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Address to the ABN AMRO Conference: Sydney: 6 April 2006.



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Senator the Hon Helen Coonan Minister for Communications, Information Technology and the Arts

Deputy Leader of the Government in the Senate

Address to the ABN AMRO Conference

Sydney

Thursday 6 April 2006

Introduction As expected there has been a fairly predictable, and at times exaggerated, response to proposals I released last month as part of a discussion paper on media reform in Australia.

Endless graphics and tables have been drawn up listing the winners and losers, the aggressors and the prey, the dominant and the dominated. Most entities seem to be appearing on both sides of the lists, which is puzzling!

Some commentators think the reforms do not go far enough, some think the safeguards are too high and some too low and some think that I needn’t have bothered because broadband technologies will mean no-one will be watching traditional television in the near future.

But in drawing together a comprehensive package of options for reforms to ensure Australia can meet the looming digital challenge, there was only one group that was front of my mind - Australian consumers. And ultimately, understanding the needs of consumers is good for business.

A lot of the media has, in my view, wrongly focused on what they claim Australian consumers stand to lose in any media reform process.

While I do not for a moment dismiss concerns about excessive levels of media concentration as a result of relaxation of regulation, I think the naysayers miss the point - the package is designed to balance any potential consolidation of media in Australia with opportunities for new and innovative services for consumers.

My proposals differ from the Government’s previous attempts at media reform. I am not proposing a plain vanilla plan for media.

Much has moved on since we first introduced our long-standing policy to reform Australia’s media ownership laws.

While these laws are still a key element of any media reform proposal, the fate of the package does not lie in these reforms alone. Australian consumers want and deserve more.

The package as a whole is bigger than the sum of its parts. It is carefully calibrated to balance what can be achieved now with what can be achieved when we reach digital switchover.

It allows media players in Australia to break out of their current lock-step and diversify their businesses, while protecting consumers from undue concentration.

At the heart of my proposed package is a Digital Action Plan to energetically and proactively drive Australia to digital switch-over. In many respects, I think this is the most important element of the package for the long-term future of Australia’s media, for it is fundamental in ensuring that Australia is not left behind.

Between now and digital switchover, I have proposed using some spare spectrum to introduce new digital only services in Australia.

New ‘in home’ digital services could be one of the key elements to assist in driving take-up of digital television in Australia so we can reach switch-over as soon as possible.

I thought long and hard about the right approach to media reform in Australia, about the need to balance the legitimate interests of the industry with the emerging needs of consumers.

As a result, I believe the framework set out in the discussion paper is overall in the national interest and, if adopted, will ensure Australia does not become an analogue backwater in a digital world.

Relaxation not removal Australia is not alone in grappling with the issue of media reform both in a digital and a media ownership sense.

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One confusion that has arisen since the discussion paper was released is that I am proposing complete deregulation of the media market in Australia. A free-for-all for the media players.

This is not correct. What I am proposing is the relaxation of media rules in Australia, not their removal.

Under the proposal, cross-media transactions would be allowed, subject to there remaining a minimum number of commercial media groups in the relevant market - four in regional markets, and five in mainland state capitals.

In addition to these commercial media services, consumers would continue to have access to the extensive radio and television services of the two national broadcasters, community television and radio broadcasters, subscription TV, a proliferation of news, information and entertainment on the internet, ‘out of area’ newspapers (such as national newspapers) and, potentially, new digital services.

Existing specific limits on audience reach and the number of licences that can be controlled by one person (one television and two radio in one market) would be retained and cross media entities would be required to disclose their relationship when reporting on another entity within that group.

ACMA would oversee the diversity elements of media transactions and the ACCC would separately assess the competition impacts of transactions.

The ACCC would play a key role in ensuring potential media transactions are scrutinised for their impact on competition in relevant markets in accordance with the requirements of the Trade Practices Act.

The Government also proposes that the foreign ownership restrictions specifically relating to media will be lifted.

However, the foreign ownership safeguards provided by the media sector’s status as a ‘sensitive sector’ would be retained. These safeguards should be sufficient to ensure that any investment that is contrary to Australia’s national interest is prevented.

Media ownership - international experience Nearly all countries recognise the importance of protecting media diversity and have in place regulatory measures to achieve this.

However, Australia’s current cross-media laws are significantly more restrictive than those of a number of comparable economies.

In fact, out of comparable Western economies, only France has more restrictive ownership laws.

The United Kingdom, Canada, Germany and New Zealand all take a more liberal approach to cross-media mergers than the current Australian restrictions.

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In the UK, cross-media ownership is permitted in all but the smallest markets, as long as there are at least three independent media proprietors and the BBC.

There is a restriction on companies with significant holdings in the national newspaper market from owning Independent Television licences, which comprise the primary free-to-air broadcasting network, and there is an element of Ministerial discretion permitted.

In Canada, media companies are able to own a newspaper and hold TV and radio licences in the same market subject to a “benefits” test, which is akin to a public interest test and, in some cases, the maintenance of editorial separation.

There are no national cross-media ownership restrictions in Germany, and New Zealand relies entirely on competition policy to regulate media ownership.

In the US, while there are media ownership restrictions, the picture is somewhat different.

While ownership of a television or radio licence and a newspaper is prohibited, ownership of both television and radio licences is permitted in larger markets.

However, the Federal Communications Commission will soon review media ownership restrictions in the US, and issues such as the removal of cross-media limitations in large markets and an increase in the national television audience reach may again be under consideration.

In looking at overseas comparisons, it is important to bear in mind that each country’s rules reflect their differing industry structures and, to an extent, cultures. In this sense, a direct comparison with Australia is of limited relevance.

However, in considering different approaches to regulation, my conclusion is that a quantitative approach to protecting diversity is better than a qualitative one.

Setting a numerical floor for diversity - partly taken from the US and UK models - provides greater certainty for both industry and the public.

It also removes the subjective nature of any qualitative measure such as a public interest test for mergers , which ultimately relies on an individual - whether it be a regulator or a Minister - making a judgement about diversity

protection.

In my view, the approach to cross and foreign set out in the discussion paper strikes a good balance.

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We are recognising the cultural and economic importance of media by retaining it as a ‘sensitive sector’ for foreign investment, while removing rigid, sector specific prohibitions that are no longer relevant to 21st century media.

The reforms do not go far enough This package is about facilitating a transition between the old analogue world in broadcasting, which has been accompanied by artificial restraints on ownership of media in Australia, and the new digital age.

It is about providing room to move for existing media players and strong safeguards to protect against undue concentration in the media market.

The proposed 5/4 test seeks to find a balance between establishing too high a threshold and preventing any mergers from taking place and providing protection for a minimum level of diversity. This is a floor - not a target.

A floor of five media groups in larger metropolitan areas provides a minimum threshold for diversity of commercial media while still allowing flexibility for industry.

In Sydney and Melbourne, the operation of the control and reach limits would mean that at least six separate groups must be maintained.

In regional markets, a floor of four media groups is proposed.

In practice, this will mean that there are few or no changes in around 85 per cent of regional markets, as many of them are already at or below that threshold.

In 64 per cent of regional markets there will be no change permitted unless a new player first enters the market, because these areas are already at the threshold of four groups.

If the diversity test set a lower floor - say three or fewer groups - there would be a significant risk of concentration in regional markets where the potential for market domination is very real. This is why, in my view, four is a realistic number.

It should also be remembered that media players in smaller regional markets are already often themselves dominant - in quite a few instances a monopoly in their platform, quite often privately owned.

So, in such instances, these companies would only be involved in mergers or takeovers if the owners wanted them to.

Rural and regional and local content Regional issues in media reform will obviously be a key consideration of any proposals put forward by the Government.

We remain committed to ensuring that Australians in regional markets continue to have access to local news and information regardless of any

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ownership changes that might take place between the media outlets in their market.

While I recognise the concerns of my colleagues, people living in rural and regional Australia and the regional media industry, most people seem to be talking at a fairly general level rather than raising specific concerns or potential solutions.

The reform package already contains a series of measures to ensure regional diversity and localism is protected, and in my view it strikes a fair balance.

I have already spoken about the ‘5/4’ diversity test.

I have also mentioned the role of the ACCC. The ACCC would continue to play a key role in ensuring that potential media transactions in regional areas are carefully assessed for their impact on competition in relevant markets.

In 2001, the Government amended the Trade Practices Act to specifically add regional Australia to the definition of a market.

This enables the ACCC and the courts to consider the competitive impact of proposed mergers or acquisitions on substantial regional markets.

The then-Minister also directed the then-ABA (now ACMA) in 2003 to ensure that changes to regional radio composition through the sale of licences to licensees who would narrow or change the format of the service, could be addressed.

Under my proposals, those protections will remain.

The Government also recognises that local content is a key issue for regional communities.

As regional media markets are smaller and have higher costs and lower revenues than metropolitan markets, the Government acknowledges that this puts local content under pressure, but this is not a new issue and it can be examined separately from any changes that may occur due to cross media transactions.

For example, in 2002, following the announcement of the withdrawal of news services by some regional television networks, the then-ABA imposed licence conditions on networks in the Eastern aggregated markets of regional

Queensland, northern and southern NSW, and regional Victoria, to ensure that they provided a minimum level of local content.

The Government now proposes to legislate to require those licence conditions to be retained in those markets and also in Tasmania, to ensure that local content requirements remain in place for regional television services.

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Television broadcasters are also required to maintain adequate records and report every six months to ACMA on their performance against minimum targets which include a six week total and a weekly minimum relating to news, current affairs and other matters of local significance.

ACMA recently audited the program to ensure reporting was accurate. The audit confirmed that all three regional broadcasters - Prime, WIN and Southern Cross - were meeting their obligations.

ACMA and the Government will continue to monitor the provision of local content in other regional television licence areas and also on regional commercial radio services.

Regional radio does not have the same formal licence conditions regarding the provision of local content as television does.

However, regional radio operators are required to conduct their operations in accordance with the Broadcasting Services Act which includes a requirement to provide appropriate coverage of matters of local significance.

The Government may consider extending licence conditions relating to levels of local content to regional radio if local content levels decline materially.

As part of the consultation process I will of course listen to any concerns and suggestions emanating from my colleagues and others on particular challenges for rural and regional Australia.

Broadband will kill television One of the more pessimistic suggestions emanating from the commentariat is that I needn’t have bothered with a plan to convert to digital in Australia, because innovations in ICT will overtake everything and kill traditional television.

While I agree that advancements in technology and the rise and rise of the Internet provide Australians with greater choice and diversity, I do not think we are looking at the death of traditional services but more the evolution of what we know and love.

Broadband take-up across Australia has been growing exponentially. We now have more than three million subscribers - and that number will only continue to grow thanks to the Government’s $3.1 billion Connect Australia package.

But I do not subscribe to the argument that we will all now turn to the computer and broadband services as opposed to traditional television as the sole or primary source of our entertainment.

A very large majority of Australians continue to rely on traditional forms of media, television in particular, as their main source of news and entertainment. And they are likely to do so for some time yet.

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As I have said in the discussion paper, the impact of digital technologies means the current regulatory settings, which are largely designed for an analogue world, require review.

It is true that in a post-analogue environment it may not be feasible for industry to be so closely regulated. In a digital world, a range of new services will be able to be offered, and some are being already, that are much more

difficult to regulate.

However, the regulation of the more traditional media platforms does not have to stifle opportunities for innovation on existing and newer platforms.

Nor can the Government simply ignore the regulatory framework for current services on the basis that new services will eventually make them redundant.

Ideally, the Government will provide an updated regulatory path for the industry and a plan to get to digital switchover and we must ensure Australian consumers can enjoy new services at the same pace as the rest of the world.

My proposals provide scope for these new services to emerge during the transition to digital and for an even wider range of services to be permitted when we reach digital switchover.

In respect of broadband and other new technology platforms, my guess is that their popularity will continue to rise.

People will continue to look at new ways of delivering content including, for example, an infrastructure provider building a network that various operators could then use to deliver their services.

But whatever happens, for the foreseeable future I would suggest that the new services that are offered are much more likely to complement rather than replace the more traditional media services that consumers are familiar with and expect will continue to be available.

IPTV versus the Internet Another furphy perpetuated since the discussion paper was released is that the Government is stifling TV over new platforms and is going to regulate the internet.

Nothing could be further from the truth. There is nothing in the package which imposes new regulatory requirements on services available on the Internet.

The Government remains of the view that ordinary streamed services over the Internet - which are widely available from both local and international websites - should not be regulated as broadcasting services.

For instance, streaming of video content or movies on demand available over the Internet are not considered to be broadcasting services.

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A number of new services are emerging using Internet protocols as part of the underlying delivery mechanism, which can be delivered over broadband - IPTV services.

At present, it appears that most IPTV services are being developed using a similar business model to pay-TV.

While the technology underpinning the platform may differ, the content (multiple channels or pay per view) is still delivered via a closed system, usually involving a set-top box.

One example is the subscription TV service that operates in Hong Kong using IPTV technology, called “now Broadband TV”. For all intents and purposes it looks like any other subscription TV service - it is just delivered over a

different platform.

This can be distinguished from general internet services which are delivered on demand, on a point-to-point basis - that is where individual users select their own content for download or viewing over the internet.

I acknowledge that the distinction between current IPTV services and what could be referred to as general Internet services may diminish over time. Whether or not these services would be regulated in Australia as “broadcasting services” does not depend on the platform by which the services are delivered, but the nature of the services themselves.

ACMA, as the regulator, within the bounds of the Broadcasting Services Act, currently determines this distinction and there are no plans to change that.

Whether or not something constitutes broadcasting and requires a licence will depend on the particular circumstances of the service being offered, whether it is via IPTV, satellite, terrestrial or some other platform.

For example, if somebody wants to deliver a new subscription TV broadcasting service, regardless of what platform they choose to deliver it over, they will need the appropriate licence.

Likewise for a narrowcast service or a datacasting service or a commercial broadcasting service. This is a clear objective in terms of broadcasting regulation and nothing proposed in the discussion paper changes this.

Clearly, if the regulator’s advice to me is that there are significant inconsistencies in the application of the current legislation to ‘old’ and ‘new’ services, these are matters which the Government could look at.

New digital services As I mentioned earlier, I consider the Digital Action Plan to be the heart of the proposed media reforms.

With any reforms we must be mindful of the broader national interest and new digital services are one of the benefits for consumers in this instance.

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Some of these new services would be delivered over two vacant channels of digital spectrum.

From 1 January 2007 the holder of a Datacasting Transmitter Licence would be permitted to broadcast an expanded range of services such as free-to-air narrowcasting, subscription narrowcasting, subscription broadcasting as well as the datacasting content currently permitted.

These services could be delivered over the terrestrial spectrum to a normal TV in people’s homes or they could potentially be delivered to a mobile device, possibly using the DVB-H standard or similar technology.

Aside from pay-TV applications or television over a mobile device, there may be opportunities for new free-to-air services.

As I made clear in the discussion paper, if this spectrum is allocated, it will not be permitted to be used for a new free-to-air (FTA) commercial television service, but this does not mean that there are not other interesting FTA services that could be permitted.

There are various types of services that could be provided under a datacasting content licence, some of which are being demonstrated in the datacasting trial currently underway in Sydney.

There may also be an opportunity for narrowcasting services on the vacant spectrum.

Narrowcast services refers to channels that cover a “niche” rather than broad interest.

Narrowcasting could be targeted to special interest groups, by being provided during a limited period, to a limited area or for a special event.

In contrast, other types of broadcasting services are distinguished by the fact that they ‘provide programs that when considered in the context of the service being provided, appear intended to appeal to the general public’.

On this basis, programming which would be considered narrowcasting would not generally receive significant airplay on commercial broadcasting services.

Some examples might be channels that were targeted to ethnic or religious viewers or young children; they could perhaps contain educational information or stock market and financial information or they could cater to a common niche interest such as boats or provide classified information on jobs.

The Broadcasting Services Act provides for ACMA to determine additional criteria or clarification in relation to the definition of narrowcast services and for the Minister to direct ACMA in this regard.

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Whether a particular channel of programming falls into a category such as narrowcasting, will ultimately be a matter for ACMA.

While the Government has not taken a decision to allocate these services, we have asked ACMA to look into how these channels might be allocated, what they might be used for, whether they would be issued together or separately and other technical issues.

During my informal consultations with industry and since the release of the discussion paper I have been heartened to hear of several potential uses for the spectrum, and I look forward to hearing more over the coming weeks and months.

This is our opportunity during the transition to digital to offer Australian consumers something new and to encourage greater interest in digital services in the lead up to switchover.

Conclusion

In my view, the options proposed in the discussion paper are significant, but realistic.

It is important to remember that what we are talking about is a transition period where there are going to be significant technical and other challenges and it is important that in implementing change, the risks of disruption to the services that consumers are familiar with and enjoy are minimised.

As I said recently, I don’t think anyone is under the illusion that the tasks ahead of us are small. The enormity of driving this country to digital switchover cannot be underestimated, but that is not a reason for putting

media reform generally in the too hard basket.

It is critical that we have this discussion now on the future of our media and that all interested parties have an opportunity to participate in that process.

Rather than there being a deafening silence about solutions, I urge everybody who is interested in the framework to not simply criticise, but to make constructive suggestions about viable ways forward. The best outcome for this country will be achieved by us talking to each other and working together to ensure that Australia is not left behind in the digital age.

I thank you for the opportunity to address you today. I wish you well for the remainder of the conference, and I look forward to your constructive contribution to the challenges ahead of us.

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