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Fourth APEC Ministerial meeting on telecommunications and information technologies, Cancun, Mexico, 24-26 May 2000: Network competition and global services: speech.



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SENATOR THE HON RICHARD ALSTON

Minister for Communications, Information Technology and the Arts

Network Competition and Global Services

Fourth APEC Ministerial Meeting on Telecommunications and Information Technologies Cancun, Mexico 24-26 May 2000

Minister Carlos Ruiz Sacristan, fellow Ministers and colleagues.

May I begin by joining with others in congratulating our hosts, the United States of Mexico, both for their generous hospitality and for their choice of an excellent and timely theme for our gathering: convergence. Convergence colours almost every issue that comes before Ministers with responsibility for Communications and Information Industries and we have already heard a number of thought provoking presentations on the implications of convergence for governments, industry and communities.

Globalisation and Resource Mobilisation

I would like to talk today about globalisation and resource mobilisation. Mr Chairman, Australia welcomes the benefits of globalisation. Benefits that include access to investment, to markets, to information networks, to technologies and to human interaction on a vastly increased scale.

However, only through open competition can these benefits be fully realised. Within the region we welcome and encourage APEC efforts to increase competition and to reduce barriers to trade through the reform of technical and regulatory arrangements.

However we need to recognise that, for competition to flourish, it is necessary to ensure that dominant players cannot take advantage of their market power to the detriment of new entrants and smaller competitors. For this reason in Australia, we have provided our general competition regulator, the ACCC, with specific powers over the telecommunications industry to ensure effective competition. For example, there is provision for the ACCC to arbitrate on issues including interconnect pricing where commercial agreement cannot be reached.

APEC Ministers Have Supported Competition and Transparency

In previous APEC meetings Ministers have strongly supported the principles of competition and transparency in communications markets.

Most recently at Singapore in 1998, we commended the WTO Reference Paper on Regulatory Principles as a basis to prevent abuse of market power by a major supplier and to put in place arrangements for transparent, non-discriminatory interconnection at cost-oriented rates.

Looking at universal access objectives, we agreed in Singapore on the importance of 'equitable sharing of costs among the relevant contributing parties'. We agreed that the obligation to support the provision of universal service 'should not affect the relative competitiveness of the operators and service providers in the telecommunications market'.

Interconnection

Effective interconnection arrangements are a fundamental requirement of the modern network environment. At this meeting in Cancún, we should endorse the APEC Telecommunications Interconnection Principles and give impetus to their implementation.

Those principles recognise that a major supplier has the ability to materially affect the market for telecommunications services as a result of its control of essential facilities or its use of its position in the market.

The principles recognise that a major supplier has an obligation to provide interconnection under non-discriminatory and clearly identified terms and conditions, including prices.

In all of this we have recognised the importance of competitive communications services and, where necessary, an appropriate and clearly identified sharing of costs, not just for the benefit of the telecommunications industry but for the wider economy.

The Challenge of Internet Charging Arrangements

Australia is an active trading economy that is sensitive to the costs of communication over distance, and our telecommunications regime is designed to resist all attempts to capture markets and reduce competition.

The study by the Telecommunications Working Group found that data traffic, primarily Internet Protocol traffic, is already more than half of global telecommunication traffic and could comprise 95% of global traffic within four years. As data traffic increasingly absorbs telephone traffic, the structure of charging arrangements that apply to data networks is becoming increasingly important for all of us.

For us, this issue comes down to the need to recognise exchange of traffic and exchange of value in interconnection relationships between ISPs.

If ISPs' costs to provide Internet services are higher than they should be, then all our Internet users pay more for Internet access than would be the case under a more effective competitive market. If one economy's ISPs and Internet users are paying to subsidise

another economy's ISPs, international competitiveness is bound to be affected.

We have estimated that under the existing international charging arrangements, Australian data carriers are subsidising North American carriers and ISPs and their customers by up to $A500m this year.

Implications for APEC Members

The issue is important to all APEC members in terms of the development of converged services.

The current lack of clear mechanisms to identify exchange of value between interconnecting networks provides the opportunity for backbone Internet carriers to, in effect, charge a toll for access to content that they do not generate or contribute to; and

The lack of transparent cost sharing principles makes it harder for new competitors to enter the market and for networks in the less developed economies to extend the global reach of the Internet by expanding into underserved areas.

Effective competition and principles for Internet interconnection would reduce prices and improve services. It is therefore timely that we are addressing the issue at this Ministerial Meeting.

Australia strongly favours a market-based solution to the issue of international charging arrangements for Internet services. We recognise that the evolution of Internet services has produced a number of structural imbalances that put new entrants at a competitive disadvantage.

I commend and support the proposal, resulting from the work of our officials, that Ministers endorse some over-arching principles for international Internet charging.

in particular, the principle that Internet charging arrangements between providers of network services should reflect the contribution of each network to the communication; and the use by each party of the interconnected network resources.

Rural Services

Which brings me to the second part of my address - the importance of addressing the telecommunications needs of people in rural areas.

The competitive telecommunications market in Australia, established through the Government's 1997 legislative reforms, has matured to the point where increasing numbers of carriers and service providers are looking to rural markets as attractive investment opportunities. They see these markets as providing unique opportunities to meet the needs of customers hungry for access to the new wave of communications services.

Universal Service Obligation

Despite these market initiatives there remain some regions in Australia reliant upon universal service obligation mechanisms to ensure delivery of basic and cost-competitive telecommunications services. This is a challenge faced by all economies.

Traditionally universal service obligations have been achieved by imposing regulatory measures on the dominant carrier. In Australia, we are now taking some bold steps to apply competitive principles to our USO regime. Earlier this year, the Government announced that it would launch two pilot schemes in rural Australia to provide a competitive environment for the supply of USO services in these regions.

Under this approach, pre-qualified telecommunications carriers will be able to compete for the available universal service payments. This will provide consumers with a choice of suppliers and we anticipate that competition between suppliers will lead to the provision of more and better services at lower prices.

These pilots will enable the Government to test and develop USO contestability arrangements with a view to their wider deployment.

It will also resolve endless conflicts and disputes between the incumbent and new entrants as to the true costs of provision of the USO.

In addition to these pilots the Government is conducting a major A$150m tender for the provision of untimed local calls to the 40,000 most remote Australian households which currently do not have access to this service. The successful tenderer will be chosen on the basis of the most attractive service package offered to consumers. Potential providers will be able to deploy new technologies to deliver both basic and advanced services in a more effective and cost-efficient way.

Devoting the proceeds of privatisation to improving rural services

While competition is clearly the main driver of better services in rural Australia, the Australian Government has also taken the opportunity from the first two partial sales of its main phone carrier, Telstra Corporation, to set aside significant funds for direct investment in improving telecommunications infrastructure and services, particularly in rural areas.

From the first one-third sale of Telstra in 1997, the Government is investing A$250 million through a Networking the Nation program. This is a community based program, where local rural communities make applications to the Fund based upon what they consider are the best solutions for their own particular needs. It is being used to extend mobile phone coverage, to improve remote broadcasting services, to build more advanced telecommunications networks and to improve Internet access.

From the second 16% sale of Telstra last year, the Government is investing a further A$671 million to improve rural telecommunications and to stimulate the development of Australia's information technology industries.

Funding is being provided:

To enable rural communities to establish telecommunications networks providing access to advanced services; ●

To ensure all Australians, regardless of where they live, can access the Internet at the price of an untimed local call; ●

To provide continuous mobile phone coverage along all of Australia's major ●

highways; To ensure local governments around Australia provide their services over the internet; and to ●

establish IT incubators in all States and Territories, and assist in the development of very high-speed broadband networks. ●

Conclusion

In conclusion, I would like to stress our strong view that a pro-competitive approach is needed to maximise the benefits of the converged economy.

Liberalisation is fundamental, and must be supported by pro-competitive policies to check abuses of market power by dominant players. Market principles that apply in the area of basic telecommunications are no less important in the world of the Internet and electronic commerce.

Internet technologies tend to foster a "hub and spoke" network system that commercially favours the hub at the expense of the periphery. Because of this fundamental characteristic, there is a risk that Internet growth could actually reinforce the digital divide domestically and internationally rather than, as we all hope, serving to close the digital divide.

In the APEC region, we need to continue the process of liberalisation and to encourage competition, including through a stable, accepted, and market-based system of international charging arrangements for Internet services.

Colleagues,

I look forward to agreeing with you the principles to foster Internet growth in our region, as well as other relevant issues upon which our officials should continue to work through this uniquely important forum of APEC.

Finally, I would like to express my appreciation and admiration to our host, Minister Ruiz, and his capable staff, for their generous and efficient hosting of this meeting in the magnificent setting of Cancun.

Thank You.

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