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Connecting Australia: fresh opportunities: address to the Australian Financial Review National Infrastructure Summit: Melbourne: 23 August 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

Connecting Australia: Fresh Opportunities

Address to Australian Financial Review National Infrastructure Summit

Melbourne 23 August 2006

Introduction Thank you. It is a pleasure to be here today.

This summit brings together the many industry sectors that contribute to our national infrastructure. And I am very pleased that communications infrastructure has been added to this year’s agenda.

Technology and broadband in particular play a vital role in national and regional development in Australia. Broadband is changing the way we work, the way businesses interact in the global marketplace and the way essential services such as health and education are delivered.

It is improving productivity and contributing to our economic growth.

One report suggests that next generation broadband could produce economic benefits of between $12 and $30 billion per annum.

And that is why the Australian Government is devoting considerable resources - $1 billion to date and a further $3.1 billion proposed - to the rollout of advanced communications services around Australia.

There can be no argument that broadband infrastructure is critical to Australia’s future prosperity. It must be a national priority.

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Today I want to look at the changing nature of the telecommunications infrastructure debate in Australia, how the Government is leading the way in developing a strategic national approach to infrastructure rollout and how we plan to meet future challenges.

Australia’s challenge It has been said that broadband is a tale of ever increasing bandwidth.

This is not a ‘set and forget’ policy exercise particularly as we cannot imagine the services that will be available or what consumers will be demanding in five years time.

Rather than trying to shoot a moving target by picking technologies and lumping Australian consumers with the network of the moment, we do need to take a strategic, national view of the broadband challenge.

My objective is for Australia to be a world leader in the effective use of broadband.

My vision is to drive next generation broadband capability to underpin Australia’s social and economic future.

And the Government has equitable access to telecommunications services for all Australians at the heart of our considerations about how best to connect Australia.

To achieve this will require more than just ambitious targets.

The starting point for looking at where we are at and where we need to get to requires recognition of a few fundamentals.

Australia does have the unique challenges of a relatively small population, difficult terrain and many scattered and remote communities to connect.

Unlike many countries - such as the US, UK and Canada - at present there is no effective competition in access infrastructure to the home.

Canada is often nominated as a country that has successfully confronted many similar geographic challenges that Australia faces.

However, it must be pointed out that Canada has enjoyed competitive tension between three large cable companies and several telco service providers. In contrast, Australia’s incumbent telco still occupies a dominant position as the owners of the copper wire access network as well as an extensive HFC cable network and a 45 per cent share of the mobile market.

Misconceptions about broadband The broadband debate in Australia has, recently been too focused on Telstra’s proposed $4 billion Fibre-to-the-Node deployment.

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This has resulted in a number of misconceptions about the true state of broadband in Australia.

The reality is that high speed broadband is available to a significant number of customers that live or work in the footprint of the proposed FTTN network - which was to have been the most populous areas of the five major capital cities.

And high-speed broadband in Australia is not reliant on only one carrier. At least nine service providers already offer ADSL 2+ in the capital cities and major regional centres at very fast speeds.

Pay TV cable networks pass around 2.7 million premises in major capital cities and offer data speeds of up to 17 megabits per second.

Some telecommunications experts estimate that at least 55 per cent of Australians already have access to very fast fixed broadband today via either ADSL2+ or cable broadband.

And where cables don’t reach, in many areas wireless broadband services are already offering speeds at up to 2 mbps.

Wireless broadband services are available to almost 6.5 million premises including around 835,000 premises with no access to ADSL.

Wireless standards are continuing to develop and evolve, with increased range and bandwidth the hallmarks of each new generation wireless technologies.

For example, the WiMAX forum has indicated that wireless broadband speeds of 12 mbps or more are expected to become available in the near future, with further developments to come.

And beyond even wireless’ reach, satellite services provide broadband Internet access in even the most remote locations.

I acknowledge there are people who experience difficulties in getting access to adequate broadband services and this must be addressed.

Through the $878 million Broadband Connect package and its metropolitan equivalent - Metro Broadband Connect, we are working to overcome these issues.

We do know that Telstra’s new 3G wireless platform is proceeding apace and that in the future, Telstra may turn on its ADSL2+ technology that has been installed in many of its exchanges.

Both of these developments will assist a greater number of Australians to access fast broadband.

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Despite the hold on fibre-to-the-node, both Telstra and its competitors continue to have the opportunity to build on their own next-generation networks.

It is these networks that will continue to provide choice and lower prices for consumers. This is why ULL pricing is clearly such an important issue.

As any realistic proposal for a fibre network will begin - and in some cases end - in metro areas, the ULL is critical in continuing competition and service delivery for regional Australia.

While not full facilities based competition, the ULL does mean that competitors are not locked into resale only, and are able to differentiate their service and offer new pricing constructs.

The ULL is an important building block to full infrastructure based competition. In fact, with plans for fibre to the node realistically only being rolled out to inner metro areas in the foreseeable future, the ULL will continue to deliver for outer metro areas and larger regional centres.

Is fibre the be all and end all? While fibre-to-the-node would have been a welcome development in the Australian telecommunications landscape and may yet still be rolled out, it was not necessarily the silver bullet for better services for all Australians.

I have always advocated taking a technology neutral approach to encouraging investment in infrastructure in Australia. For it is likely that a mix of technologies will be needed to deliver all Australians high speed services.

I think few people would disagree with the proposition that fibre is unlikely to be rolled out to our most remote communities in Australia. I would be very glad if someone proves me wrong.

However, people living in rural, regional and remote Australia - and those in our outer metropolitan areas - should be heartened that technology, competition and targeted investment by Government are helping to deliver the services they need today and will continue to deliver the services they want and need tomorrow.

Extending fibre into the local loop to enable higher bandwidth services is not a new issue. For example, Telstra flagged plans to replace its copper local loop with fibre optic cables as far back as 1979.

Ultimately it is highly likely that the copper network will be fully replaced with fibre at some stage.

This is because the very high capacity of fibre will be necessary as more and more higher bandwidth services and applications come on stream.

However, it must be said that fibre is only one way to deliver higher bandwidth services.

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I have said previously that while Telstra’s investment in fibre would have been welcome, it does not spell doom for broadband in Australia.

While fibre has been either considered or rolled out in several countries, it has not been an unqualified success. South Korea is often quoted as an example of the success of a fibre roll-out.

It is useful to point out that the Korean Government made a significant investment in the rollout - to the tune of $40 billion over 12 years.

Despite the ubiquity of fibre, in December 2005 Fibre-to-the-Home accounted for only 8.7 per cent of total broadband subscriptions in South Korea.

In the United Kingdom British Telecom (BT) has done some trials of Fibre-to-the-Premises (FTTP) infrastructure commencing in September 2005.

However, very few homes are estimated to have access to FTTP (about 34,000) by the end of 2006.

This confirms the findings of UK regulator Ofcom’s Strategic Review of Telecommunications which showed very low interest in fibre by service providers.

BT has now indicated that fibre will only be considered for deployment in new ‘green-field’ developments.

In fact, if you look at the OECD statistics for the provision of broadband services, you will see fibre is still a very small proportion of the total. The majority of services are being delivered by DSL and by cable.

While cable subscribers outnumber DSL in Canada and the US, DSL is still the leading platform in 28 out of the 30 OECD countries.

And in the case of DSL, ULL is playing an increasingly important role in spurring on better service and price options.

Detractors often unfairly compare Australia to countries that differ socially, economically and geographically - thereby comparing apples with oranges.

For example, North East Asia and Singapore Governments have taken a very interventionist approach to rolling out next generation networks. These markets are very different to Australia.

They have high population density and are high wealth countries that have invested significantly in networks and place significant obligations on carriers without distorting the budget bottom-line or the market.

The new way of thinking

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A positive out of the FTTN debate then is that it has helped refocus attention on the important issue of broadband availability. But I want to reframe the debate around the real issue.

I want to encourage a paradigm shift in the way we think about broadband and the broadband market.

This shift is partly driven by the evolution in technologies and partly driven by the increasing sophistication of consumer’s needs and expectations.

On the technology side there has been a fundamental change in the structure of the market because of the digitisation of networks and the move to IP based technologies that provide for simultaneous transmitting of voice, video and the Internet.

It has meant that the ability to supply an end user with a service is no-longer directly tied to the control of the network - as was the case in the PSTN world.

There are three vital elements to the evolving broadband market:

æ physical infrastructure- which provides the access network including the civil infrastructure such as ducts as well as fibre-optic cables;

æ connectivity - which lights up the fibre and manages the routing of traffic; and

æ services and content, which embodies the applications which consumer use, including access to the world wide web, movies, entertainment and other services such as VoIP telephony.

We should start to look at the implications of this for both policy development and industry structure so that new network investment encourages the take-up of broadband across the nation.

In our earlier discussion papers and in the recent Broadband Connect Expressions of Interest process, the Australian Government defined some of the key principles of a national broadband blueprint.

The concept of a strategic national approach is being used to guide the development of the Connect Australia package - the most significant investment in telecommunications in this country’s history, including how

best to create a new wholesale access network.

These include consideration of:

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long-term sustainable investment in scalable telecommunications infrastructure;

æ A more coordinated and strategic approach to infrastructure investment;

æ A competitive wholesale access network in regional Australia;

æ A consortium approach combining strengths of different partners; and

æ A vision for large scale transformation for national and regional social and economic development.

It became apparent during the early stages of the Connect Australia package that the Government needed to take a new approach to the provision of communications infrastructure.

Having said that, the Higher Bandwidth Incentive Scheme or HiBIS had been incredibly successful and the per-customer subsidy model has been partly continued in the first phase of Broadband Connect.

This model has already delivered considerable results for regional communities, including:

æ over 1000 additional rural and regional exchanges enabled with ADSL equipment - enabling customers to access services up to 1.5 megabits per second;

æ encouraging a competitive telecommunications environment that has seen a large number of new wireless providers offering services to rural and regional consumers, some well into the megabits per second range;

æ increased competition in the Australian satellite broadband market that has seen prices for two-way satellite services drop as low as $29.95 per month;

æ the connection of more than 160,000 customers to either a HiBIS or a Broadband Connect Service; and

æ more than one million additional premises gaining access to terrestrial broadband.

The $50 million Metropolitan Broadband Connect operates on a similar premise.

Metro Broadband Connect is assisting people in unserved areas of our major cities to access broadband services at comparable prices and service levels to those enjoyed elsewhere in those cities.

Part of the problem in outer-metropolitan areas is the difficulty posed by pair-gain systems and diminishing quality of service the further a person lives from an exchange.

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Metro Broadband Connect acts as an incentive to providers to overcome the technical challenges to the provision of broadband in these areas.

But while these programs are encouraging providers to connect Australians living in outer metro and rural and regional areas, there is a need to think beyond the per-subsidy model.

Where the market delivers services we should let it provide the driver for broadband delivery.

However, where the market will not adequately meet the needs of consumers there is a case for targeted Government investment.

In particular, we need to encourage the rollout of scalable infrastructure in areas of market failure to drive broadband take-up.

To achieve this, the Government is working in partnership with industry and other key stakeholders to encourage a more targeted, sustainable and innovative approach than is likely occur through market forces alone.

Connect Australia The principles I mentioned are being applied across all elements of the $1.1 Billion Connect Australia package - and particularly the $878 million Broadband Connect program.

To achieve the best bang for our buck - so to speak - the Government is working in partnership with industry and other key stakeholders to redefine our approach to targeted Government investment.

We are creating linkages between the various complementary elements of the Connect Australia package to ensure we are taking a more holistic approach to encouraging investment and rolling out telecommunications services.

For example, the $878 million Broadband Connect program will primarily target the infrastructure required to provide all Australians access to affordable broadband.

The $113 million Clever Networks program, will be directed more towards higher speed advanced networks and applications targeting health clinics, emergency services, schools, TAFE colleges, homesteads for distance learning and universities.

However, there are clear synergies between both these programs as well as linkages to the $30 million Mobile Connect program. We should not be looking at the various needs these programs are designed to address in

isolation.

A consortium approach is being adopted to encourage collaboration and partnerships to deliver sufficient scale to achieve the best outcomes.

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This also maximises the potential to leverage major private sector investment and support from State and Territory Governments to extend the benefits of this investment across all of regional Australia.

A key requirement will be for fair wholesale access arrangements to help contribute to the creation of a competitive wholesale access network in regional Australia.

As a first step, the Government has conducted an Expressions of Interest process to test the feasibility of an infrastructure-based approach, and to inform the design of any subsequent program.

There was a strong and enthusiastic response to the EOI - a total of 69 responses were received. It is clear that there is widespread interest in the industry to take up the challenge and the opportunity we are promoting through this approach.

I am encouraged that several respondents are interested in developing proposals for major national or regional infrastructure projects that would result in well developed, end-to-end solutions of significant scale.

There is strong interest in transforming the telecommunications landscape across regional, rural and remote Australia by rolling out major infrastructure projects that would offer a quantum leap forward in service quality and functionality.

And these projects would utilise a range of technologies. As I have indicated there is no ‘one size fits all’ technology solution to the challenge of connecting all Australians across our vast and varied landscape.

The eventual technology mix may include fixed, wireless and mobile systems.

Responses to the EOI have confirmed our own assessment that these platforms all have development and upgrade paths that could make them suitable to meet both current needs and future demands.

Several respondents have indicated they could form a consortium to bring together major transmission capacity projects such as inter-state links and local access solutions to be integrated into comprehensive national or regional projects.

I am also confident that the proposed approach would likely leverage significant commercial investment from industry providers and other interested parties. Based on our experience with the Coordinated Communications Infrastructure Fund, the Government’s $1.1 billion Connect Australia package could well double or even triple by providing a focus for State and Territory Governments investment as well as private sector investment.

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Broadband Blueprint This summit is concerned with assessing the current state of play and preparing for future challenges, and a similar concept underlies my proposed Broadband Blueprint, which I will release later this year.

In looking to the future, it is essential for all levels of government to adopt a strategic and coordinated approach to the development of next generation broadband networks.

With a number of commercial infrastructure roll outs proposed, and the Australian Government poised to make its largest ever investment in communications infrastructure, it is timely that Australia adopts a clearly defined national approach to broadband development.

The Blueprint will provide a national framework for the rollout of next generation infrastructure for Australia by all levels of government and the private sector.

By establishing a vision for the future of broadband in Australia, and detailing key areas of strategic importance, the Blueprint will build on the National Broadband Strategy, which although only two years old, already needs updating.

This is the challenge in a portfolio that has technological innovation at its heart -constantly trying to hit a moving target.

The Broadband Blueprint will articulate a plan for a prosperous, knowledge-based information economy underpinned by world-class next generation broadband infrastructure.

This infrastructure will facilitate industry productivity, strong economic development and the provision of key government services including health and education.

The Blueprint will ensure that the roll out of next generation broadband is coordinated across jurisdictions with clearly delineated roles for State, Territory and Local Government to meet the needs of end-users.

I am actively engaging my Online and Communications Council colleagues in the development of the Blueprint and it will be a focus of our next meeting in Canberra on 8 September.

I have also convened an industry reference group to provide me with an additional source of advice to assist with the Broadband Blueprint.

If Australia is to become a world leader in the effective use of broadband, I recognise that we need the infrastructure to connect every corner of our vast continent to faster broadband.

Conclusion

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The broadband debate will continue to rage in this country - and that is a healthy thing. But I think there must be a dose of reality injected.

Australia’s position in the international broadband stakes is neither leader nor laggard.

We are in line with comparable countries, have a healthy and growing competitive telecommunications sector,/

we have had significant investment in equipment that has supplied our major centres with fast broadband speeds and/ we have a strategic national plan - and the investment to back it - to help propel us to the ranks of the broadband leaders.

But instead of imitating countries that do not resemble Australia socially, economically or geographically, we should aspire to carve out our own broadband story.

With a targeted and coordinated plan there is nothing to stand in the way of Australia being a world leader in the effective use of broadband.

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