be doing that better? It appears to me that a lot of these young innovators and new businesses that are emerging are coming out of non-traditional avenues. I invite you to comment on those two aspects.

Mr Grant —I did not bring the statistics around education, but the set of statistics I just cited show that we are pretty poorly placed in terms of preparing our young for a future in a digital economy. You can look at the maths and the science. A global survey, the PISA analysis, is done every five years and we are about to get the new one, which will give us updated data on the 2006 survey. That will tell us exactly where we sit, but the general view is that competitively we sit fairly poorly against other nations in the world. If the best and the brightest do not find opportunities in Australia they are going to go elsewhere because they can—because we live in this globalised world, where with the credentials and the capabilities they have they will potentially get the best returns elsewhere.

We always have our lifestyle going for us, and I think that is a significant factor. It does attract people back, but that is not necessarily the bet you want to play. The bet you want to play is to keep them here and get them to develop and contribute here, particularly in their early years, where in a lot of ways you would get a greater bang for your buck. So I think you need to look at the statistics.

I sat on a working group here in Queensland out of the Smart State Council, which I am also a member of, which looked at our position in relation to mathematics. Maths and science are really the capabilities that feed into the skills that are required in the areas we are talking about, and mathematically we were just not stacking up at all. Statistical evidence supported the fact that mathematically we are not stacking up. I think it is equally a concern in that area as it is in some of the more global characteristics.

Going back to your first comment about regional, you would know better than I would what is happening in terms of people in the regions. My observation is that you need to make it more attractive than in the cities. It is like any particular proposition where you have got a disadvantaged group and you need to overcompensate, if you like. Belief in the digital economy is a fundamental thing. If people do not believe in the digital economy you have to have another debate to convince them that in fact the economy is going to be determined by your digital competency in the future, your economic performance. I am assuming we do believe in the digitisation of our economy and the increasing reliance on digital technologies and services to participate in the global economy. If we do believe in that then you have got to be very mindful of the ubiquity that is needed in a nation like Australia with its diverse population spread. You have got to be able to allow those people to participate in the digital economy or they will go elsewhere. In order to do that, the underlying infrastructure for the digital economy is a ubiquitous, high-speed, high-capacity broadband. Call it the NBN, call it whatever you like, but it has got to be ubiquitous, high speed and high capacity; it has got to have those three attributes. If you have got those three attributes then you start to win the war against the disadvantages, if you like, and you start to win that war based on the attraction of people not living in the cities when they do not really want to but they otherwise would have to participate. So there is absolutely no doubt—I certainly do not believe there is any doubt—that the opportunity to build new industries or the opportunity to support industries that exist in regional centres is greater with an NBN that it is not.

CHAIR —My second question before I go to my colleagues relates to the issues of export market development. I would like your reflection on things that we may do better in fostering business to, firstly, accept the digitised economy and, secondly, spread capacity in our business sectors. We have had evidence that the tourism sector, for example, is perhaps in some areas struggling to come to terms with the new digitised form of the economy. There was evidence in Tasmania, I think, where people may have websites but they do not have online bookings, they have not moved to that level of interaction. From your experience, is getting this capacity building out into the different industry sectors working? You might have seen good models where you think perhaps governments should be looking at a more interventionist approach to that.

Mr Grant —It is a huge question, really. I participated in the Realising our Broadband Future conference that Senator Conroy’s department put on last year. It attempted to start discussion about that we did have a future about realising the benefit of broadband but it required capacity building, which is exactly your point. Having then sat in another innovation forum run by Senator Carr, all of the people involved in his innovation portfolio, both within his department and outside it, which was exactly around capacity building, my observation walking away from that was that we are doing a very poor job of capacity building. You can cite the example you just used of the tourism sector and being able to do online bookings, pretty simple sort of stuff. My understanding is that percentage wise for tourism operators that is low, and certainly not where it needs to be for the sort of nation that we are, where you cannot take a day trip to see what it is like and then go back for a holiday. We have got to be much more determined, I think, about our businesses adapting and adopting. I have promoted the idea that the disadvantaged need to be overcompensated and there need to be programs and incentives which are much more directed at capacity building. The downside of not building capacity is much clearer as well.

CHAIR —Have you seen a good example of that somewhere, John?

Mr Grant —No, I have not. I am happy to take that on notice.

CHAIR —If you would not mind having a think about it. We have had quite a bit of evidence of local champions, somebody who really gets it. A local council or whatever can drive a huge amount of take-up.

Mr Grant —I think there are two ways. My experience of people in business is that they do things for one of two reasons: they are scared and they do it or they are really innovative and they do it. Most fall into the former. People have to be scared and concerned about their future before they move. I do not think we need to worry about the innovators. I do not necessarily believe that someone who is in that first category seeing someone in the second category says, ‘I have to be like that.’ I do not believe that is the case. I do not believe they really start to get motivated until they fear for themselves.

So, without wanting to create fear through legislation and policy setting, we need to think really sharply about how we incentivise those people. The other thing that will cause people to move, and we are moving away from the fear component, is if they can see a direct reward. This is where policy is so critical. I want to make a point about policy settings. The policy settings I have seen from the federal government are really from silos. You do not get reinforcing of that continuum that I spoke about previously.

We had two opportunities recently to put submissions in around the R&D tax credit legislation. The first draft of that would have decimated our industry in terms of the small entrepreneurial companies in our industry and right across industry generally. We were fortunate enough to intervene and say, ‘You have to think about A, B, C and D,’ and we were able to help them redraft the legislation. What we got out of it was better legislation. It is not perfect legislation, because it is still quite onerous in terms of being able to participate, but it is much better legislation than it was earlier.

The problem was we were dealing with Treasury. That just does not make sense. When you are dealing with research and development, which is an innovation driver, and you are dealing with what you can make happen around that financially, my argument is you need to be dealing with the innovation leaders in government not the people who count the money. That is an example of the silo nature.

The other example is through the employee share and option plans. It is a global fact that small companies that are cash strapped need to bring people on board who are highly skilled and they need to give them a chance to have a piece of the cake, give them the big promise, in order to get their commitment. That is the way the system works. The current law around that is extremely negative.

The Board of Taxation did a review just recently, and we put a submission to it. The point is we are dealing with the Board of Taxation. This is an innovation driver. I think the policy levers are not working. I think the policy levers around capacity building are not working and they need to be revisited in the spirit of what we are really trying to achieve here in the bigger scheme of things.

Mr HUSIC —Your submission was terrific in terms of its level of detail and its breadth. It covered many different areas.

Mr Grant —Thank you.

Mr HUSIC —One issue that caught my attention was teleworking. The impact of congestion on major cities in Australia has come up quite a number of times.

Mr Grant —My favourite topic.

Mr HUSIC —This statement in your submission stood out:

Access Economics predicts that if 10 per cent of Australian employees were to telework 50 per cent of the time, the total annual gains from teleworking would be in the order of $1.4-$1.9 billion per year.

I also saw that the submission made reference to departments, like IP Australia, who are looking to deploy more flexible employment arrangements. Given that I think the country would breathe a sigh of relief if this vexed issue of congestion could be tackled in a substantive way, what views or prescriptions are being considered to encourage more companies to embrace teleworking? Are there initiatives you believe could be used to reach the types of benefits that have been outlined in your submission?

Mr Grant —I will start by talking about teleworking as a conceptual model. It is holiday time at the moment in Brisbane—kids are on holidays and parents are away—and I was able to get from my rented house at Corinda to my office at Toowong in about 12 minutes today. While I do not come from that end very often, I reckon that in normal circumstances that could take 40 to 45 minutes. Why is that so? I think there are two reasons: firstly, because of people going to work, obviously; but secondly, and mainly, because of parents driving kids to school. So if you thought about education being delivered differently you could change that whole dynamic. In fact, you do not even need to do that; you could just change the hours of operation of schools. There are just some simple things that could be done; you could take a different view. I only make that comment because that is a really simple example. The opportunity in education through high-speed high-capacity ubiquitous broadband is just enormous—to have home schooling, to have group schooling in areas away from schools. In my particular case, instead of a group of children going across the bridge to Toowong or to Brisbane Boys College, they could go to a local community hall or something like that in Graceville for a particular lesson for the first time because they could.

CHAIR —With the world leading lecturers.

Mr Grant —With world leading lecturers thrown in as well—that is right. I think the opportunities are just enormous to change the current model for delivery of education, which then changes the behaviours of people as they service that business model, which comes back to the congestion issue. That then applies to teleworking.

My business is a computer company. We are a national company, ASX listed. We have just moved into a new building in Toowong and we have created that workspace around mobility. We have put in all that is necessary so that people are able to be mobile in that environment, but we have then equipped them with all of the devices that are necessary for them to communicate and do their work wherever they are. We have been working at it for some time—about 18 months—and created a culture within our organisation of people being able to work anywhere that they choose to. That is really the whole mantra around teleworking: the choice about where you work and to some extent when you work. People talk about a blurred line between the personal and work, but there is no line at all. In fact it has all merged now because it can do, and it has done, and you have to cope with that situation. So the emphasis on teleworking as a generational or cultural shift but also as a technology shift is because it has the opportunity to change the way that we do business and it has the opportunity to boost productivity dramatically and to reduce obvious things like emissions dramatically as well.

In terms of the concept of teleworking and the concept of being able to use the strengths of high-capacity ubiquitous high-speed broadband wherever you are to be able to do your work, there is absolutely no doubt about the opportunities that exist and there is no doubt about the value of it in a whole bunch of dimensions. In terms of models to do it, I think our own business is as good a model as any. We have been on an 18-month to almost two-year journey to change the culture from one where ‘work is a place I go’ to one where ‘work is a thing I do’, in very broad terms. That is the sort of cultural and mind shift that is needed. Then you need to support it with the infrastructure, of which NBN is one but there is other infrastructure as well.

Part of teleworking implies that people work from home. Lots of people do not want to work from home for a whole bunch of reasons, but they could work from different locations. You could can start to use real estate investments that we have in the community quite differently to the way that we use them currently. If you went out into my western suburbs area I could take you to a dozen facilities that at the moment have no-one doing anything in them—today, right now. You could use all the assets you have got in your community quite differently and potentially create quite different revenue models for organisations who own those assets. You have got to start thinking outside the nine dots. Unfortunately, a lot of this debate is confined to the nine dots and we need to explore outside the nine dots. I do not know whether that answered your question.

Mr HUSIC —It does. I think cultural change is the big one and I was really struck by your comment about moving from ‘work is the place I go’ to ‘work is a thing I do’. I think that is really important. One other issue I want to raise if time permits is ICT skill shortages. At some point there may be an opportunity for you to address that in response to other questions. Something I am interested in, and it has come through in a number of submissions, is maximising the benefit of the NBN in productivity. It is going to rely on skilled employees and I would be interested to hear at some point what you think can be done to address this, given that it will no doubt be on the minds of the council.

Mr FLETCHER —You talk about the capacity of the NBN to connect schools and universities and so on. What percentage of schools today are connected to fibre?

Mr Grant —I have no idea.

Mr FLETCHER —Presumably, the benefit that will come from the NBN needs to be determined by comparing what we will get compared to what we already have? Is that right?

Mr Grant —I think that is dangerous. I think if you live in the world today then the NBN does not make sense. I think if you live in the world of tomorrow then I think the NBN is the vehicle to get to—

Mr FLETCHER —If we could just focus on schools. I am correct in understanding, am I not, that the proposition you are putting is that the benefit of the NBN is that it will connect all schools or the vast majority of them to fibre?

Mr Grant —Correct.

Mr FLETCHER —Therefore, presumably, the starting point would be to ask how many of them are already connected to fibre?

Mr Grant —I do not know the answer to that question.

Mr FLETCHER —We were told at another hearing that, I think, about 60 per cent of schools are presently connected to fibre.

Mr Grant —Excellent.

Mr FLETCHER —On page 3 of your submission you refer to the role of the NBN in improving disaster response. Can you expand on that?

Mr Grant —Again, having just been through a flood and having had an experience of not being able to get the information that I personally needed to make personal decisions, because the websites that I could get access to had collapsed—they had failed because a number of people had tried to get to them and it was too many for the pipes, the databases and the straw and all that sort of stuff to actually cope with—if you have an environment where you do not have that failure—

Mr FLETCHER —Just to understand that, you are putting to us that the NBN will be more robust in the case of natural disasters than the infrastructure we have today? Is that right?

Mr Grant —Not only more robust but, I would think, much more capable. Let me give you an analogy—

Mr FLETCHER —Can you just explain that greater robustness, for example, in the case of floods or bushfires?

Mr Grant —The weakness in the NBN, from an obvious natural disaster point of view, is what is under the ground and what is not under the ground. As I understand it—and I do not know the NBN build plan; maybe you know it better than I do—a vast percentage of the cable is underground. So just like telephone cables and other cables, presumably it will be able to withstand the sorts of obvious impacts of natural disasters. That which is above the ground—and from the NBN’s design point of view, I understand it to be mainly for local distribution—then goes through local distribution using particular poles. That is not a standard way of doing it. Standard is under the ground but, in some cases, it is above the ground. That is my understanding and, again, I am not an expert on that. I am assuming that engineers who are doing the build actually know how to build this properly.

So if you have a contiguous cable and the majority of it is underground then you have the opportunity for it to be more resilient and it would be able to withstand more of what you would term natural disasters. Would it withstand fire? I do not know. It is not a question of whether it will withstand fire; it is whether it is available for you to understand what action you as an individual should take in determining how to get away from this natural disaster. So I go back to my point about the floods, and I bring in the concept of—

Mr FLETCHER —So you are saying if it is physically available, then the information that is available—

Mr Grant —Sure. You would hope so, wouldn’t you? Can I just elaborate a little bit, just to give you an example of this. When I was talking about my flood example, one of the IT structures that was the weakness in that was the Brisbane City Council itself, because the Brisbane City Council hosted their own website. Had they put that into the cloud, where there is unlimited capacity, fed by an NBN type infrastructure, then there would have been no issue whatsoever. I would have been able to know exactly what time and to what level my house was going to flood and I would have taken a bunch of different actions.

Mr FLETCHER —Does that improve connectivity to all the end user premises or is that a question of the particular location of the server on which the site is built?

Mr Grant —No, it is combination of both. It is actually access to high-speed pipe, so that thousands of people can make the same inquiry and get back the maps that would show them exactly where their premise was and it would show them in three dimensions where the flood levels were going to be. It would also be where the server and storage for that particular data is stored. If you have got an infrastructure that allows you to get all that data stored somewhere in huge capacity and big pipes to get multiple similar requests through at the same time and deliver graphical representations back to the end user, that is the ultimate way of managing the natural disaster environment.

Mr FLETCHER —You said that smart infrastructure in transport, water and energy would have embedded sensors that can transmit data. What kinds of data volumes are involved in that? Take a smart grid, for example, or an electricity meter or a smart meter.

Mr Grant —Relatively low. It depends entirely on the number of sensors and the number of meter, but, from any particular advice, it is relatively low.

Mr FLETCHER —Is it fair to conclude from that that there are benefits in the ubiquitous availability of a network that allows sensing, for example, and that is a distinct benefit as compared to any particular level of bandwidth?

Mr Grant —That is fair.

Mrs PRENTICE —The committee went to Scottsdale to look at one of the early rollouts and were concerned about the lack of take-up. Do you have a view as to who is best positioned or who should be responsible for the education and promotion? That might be different people for different roles?

Mr Grant —The investor, I think.

Mrs PRENTICE —That is us.

Mr Grant —Yes, but you are our agent. The investor is the one who needs to get the return for us, your investees.

Mrs PRENTICE —So what you are saying is that NBN Co. should be doing promotion and education as we roll it out?

Mr Grant —NBN Co. is one agency and obviously it has responsibility for the build. There has been all this contention about business cases, and I have said to Senator Conroy that the business case rests back in the industry sector. So the people who should be charged with the responsibility of building the business case for the NBN are back in the health sector, the transportation sector et cetera. If you force that to happen, the educators become the sectoral reps. For example, the Department of Health, as a government entity both federally and within the states, and all of the health associated bodies really should be the people to take responsibility for marketing the NBN capability and forcing the industry players to determine what their cost benefit is.

Mrs PRENTICE —You mentioned the importance of the NBN to be future-proofed to deliver the outcomes we want. Given the NBN Co. model is sort a last century monopoly model, do you think that will have a restriction on future-proofing?

Mr Grant —I think I have to look at the opposite model, which is the Telstra model, and I would have to say that I do not think I am worried about it too much. What is the role of government? The role of government is to step in when there is market failure, and there has been clear market failure for years—for maybe 12 or 14 years now. As a consequence of that, statistically in terms of internet adoption, access to computer systems et cetera, we are not where we need to be. So I will take a punt with this one, I reckon.

Mr SYMON —John, it is an excellent submission. I hardly know where to start. There are so many points in there that I would like to question you on and I am only allowed a few questions. I would like to firstly ask you about cloud delivery of services. You quoted from the Australian Information Industry Association papers around the savings available for government if you transferred what has been found in the UK into an Australian model—and, from what I read, it looks to be a saving of around 20 per cent—and the flattening of the investment cycle. Would you care to comment on how that may work in Australia?

Mr Grant —I think no different, actually. In order to change from where you are to where you need to be or could be, you need to make an investment. So there is an investment hump you need to go through and then you get a different sort of investment flow going beyond that. In simple terms, cloud is about converting capex to opex. There is no doubt that the cloud service delivery model will allow that to occur.

I think there is another thing playing into this, and I think it is a bit like an interventionist approach. As a technologist, I do not think we have done the best job in some of the technology we have delivered to users of technology in government agencies and users outside of government. Cloud gives you an opportunity to change the paradigm and to start afresh on a different sort of delivery model under a different cost structure and a different expense structure.

There is no doubt that it is a real thing and there is no doubt that the billions of dollars that are being invested globally at the moment in preparing for the delivery of cloud oriented services are being made with the absolute intent of getting a return. So there is no doubt that the opportunity therefore rests with organisations like government and the private sector to take advantage of it.

So I think it is real. I think all the other things are real too. You need to be concerned about privacy, security et cetera and you need to be mindful of the pros and cons of providers. You also need to mindful of the local industry and where the local industry fits into it and you need to make sure that we are not giving away our future. Having said all of that, there is an opportunity to change the paradigm for service delivery. To me, it comes together with this one-government service delivery environment, where the agencies within government become transparent and where the service delivery to the end user is service delivery from government as distinct from service delivery from the agency, which is where smart governments are heading. That is what the strategy is for smart governing.

Mr SYMON —And I can tell you that it would make my job a whole lot easier if there was that transparency there. It was good to hear what you said about cloud. Do you think there are the same sorts of cost savings available for private businesses, especially small to medium enterprises, using cloud?

Mr Grant —Again, it is whole of cost. What does it cost for a small to medium enterprise to computerise themselves, to get themselves up and going and to maintain it? It is a combination of costs. It is a combination of the physical costs of all of the equipment they need to buy and then there is the software they need to buy and then you have to add on all of the support and service that they need. So you have got a very different whole-of-cost model for what I call on premises—as distinct from cloud—for a small to medium enterprise. It is very different to the cloud.

But the real issue comes back to the question that was raised earlier about ICT skills. The challenge for the small to medium enterprise is to get the appropriate support to keep their systems going. The opportunity that cloud provides is to commoditise all of that and modularise it. Provided the organisation are willing to accept the fact that there is less opportunity for differentiation through the system that they deploy, they will get a much more serviceable model as well. It will be much better at providing them with systems that will operate without interruption. In terms of ease of use, the SME should be in the cloud.

Mr SYMON —I will now turn to business efficiencies and revenues. You gave a great example in your submission from the Footwear Manufacturers Association of Australia with computerised shoe fitting and therefore manufacturing locally. That is something that I have never considered, but obviously that is just one of many examples like that where, if there is not that high-speed broadband connection, it cannot happen. I take it that you have probably got a draw full of examples just like that and you have just picked some out.

Mr Grant —That is correct.

Mr SYMON —I suppose two questions come from that. Does that grow local industry and is there a threat that comes from that job then being sent overseas? The other one is: does it also grow local knowledge? In other words, does it increase businesses’ and consumers’ access to that and do they then feed that back into an Australian context? Or does it open the door to the threat of an import from overseas?

Mr Grant —The last point you made is about an issue that exists today, right?

Mr SYMON —Exactly.

Mr Grant —So you have to take for granted the fact that, if people are not going to buy locally, they are going to buy overseas, and increasingly they are going to buy what they can through their computer or their PDA. That is what they are going to do.

Mr SYMON —We see it already, yes.

Mr Grant —That is what has happened. So you can say that this will not last, but it is a shift. There is a shift in buying behaviour. That is what is happening. So we have to decide how we compete against that, because the jobs will go overseas if we do not keep them here. We have to decide to keep them here, and we have given some examples of organisations that have decided to keep them here by providing a different service to what people can get from an international provider through the web. That is where retail and manufacturing need to go. Retail and manufacturing need to go to personalisation, giving different experiences, giving different reasons for buying than exist today. It is quite interesting.

There is another example of a retailer in the surf and ski environment where, when you go and try on a pair of ski boots now, they charge you $50. If you buy them they give you back the $50, but if you do not buy them they charge you $50, because people try the boots on and buy them over the net. That is a short-term solution to the real problem. The right solution to the problem is a different solution. They have to find a different way of doing it, but I can understand perfectly why they are doing it. We need to think about different business models and different ways of enticing people to buy. You are dead right about the little examples we have given you—they are the tip of the iceberg. There is a lot of stuff going on. There are a lot of creative people. If you have a chance to have a look at some of those websites, they are all young people and they are doing things differently. They do not have the legacy of bricks and mortar real estate—

CHAIR —And they are probably not traditionally trained. That was my original point.

Mr Grant —No, they are trained in the digital economy. That is where they operate. That is what tomorrow is, too, so we have to be part of that. We have to be decisively part of that, and it comes back to my earlier comment that it is a little bit like capacity building. How do you take people who under normal circumstances will not move unless they are fearful or unless they see some real incentive and make them move? If you do not, you can bet that the products that people buy in Australia will increasingly come directly from overseas. There will be no GST or the other stuff that goes with it.

Mr SYMON —Is it fair to say that retailers are now facing globalisation the way manufacturing has in the past? From what you have said, retail needs to follow a course to stay in front. Otherwise, it could also end up like older industries that Australia once had many people employed in and now has far fewer.

Mr Grant —Yes. That is absolutely right. But there will always be opportunities. Unfortunately, retail is more about real estate than it is about retail. That dynamic has to change as well, and there are going to be people who lose a lot of money before it changes. That is factually the situation. You have to look at getting the buyers to have different experiences.

Mr STEPHEN JONES —Like the chair, I come from the Illawarra region, traditionally a big manufacturing area with the coal industry as an employer. I would be interested in your insights on the key benefits of the NBN and how a region like the Illawarra can ensure that it captures those benefits.

Mr Grant —It has to invest, I have to say. I had some stats on ICT investment in the manufacturing sector: 2.8 per cent of revenues, 26th in the world. The manufacturing industry will not survive, let alone the NBN, unless it invests more heavily than it is currently investing. I am talking about regional manufacturers as well as major manufacturers. You can look at the TCF example, but there are other examples of creative manufacturers competing on a different playing field to the one that they are competing on today, knowing that the playing field that they are competing on today is going to be inundated with global providers. So the manufacturers have to change their business models, and there are two aspects to that. It is really about investment in underlying infrastructure to do it differently and to give the buyers of their products or services a different experience and a different sense of intimacy with the products and services that they provide.

It is sort of self-evident, but it comes back again to the comment before: how do you keep the people and the manufacturing companies who actually want to work in the regions in the regions? This is all interlinked, the whole thing. It is just like a set of dominoes. The NBN is the big domino. It has started to fall and it is going to push all these other dominoes. You want to make sure it pushes them in the right way, which is where policy settings, incentives et cetera start to come into it. But, going back to my comments before, you have got to keep good people in the regions; you have got to give them great opportunities in the regions. Manufacturing is still strong in a lot of the regions; therefore you have to have manufacturers who are willing to invest and build on top of an NBN-type platform. What is the government’s role in that? If that is a market failure, then give them some incentives to do that.

CHAIR —Thank you very much for that presentation and in particular for the very specific examples of the realities of what is possible. The useful thing for us is that, in looking at those, we can look at what the turning factor was that made that viable or attractive and see how we can then perhaps advise government on how to replicate that so that we do not have these wonderful expressions of ‘Isn’t that amazing!’ happening in one small example somewhere but actually see whole economies across our country and, in particular, our regions taking that up. That was really useful for us. Thank you for your attendance here today. If you have been asked to provide any additional information, would you please forward it to the secretary. You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact. Once again, thank you very much.

Mr Grant —Thank you.

[11.42 am]