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Speech to the Commsday Satellite Forum Westin Hotel, Sydney



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Speech to the Commsday Satellite Forum Westin Hotel, Sydney.

April 16, 2012 Good morning ladies and gentlemen, it is a pleasure to be here today. The Australian Satellite and Space sector plays a key role in Australia’s communications industry. More broadly, it is vital part of Australian society as a whole and regional Australia in particular. As a member of The Nationals, I am an un‐ashamed advocate for regional Australia. All too often during the long years of the drought, we have heard the future of regional communities questioned, with critics saying that they are too remote, too vulnerable and too expensive to maintain. My view is that Australia was built on the back of these regional communities and that they still have a productive future. If an example were needed, the minerals boom is proof positive of the contribution regional and remote Australia makes to our nation. But, like almost every other sector of the Australian economy, their future will depend on high‐speed, reliable communications providing easy access to new markets at home and abroad. Such communications will also provide an opportunity for new industries to move into regional areas - call centres, data processors, designers, software engineers - the potential is huge. They also provide an opportunity to greatly improve the quality of life in regional areas, through better health care, education and - this is not a trivial matter - entertainment. I make no apology for devoting the majority of my speech today to the National Broadband Network. I believe this policy of the Labor Government raises very serious questions about how we deliver vital services to regional Australia, how government relates to the private sector, and about the conduct of government generally. Before I go into detail about our criticisms of the NBN, let me just remind you that Australia’ first steps into the era of satellites were not distinguished with the spirit of cooperation, as one might have hoped. In the early stages of the Soviet sputnik programme it was a professor at the University of Sydney, Harry Messel, who intercepted signals from Sputnik 2, but the Soviets refused to provide the telemetry codes needed to make sense of the data, which they had not been able to receive because of the satellite’s orbit. When the Soviets asked for a copy of the data, Professor Messel apparently told them to “go to hell”. I’m sure he had his reasons.

Thankfully, international co‐operation between scientists improved greatly by the time of the first moon landings, as portrayed in the film The Dish. Let me just say at the outset to our critics who maintain that our attitude to the NBN is much like Professor Messel’s attitude to cooperation with Soviets, that we are not Luddites and we are not wreckers. Australia - all of Australia ‐ must have modern, high‐speed communications. There is no doubt of that. The question is how we provide it. As the Shadow Minister for Regional Communications, I deal not only with broadband, but with a wide range of communications issues, includingTV and the mobile phone network. The Satellite sector has a role to play in each of these areas, and I will touch on these briefly before turning to the NBN. Digital TV As we turn off analogue television and switch to digital, the VAST satellite system is delivering metropolitan‐quality television to Australians living in the most remote areas. For many people in remote Australia, this is the first time they have had access to a decent freeto‐ air television service and local news. Imparja and Aurora had their place, and provided a basic service. The new VAST system is far superior, opening a new world of information and entertainment to Australians living the most remote parts of the country. VAST will create equality for people living in television reception black‐spots. There are small pockets throughout suburban Australia where television reception is poor. For these residents, their only options have been to take out Austar or the old free‐to‐air satellite service. Many of these residents live just down the road from people with full free‐to‐air coverage, and are at a significant disadvantage. VAST will largely fix this problem. The VAST service is available because your industry makes it possible. Mobile Coverage Your industry also provides mobile phone coverage in the most remote parts of the country. The largest terrestrial mobile phone network reaches about 99% of the Australian population, and covers about 2.1 million square kilometres. Australia’s total land mass covers about 7.6 million square kilometres, so about 5.5 million square kilometres, or 72% of our total land area, has no mobile phone coverage. Putting it in perspective, this is an area roughly the size of Argentina and India combined. Some of Australia’s key industries operate in these remote areas, and the satellite sector has developed innovative solutions to ensure that mobile communications are available across 100% of the Australian land mass, and out to sea.

Satellite phones are not new, but they are smaller and more accessible than ever before, providing opportunities for improved productivity and safety for our farmers, miners, and other people who live and work in remote Australia. Broadband The satellite industry is also providing better broadband options in remote Australia. It is this issue of broadband access that I would like to address in some detail today. If you listen to the Government’s rhetoric, you would have heard the Prime Minister, the Broadband Minister, and other senior ministers accuse the Coalition of being opposed to high speed broadband and indeed, of being opponents of innovation and progress. As I said earlier, nothing could be further from the truth ‐ the Coalition recognises the need for affordable and accessible high speed broadband, and we recognise the benefits of widespread broadband access. We are not against building a national broadband network. We are against the construction of a massive government monopoly at such a huge cost. We believe in market based solutions, and we believe that government should only intervene where the market has failed to deliver an acceptable outcome. Clearly, there are parts of Australia where the market has not delivered fast and affordable broadband. It is these broadband black spots that should be our focus. Instead, the Government is pressing ahead with the NBN three year rollout with little regard for the actual needs of Australian communities. Labor has been in power since late 2007. Since that time, Labor has cancelled the Coalition’s OPEL broadband plan, scrapped its own broadband plan, and replaced it with a new plan costing ten times more. In that time, only 2,205 premises have connected to the Government’s new fixed line network based on the most recently released figures. Only last week, the NBN’s own progress report revealed that only 110 premises on new estates had been connected to the network by the end of last year, against a target of 132,000 by the end of June. And this dismal performance in a sector where one would expect connections to be far easier than in existing housing stock. Meanwhile, our telcos have improved broadband access for millions of Australian families and businesses without a cent of Government support. It is competition between providers that drives affordability and innovation. The satellite industry is a perfect example of how competitive forces continue to spur development of new and innovative communications solutions. The range of satellite services and products available now is vastly increased and improved from twenty years ago. Much of this improvement has come about as producers and suppliers have reacted to the demands of

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Page 1 of 3 Speech to the Commsday Satellite Forum Westin Hotel, Sydney.

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customers.

The NBN does not have the flexibility or agility to innovate in this way. It is imposing a service on consumers, rather than reacting to demand. Also, instead of being flexible, to use a gambling metaphor, the Government has bet all its chips on fibre‐to‐the‐home. Nowhere else in the world is a government banking entirely on one technology. As you would all be acutely aware, technology develops rapidly. Technology considered “cutting edge” twenty years ago is now suitable for display in a museum. We update our smart‐phones almost as often as we change socks. The original iPhone was released in June 2007. Less than five years later, it is obsolete. With this in mind, the Coalition is deeply concerned that the Government has bet the farm on one technology. In contrast, the Coalition’s broadband policy will be technology agnostic. We will use the most efficient and cost effective means to deliver broadband access to Australian families and businesses. Following on from this, we dispute the need for a new government monopoly to deliver universal broadband access. The private sector should be involved in the delivery of broadband infrastructure, not just in delivering services. By nature, Government monopolies are rarely efficient. There are some here today who could recall the less than dynamic services offered by the Post Master General. NBN Co is already operating like a government‐backed monopoly, with astronomical staff

costs, construction delays, and systematic failure to reveal disclose important information to Parliament and the public. Access seekers are also complaining that NBN Co’s proposed Special Access Undertaking will do little to ensure that NBN Co operates in a cost‐effective manner. Lack of spending restraint is typical monopoly behaviour. We are often accused of a lack of vision when we criticise the $50bn cost of the NBN but it remains the case that no cost‐benefit analysis has been done. $50bn of taxpayers’ money is being spent with no clear indication of how it will improve the economy of Australia or the life of Australians. The Coalition does not believe that a plan drawn up on the back of a beer coaster on an Air Force VIP flight from Sydney to Perth should be the basis for such a massive investment. This back‐of‐a‐beer‐coaster planning directly contradicts Labor’s commitment in 2008 that future infrastructure projects would be assessed by Infrastructure Australia and determined by “economic, social, and environmental needs ‐ not short‐term political interests.” This is the biggest infrastructure project in Australian history. It is vital that independent experts have the opportunity to examine the project in detail to determine whether the benefits will really outweigh the costs, and whether another plan could deliver the same benefits at a lower cost.

Recent comments from the former head of the NSW Treasury, Percy Allan, call into question the lack of genuine planning for the NBN. He said: “True evidence based decision making requires consultation... had they examined the need, examined options and consulted they might have discovered cheaper ways to fill the need. If a lower than expected proportion of people end up subscribing to it because they don't want to pay Rolls‐Royce prices for a Rolls‐Royce service, this thing is going to be a financial disaster ‐ watch public opinion then." For the record, we believe we can deliver high speed broadband to all Australians at a fraction of the cost of the Government’s current NBN plan. As a starting point, we would not require the decommissioning of the HFC networks owned by Telstra and Optus. HFC is an important part of the broadband delivery infrastructure in our capital cities, reaching 2.9 million premises. It makes no sense to eliminate this key source of competition in the broadband market. In eliminating fixed‐line competition for the NBN, the Government believes it has secured the network’s viability. In any other business endeavour, deliberately eliminating competition would be considered an abuse of market power and likely be illegal under Australia’s competition laws. This fact alone should be ringing alarm bells. However, the NBN business case does not stack up, even with fixed line competition out of the way. Wireless technology is playing a bigger and bigger role in our lives, and it will increasingly compete in the same space as the NBN. The Government and NBN Co have repeatedly argued that wireless is complementary to NBN Co’s fibre network. The NBN’s business case is built on the assumption that the proportion of wireless‐only households will grow from the current 13% to plateau at 16.4% ‐ and this in the era of the smart‐phone. The NBN Corporate plan also assumes that there are no wireless‐only businesses. These assumptions are frankly laughable in the face of the way in which we now live. Social Analyst David Chalke, from Quantum Market Research, commented last week that the NBN is missing the boat. He said: “Everything is going to be wireless by the time they’ve dug up the roads and stuffed the pipes. It will be too late, it’s all going to be mobile and wireless in the future. The Lion is uncaged. It was chained to a desktop, no more. The future is all about mobility. ‘I’ll do it wherever I want, whenever I want, however I want, on a 4 ½ inch screen’.” The low prices and month‐to‐month nature of wireless is also very attractive. Wireless prices have been reducing in real terms for many years, while the NBN is now as cheap as it will ever be - if you can get it. Price is a key driver of broadband take‐up, with official statistics showing that low‐income households are significantly less likely to have a broadband connection than more wealthy households. NBN access prices will increase in coming years, creating a disincentive for lowincome families to sign up for a fixed‐line connection. 6 It is ironic that this massive government intervention fails to address this key barrier to access to broadband. Presumably, the executives at NBN have learned to live with the absence of cost‐benefit analysis and a business plan that flies in the face of reality. But the current low take‐up rates should be ringing alarm bells loud and clear. If you live in the NBN fibre footprint, you will eventually have to switch to the NBN if you want to retain a fixed‐line broadband connection, so NBN connection rates will inevitably rise. However, the NBN business case relies heavily on consumers signing up for faster and faster plans with bigger data allowances. Current take‐up rates indicate that users are not desperate to sign up for NBN services above the basic speed. There is a vibrant market for the latest and greatest technology. Around the world, we have seen people camping on the streets outside Apple shops, sometimes in the snow, to get their hands on the latest iPhone or iPad. The technology industry has proved the old adage “If you build it, they will come”. But we are not seeing this same level of demand for the NBN. Who can forget the Magnificent Seven? Those seven pioneering customers at the NBN mainland launch in Armidale who were outnumbered by the politicians and staff who arrived on the Prime Minister’s jet. Although there is almost universal acceptance that faster broadband is a good thing, we are seeing little perceived need for the very fast speeds offered by the NBN. Not every household contains a host of enthusiastic on‐line gamers. Not every business needs to up or down‐load vast quantities of data on a daily basis. This is translating into low take‐up rates. The most recent figures released by the Government give a clear indication of the current lack of demand for NBN fixed‐line services, particularly in the first release sites in Tasmania: In the six months to December 31, 2011, only 54 more premises activated NBN services. The NBN has been available in these sites for more than 18 months. Clearly, residents are not racing out to sign up for NBN services. The Minister bragged in 2010 that Tasmanians were “queued up and waiting to come online”. The queue certainly appears to be short! The Minister knows that most families and businesses will eventually have no choice but to migrate onto the NBN and is banking on it. This attitude is incredibly arrogant. To succeed in business, you need to offer a product people want, at a price they are willing to pay. Without a cost‐benefit analysis we do not know how many people want the NBN product. As a protected monopoly, NBN Co does not need to worry about price, because it will have no competition. But, NBN cannot force people to buy its products either. Of course, there are parts of Australia where fibre will never be available. In this “last 7%”, the NBN will use wireless and satellite to deliver broadband services.

In principle, using wireless and satellite to reach remote Australia is consistent with the Coalition’s position. However, as with everything this Labor Government does, the devil is in the detail. I have spoken to a range of stakeholders about NBN Co’s decision to own and operate

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dedicated satellites, and there are many unanswered questions. The most obvious one, given the history of government owned and operated satellites in this country, is why would the Government commission its own satellites and risk another Aussat disaster? There are a number of global companies, some represented in this room, with the experience and expertise to provide whatever capacity the government requests, without the associated risk of owning and operating single purpose satellites. For those of you not familiar with the Aussat story, it provides a particularly instructive lesson in how NOT to run a government program. Aussat was the Fraser Government’s attempt to inject some competition into the Australian communications landscape. Aussat was the Rolls Royce option. The Government of the day made unrealistic claims about the potential of Aussat, but many services proved to be too expensive for potential end‐users. Aussat could not turn a profit, and it eventually cost Australian taxpayers $700 million when it was privatised in the early nineties. The Labor Government must be careful to avoid repeating the mistakes of the past. We must also consider the possibility that satellite and wireless will play a larger role in the finished NBN than is currently planned. We know that the NBN is behind schedule, over budget, and failing to meet take‐up goals and, crucially, therefore failing to generate forecast revenue. The longer this trend continues, the more likely it becomes that fewer and fewer homes and businesses will ever see a fibre optic connection to their door and will instead be offered wireless or satellite services. And yes, that will mean that the NBN comes increasingly to look much like the Coalition’s OPEL plan which the Government scrapped. As I said, we are not wreckers or Luddites. Australia needs high‐speed broadband. But it does not need a Government debacle on a grand scale. The said fact is that the NBN can be added to an the already long list of Labor’s bungles and failures: Pink batts, BER, Mining tax, Kevin Rudd’s ETS, Solar rebate schemes, Renewable energy certificates, border protection, the Malaysian solution, Julia Gillard’s East Timor thought bubble, cash for clunkers, the Australia Network tender, Fuelwatch, grocery choice, stimulus cheques sent to dead people and pets, the live exports fiasco, and the bank deposit guarantee bungle. It’s fair to ask what the Coalition will do with the NBN when, voters willing, we return to government. Obviously, we will not be ripping up cables. We will need to take stock of where the NBN stands, work out how we can get the best return for the taxpayer from the

infrastructure that has been built, and then return to the task of extending the high‐speed network in a cost‐effective way. The contractual situation the new Government inherits will also be a key factor in determining how to move forward. We cannot know exactly what the future holds. However, I do know that your industry will continue to be a key part of Australia’s broadband future. For many of you, I suspect the NBN has little impact on what you do, and I have no doubt you will keep providing innovative and effective solutions for regional businesses and families, outside the framework of the NBN. Your industry has much to offer Australia, and I can promise you the Coalition respects and supports your industry. In Opposition, and one day in Government, we will listen to you, and work with you to ensure that regional and remote Australia has access to innovative, accessible, and affordable communications solutions. Thank you.

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