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Joint communications industry statement on advanced communications for rural and remote Australia



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MEDIA STATEMENT

August 1 8 ,1 9 9 8

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Joint Communications Industry Statement on Advanced Communications for

In the context of the imminent release of the Australian Communications Authority's (ACA) report to the Federal Government, an informal group of 18 major carriers, communications suppliers and industry associations today issued a statement on whether an enhanced digital data capability should be included in the telecommunications Universal Service Obligation.

The joint statement calls for a market-based approach supported by targeted Government assistance, such as subsidies for satellite connection costs or equipment, as the best way of guaranteeing advanced services to rural and regional Australia.

The group believes that this is the best approach because of technological and commercial developments. Commercially available satellite and radio technology are emerging as the most efficient and effective vehicles to provide advanced high speed data services, in particular, Internet access, to remote and regional areas.

Such services are already available to some customers. Industry players are currently conducting trials of advanced services such as asymmetrical satellite and expect these services to be widely available in regional areas within 12 to 18 months.

The trials involve customers using a PC modem to call up a satellite which then broadcasts Internet information to and from the PC at high speeds. New radio technologies are also offering high speed alternatives to fixed wire technology.

The ACA has been looking at whether a digital data capability broadly equivalent to a 64 kilobit per second Integrated Services Digital Network (ISDN) channel, should be part of the Universal Service Obligation (USO). ISDN w ill be available on demand to 96% of current communications customers by the end of 1998.

The group believes that alternative approaches, based on upgrading the existing public switched telephone network, which are being considered by the ACA to support enhanced services in regional Australia w ill not deliver the intended benefits.

It is particularly concerned that mandating a costly upgrade of the existing voice telephone network through the USO would fail to deliver services to regional areas in a feasible time­ frame and would result in a high cost technology the market could soon render obsolete.

The group believes that advances in satellite and radio technology w ill provide high speed data in an effective and equitable wav.

R u tla n d Remote Australia

- Ends -

Contact Alex Gosrnan 0414 258 745

INDUSTRY GROUP

Australian Electrical and Electronic Manufacturers Association (AEEMA)

Australian Information Industry Association Limited (AIIA)

Alcatel

Australian Mobile Telecommunications Association (AMTA)

Ericsson

Hewlett Packard

Global One

Macquarie Corporate Telecommunications (MCT)

Macrocom

Norte!

Optus

Primus Telecommunications

Siemens

Spectrum Networks

Telstra

United Energy Telecommunications

Vodafone

Worldcom

COM M UNICATIO NS INDUSTRY GROUP CALLS FOR TARGETED AND MARKET-BASED APPROACH TO ADVANCED COMMUNICATIONS FOR RURAL AND REMOTE AUSTRALIA

An informal group of telecommunications carriers, communications suppliers and industry associations today jointly released a statement on the Australian Communications Authority's (ACA) current inquiry into whether an enhanced digital data capability should be included in the telecommunications Universal Service Obligation.

A digital data capability would be broadly equivalent to a 64 kilobit per second Integrated Services Digital Network (ISDN) channel. Further background to the inquiry is attached.

GROUP STATEMENT

The ACA's review has taken place at a time of great change in communications. The pace of change is increasing as new products and services that exploit innovative technologies arc offered to customers. -

Communities in rural and remote Australia w ill benefit from these changes and timely access to advanced telecommunications services. The Government's review is focusing on how best these services can be delivered to rural and remote communities.

The industry group strongly believes that rural and remote communities w ill and should benefit from these advances in communications and supports the availability of advanced services to all Australians. It notes that ISDN w ill be available on demand to 96% of current communications customers by the end of 1998.

The key question for Government is what is the most effective and equitable way of providing further digital data capability to rural and remote consumers in a timely manner.

The industry group believes that advances in technology mean that the most effective and equitable way of providing high speed data for consumers in remote areas for purposes such as Internet access is via satellite and radio technologies.

Satellite and radio technologies w ill soon make high speed Internet, data and other advanced services available to all Australians, regardless of their location.

Industry players are currently conducting trials of advanced services such as asymmetric satellite services. This involves a customer using a PC modem to call up a satellite which then broadcasts Internet information at high speed direct to the PC.

Satellites optimised for direct-to-home data and telephony, as well as broadcasting services, w ill give rural and remote customers access to other advanced services. New radio technologies are also offering high speed alternatives to fixed wire technology.

Competing suppliers have already made announcements about the rollout of advanced services. It is expected that satellite services w ill be widely available to all Australians w ithin a 12 to 18 months time frame.

The group believes that a market-based approach supported by targeted Government assistance is the best way of guaranteeing advanced services to rural and regional Australia. Government initiatives could complement and leverage the technological innovation being delivered by the market.

For example, subsidies could be provided to reduce connection costs, or the costs of equipment such as satellite dishes. This approach would be likely to:

- accelerate the availability of advanced services;

- allow users to choose the most competitive supplier and best solution for their needs;

- test the capability of suppliers in the market place;

- increase the supply of innovative, efficient and high quality services;

- promote competition and investment in the best technologies;

- ensure that overall cost to the community are transparent;

- allow most support to be provided to areas of greatest need.

The group believes alternative approaches to supporting rural and regional Australia may not deliver benefits and could set back the market. It is particularly concerned about mandating a costly upgrade of the existing voice telephone network through the USO. Such a course of action could:

- involve long lead times associated with fixed infrastructure investment;

- fail to deliver services and data speeds that meet user needs;

- risk an advanced services monopoly in regional and rural Australia;

- mandate high cost technology which the market could render obsolete;

- restrict consumer choice;

- reduce transparency about overall costs to the community;

- fail to provide most support to areas of greatest need.

The industry group believes that the best approach to ensuring rural and remote communities benefit from advanced communications is through targeted Government assistance that complements market developments.

This course of action w ill deliver benefits most quickly and in a transparent manner that increases consumer choice promotes supplier competition and encourages technological innovation.

BACKGROUND TO THE ACA INQ UIRY AND REPORT TO GOVERNMENT

The ACA was required to investigate the costs, benefits and risks of an expansion in the USO, and whether some alternative service or means might more efficiently and effectively address this matter. The ACA was also required to consult with carriers, carriage service providers and representatives of end-users and business, residential and rural consumers.

The USO is intended to ensure that all people in Australia, wherever they reside or carry on business, have reasonable access, on an equitable basis, to:

. the standard telephone service (ie. voice telephone)

• payphones, and

♦ prescribed carriage services.

No carriage service has been prescribed to date. The Government response to the ACA's inquiry w ill determine whether or not a digital data capability with particular characteristics should be specified in regulations as a prescribed carriage service.

The policy intent of the USO is set out in the Explanatory Memorandum to the Telecommunications Bill 1996. The concept of 'reasonable access' is primarily in relation to access in geographic terms. ’Equitable basis' is primarily in relation to equality of opportunity. Affordability is not inherent in the USO but is to be addressed through other, transparent mechanisms such as competition, targeted assistance and appropriate price control.

Telstra is currently the sole universal service provider. The Minister may declare other carriers to be national or regional universal service providers, and determine a system for the selection of carriers to be universal service providers (which may include, for example, a tendering process).

The Minister has recently approved Telstra's plan for the supply of standard telephone services and payphones under the USO.

The costs of the USO are shared by all carriers in proportion to their revenue. The cost of the USO in 1996-97 was $251,6m.

THE AUSTRALIAN www.news.com.au Tuesday August 18 1998

Breaking up is hard to do r W E N T Y years ago

• I * ju s t a b out every

c o u n try in th e w orld

had ju s t one gigantic telephone m onopoly. Some, like A u stralia, had tw o and

th a t’s n o t an oxym oron; C an­ ada and Japan also had two. A ustralia had Telecom as a n a t­ ional ca rrie r m onopoly and O T C as its in te rn a tio n a l monopoly.

Later, we added th e Aussat dom­ estic satellite service, w hich was effectively p rohibited fro m com­ peting w ith eith e r Telecom or

OTC, and forced to fu n ctio n

m ainly as a d is trib u to r o f television programs. Aussat came in to being because K e rry Packer wanted a cheap way to d istrib u te W orld C ham pionship C ricket to his city-based N ine N et­ w ork and cou n try A BC stations.

However, before the satellites were launched in 1985, the plan had passed fro m priva te ownership to public funding.

Then the Fraser Liberal Govern­ m ent was replaced by Bob Hawke and the Labor Party, and a m ajority in Cabinet wanted part-private/ part-government ownership, w ith K e rry Packer having 49 per cent. B u t Packer’s private investm ent was only forthcom ing if the satellite was able to carry telephone tra ffic as well as broadcasting.

Telecom’s attem pts to take over the satellites were blocked by

T reasurer P aul K eating. The Tele­ com executives and unions were te rrifie d th a t Aussat could be used to bypass th e ir n etw ork monopoly. E ventually they persuaded the

G overnm ent to hem in Aussat w ith restrictions th a t eventually made the satellites uneconomical. In the process, cheap satellite lin ks were replaced by some extra­ o rd in a rily expensive te rre stria l radio access netw orks in the

rem ote parts of Australia. T h is political decision resulted in the loss o f hundreds o f m illio n s of dollars in pro vid in g universal ser­ vices — probably more in to ta l than the satellites were w orth.

T h e n came Megacom, w ith Tele­ com and O TC m erging to create A O T C — la te r called Telstra — and Aussat was privatised and sold to

Optus. B oth duopoly companies were given mobile telephone

licences to extend th e ir reach. So, as oth e r countries were

breaking up th e ir dom in a n t car­ riers to introduce com petition,

A ustralia expanded Telecom’s power w hile creating a duopoly. T he idea of in tro d u cin g new

companies th a t duplicate the n a t­ ional in fra s tru c tu re and services of the old d o m inant carrier, came stra ig h t fro m M argaret Thatcher. T he process was seen as the firs t stage in deregulation, w hich could th e n lead to fu ll privatisation.

Back in late 1981 in the U K,

international carrier Cable & W ire­ less had been given permission for its subsidiary, M ercury Communi­

cations, to compete against B ritish Telecom, and only months later (in January 1982) the U nited States announced it was breaking up the old A T & T monopoly.

These tw o approaches to tele­ com m unications re stru ctu rin g were quite d iffe re n t in character. In th e U K , M ercury was

expected to duplicate the old B T ne tw o rk and provide fu ll na tio n ­ wide services as a n etw ork overlay. This is the classic legislated duo­ poly, w hich is little more than

pretend-competition, because it is obvious to everyone th a t parts of the incum bent netw ork (m ainly the local loop) can’t really be duplicated.

This is the model Australia followed in creating Telstra and Optus. In the US, the a n titru s t split was along both vertical and horizontal planes.

F irstly, the long-line and in te r­ n a tio n a l business was separated fro m th e local c a rrie r functions, and set up as a com petitive area of business, allow ing M C I and la te r

S p rin t to compete w ith th e rem ­ nants o f A T & T. Local telephone companies were not p erm itted to o ffe r long-distance services.

Secondly, th e local carriers were given legislated rig h ts to retain m onopoly netw orks on a regional basis, and the long-distance car­ riers were prohibited fro m ow ning local connections. T o distrib u te signals outside th e ir own area, local carriers were required to pass the call to one o f the com peting long­ distance operators.

T h is approach created num er-

□ Crossroads

ous non-com petitive local-call areas controlled by eight large compa­ nies and a few thousand tin y ones. Because these were monopolies, rig id price caps were imposed by

Public U tility Commissions (PUCs). Caps were set on the basis of

p ro fita b ility , using figures th a t

only carrie r company accountants could provide and decipher. So the tw o approaches were quite d iffe r­ ent in structure and regulation.

Restrictions on competition have since been lifted in the U K and US and the results have been pretty m uch the same. The m ain d iffe r­ ence is in the distribution of power.

Part-privatisation has not been a success in Brazil unless you hold shares and aren’t a

customer

In B rita in and A ustralia, where the duopoly/overlay approach was used, the dom inant ca rrie r re­

m ained dom inant, since it offered comprehensive n a tio n a l coverage and a fu ll range o f services. New com petitors are forced to be clients o f the dom inant ca rrie r to get

access to customers. In the US, the operational split between local and long-distance carriers created a power shift. Cus­ tom ers now belonged to the m on­ opoly local carriers, and they could influence th e custom er’s choice in long-distance services.

W ith the advent o f glass fibre, m any telco p ro fits came fro m the provision o f m edium and long­ distance services.

T he larger US regional compa-

_THE AUSTRALIAN www.newi.com.au Tuesday August 18 1998 —

nies — the RBOCs — held the

classic m iddlem an position of

power. T hey were able to arbitrage custom er’s long-distance bills while also m aking a sm all fo rtu n e from th e ir own local carriage.

T h e ir m ain problem was to dis­ pose of excess profits. I f these

surfaced in th e ir annual accounts, the PUCs would ju m p in and cap th e ir prices at a lower level. Yet, in Am erica’s m ature tele­

coms m arket there wasn’t much they could do, o th e r th a n take over the In te rn e t and encourage surfers to re n t a second line.

As a result, they chose to ware­ house th e ir w ealth u n til deregula­ tio n by shu n tin g the money over­ seas and investing in inte rn a tio n a l telephone netw orks and cable tele­ vision operations.

T his is w hy B ellS outh had a

quarter share of Optus u n til last year and owned a mobile company in New Zealand. I t ’s w hy Bell

A tla n tic and A m eritech jo in tly

controlled Telecom New Zealand, and had stakes in Sky TV, b u t are now selling out. B ell Canada has also taken its money home by

selling its share in Clear Com m uni­ cations to B ritis h Telecom. T his same p a tte rn has been

repeated around the world, w ith Am erican local carriers buying in te rn a tio n a l stakes outside the reach of th e ir domestic regulators, th e n selling out and retreating

when the restrictions are relaxed. In Europe, the same p a tte rn is emerging now the Economic U nion has made national monopolies into regional companies. Everywhere you look, public, privatised, or part- privatised carriers th a t dominate local connections are in a position to make enormous pro fits even when the m arketplace is nom inally competitive.

Fortunately, some of the more astute political leaders are learning how to counter th is and still get the benefits of flogging the fam ily

jewels before th e ir successors take the reins o f power. T he country to w atch in this

regard is Brazil, w hich has ju s t

restructured its p a rtly privatised monopoly carrier, Telebras, and auctioned o ff bits to the most

w ealthy in te rn a tio n a l carriers. In the process, President Car­

doso has received an unexpected w in d fa ll of $US21.69 billio n ($36.76 billion), w hich m ig h t help him

porkbarrel his way to success in the coming election, due in October. Brazil had h yp e rin fla tio n only a few years ago, and now faces a yaw ning trade deficit, m he governm ent says the

I money raised fro m the sale

- L w ill reduce the na tio n ’s dom ­ estic debt and help the governm ent balance the budget. W here have I heard th a t before?

U n til this m onth, Telebras con­ tro lle d 27 regional telephone com­ panies th ro u g h o u t the country, each w ith an assortm ent o f old

equipm ent and sw itching devices, m aking in te rco n n e ctivity v irtu a lly impossible. T hey operated through a Byzantine holding structure sup­ p o rtin g a bloated 100,000-employee payroll.

P a rt-privatisation has no t been a success in B razil unless you hold shares and aren’t a customer. Call prices have increased and techni­ cal responsiveness hasn’t im proved much. B razil has less than one

phone line fo r every 10 people, and there’s enormous pent-up demand, w ith consumers w a itin g up to three years fo r service.

B u t despite its urgent capital

requirements, Telebras has been generating billions of dollars in pro fits every year fo r shareholders. The m ost interesting angle on this sale is th a t the p a rtly privatised Telebras was firs t broken up in to

12 parts to ensure th a t no company could dominate. They created three fixed-line phone companies (called Baby

Bras), eight cellular companies, and one long-distance carrier. A t the same tim e, the govern­ m ent licensed new mobile cellular com petitors and prom ised to open both local and long-distance w ire­ line services n ext year. T im e w ill te ll w hether th is open m arket

manoeuvre has been successful. Spain’s Telefonica, P ortugal’s Telecom and A m erica’s M C I, three of the m a jo r in te rn a tio n a l firm s to buy in to B ra zil this m onth, already have plans to re-merge five of the

12 companies when the present regulations expire in 2001.