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D-day is coming: claims that the capacity of new players to compete in the deregulated telecommunications industry will depend on their ability to get access to existing networks at reasonable rates

MAXINE McKEW: First it was Telstra, then Optus and Vodaphone joined the fray. Now, in just 14 days' time, Australia's telecommunications market will be open to all comers.

BRAD WEINSTOCK: Beginning 1 July we're going to be offering our customers local telephony which includes free local calls between Northgate customers.

MAXINE McKEW: Already the competition is hotting up, with newcomers wiring up entire towns. But will deregulation bring the long-promised price reductions, or will it mean another round of bitter corporate fighting, cable pollution and confusion for customers? D-Day is coming - that's our story tonight.

In theory providing a competitive efficient telecommunications system sounds simple enough - deregulate the industry and let the players to go it. But with just two weeks to go before D-day, the Government is finding that deregulation may be one thing, competition is quite another. The reason? There's definitely no level playing field out there. Already Telstra and, to a lesser extent Optus with their multi-billion dollar networks, hold most of the cards. The capacity of new players to compete will depend on their ability to get access to the existing networks at reasonable rates.

Already the battle between Telstra and Optus over network ownership has shown just how ruinous the failure to agree on access rights can be. Optus rolled out its own cable, using pay TV as the lure. Unfortunately, rather than solving the problem, it lost both companies hundreds of millions. Faced with this financial millstone and imminent stock market floats, neither look like they'll make it easy for competitors.

So where does this leave deregulation, and will it finally deliver cheaper local calls and better service? In just a few minutes we'll talk with some of the players and the regulator, but first this report on the battle so far from Ticky Fullerton.

TICKY FULLERTON: In the last five years telecommunications has taken off. Niche players like One.tel, with 150,000 customers, have a growing share of the market.

SANDY SLESSAR: Our market research showed us that our customers wanted one bill, one call and itemised billing. And that was important because they were tired of receiving multiple bills for their telecommunications services.

TICKY FULLERTON: Understanding that most small businesses don't have the time to select the best deals from the big operators, this small player buys time from both Optus and Telstra, and resells it at super competitive rates to its customers. There are even love letters from Telstra.

SANDY SLESSAR: Customer service is fundamental to our success. At One.tel we receive 5,000 calls at the call centre per day, and 95 per cent of those calls are answered in under 20 seconds.

TICKY FULLERTON: One.tel is a small fish in the story of deregulation so far. There have been casualties and plenty of pain for the two big players, Telstra and Optus. On black Friday the Optus Chief Executive was thrown out, after a year plagued with technical problems over the promised 20 cent local call, a public relations nightmare with cable rollout and speculation that Optus might withdraw from pay TV altogether.

Telstra's Frank Blount faces tough times, too, with a likely one billion dollar write-down on the cable rollout, and only today talk of paying one hundred million dollars to Rupert Murdoch to get out of a commitment to pass four million homes by 1999.

The dual rollout was never about pay TV. It's a fight over the five billion dollar home telephony market, and a very expensive one. It's left the cosy duopoly quite vulnerable.

JOHANNA PLANTE: It's pretty difficult to see if they continue with that heavy investment and the distortions in their cost structure that that actually causes how they'll be able to respond to the lower-cost new entrants that might be really trying to push down the margins.

TICKY FULLERTON: New entrants are a reality, and they're not waiting for 1 July. American company, Northgate, is making an assault on Telstra's local call market. It's already wired up 20 per cent of Ballarat at a third of the cost and in a third of the time Telstra could do it. And despite cable pollution, the local council's onside.

BRAD WEINSTOCK: Beginning 1 July, we're going to be offering our customers local telephony which includes free local calls between Northgate customers, discounted local calls to other customers and heavily discounted long-distance and international calling.

TICKY FULLERTON: Northgate offers 25 pay TV channels for just $14.95 a month, and Ballarat is just the start. There are plans for 40 other regional centres.

BRAD WEINSTOCK: People in regional Australia have felt that Telstra has abandoned them for their customers in the capital centres and have expressed a sincere interest to switch for better services, cheaper prices and better customer service.

TICKY FULLERTON: Crucial to Northgate and the other new carriers is the price they will have to pay to hook up to Telstra's network - the interconnection price. The plan is for the industry to agree the price, but self-regulation will be tough, given the amount of self-interest on all sides.

ALLAN HORSLEY: The Government has made it clear they want competition to succeed. There ought to be some leadership on the part of Telstra, of putting in place, offering to the industry an interconnect price and demonstrate that that price is cost-based.

TICKY FULLERTON: Telstra fears the price won't include the cost to grow the national network for the benefit of all customers.

GRAEME WARD: Telstra is concerned about the interconnect prices and how they're linked to our investment, and the incentive for us to invest.

TICKY FULLERTON: If the players can't agree, the ACCC regulator will rule on the interconnection price. It's already proposed an interim price for the next six months which it says is the same price that Optus gets from Telstra. Even then the new players are sceptical about how the 600 pound gorilla will behave in a self-regulated market.

GRAEME WARD: This 600 pound gorilla tag, I guess that we've lived with that for some time. Everyone will have their eye on how the existing carriers play the self-regulation game. Now, Frank Blount spoke at the ATUG conference, Ticky, which I think you will recall, and committed that we would be playing a very responsible role in self-regulation.

TICKY FULLERTON: Recently, however, service providers have come to blows with Telstra over its billing arrangements. Faults on both sides, perhaps, but Telstra's behaviour has left Allan Horsley dismayed.

ALLAN HORSLEY: Telstra have got good reason to be cross with some operators but they've allowed that crossness to go over to develop a very strong anti-service provider attitude which has led to the court, and that going to court is a disaster.

BRAD WEINSTOCK: We expect plenty of stalling tactics on their part. Every month that we don't have interconnection I suspect that they will derive significant revenues from that. But we're pushing forward.

TICKY FULLERTON: Communications Minister, Richard Alston, says we may see quite a lot of the regulator.

RICHARD ALSTON: Well, I think it's an over-simplification to suggest that it was ever going to be self-regulation. Reregulation is probably a more appropriate term. When you're talking about access and interconnection arrangements to a carrier that has a bottleneck capacity, then clearly the ACCC has got a critical role to play.

TICKY FULLERTON: For the Government there's a tricky conflict of interest. It wants to sell a third of Telstra, but Telstra's value will depend upon the interconnection price. So if Telstra has 80 per cent of the market right now, where does the Minister see its share ending up?

RICHARD ALSTON: Well, I don't have a number in mind, but I think the maximum consistent with vigorous competition. If you look at historical progress, then the ATT experience in the US would suggest that probably 70 per cent would be about right. Now, if the end result is that Telstra is more than up to the challenge and can see a number of competitors off, then consumers will still benefit, even if Telstra retains the lion's share of the market.

TICKY FULLERTON: The new market will be tough, even for those as flexible as One.tel. If government wants sustainable competition, players will have to sink or swim.

MAXINE McKEW: That report from Ticky Fullerton. And now to my guests. Phil Jacobs is chief operating officer for Optus Communications. Prior to taking up that position in January 1996 he was president of Bell South Business Systems in Atlanta. Larry Williams is Chief Executive Officer of AAP Telecommunications, a service provider which hopes to become a carrier in a few weeks time. Stephe Wilks is head of regulatory affairs for British Telecom Asia Pacific. BT was the monopoly player in the UK until deregulation there. And Phil Jacobs, Larry Williams and Stephe Wilks all join me tonight from Sydney.

And Neil Tuckwell is chairman of Austel, the current telecommunications industry regulator. He's also an associate member of the Australian Competition and Consumer Commission, the ACCC, which will take over regulation from 1 July. And tonight he's in our Melbourne studio. And I should point out that we did invite a spokesperson from Telstra to join us this evening, but they declined our offer.

So gentlemen, welcome to all of you, and thanks very much for joining us.

Larry Williams, in describing the change to the status quo, you had a very colourful description recently of the ATUG conference. I think you said it was a little like the introduction of democracy into a former dictatorship - all the players claim to be open to the concept but there's an inherent reluctance from the old guard to play ball. Now this certainly suggests you think there's going to be something less than full-blooded competition after 1 July.

LARRY WILLIAMS: I would hope that Frank's position of supporting competition will take place and that he will drive that through his organisation, but I do expect ....

MAXINE McKEW: This is Frank Blount you're talking about?

LARRY WILLIAMS: Yes.

MAXINE McKEW: Why expect delay?

LARRY WILLIAMS: It's a typical monopoly play. The longer you delay on things happening, the better it is for you and the worse off it is for competitors.

MAXINE McKEW: But what sort of anti-competitive behaviour do you think may continue?

LARRY WILLIAMS: I think they will continue to use their market power in several ways, of going after very large customers with anti-competitive pricing, being able to unbundle, possibly bundle products where in the past they've been refrained from doing that. I think they will re-attack the international area quite heavily since they've lost quite a bit of that traffic.

MAXINE McKEW: But on the other hand, they are in the business of retaining market share, particularly as they're getting ready for a float, and they'll be even more aggressive after that float, I would have thought.

LARRY WILLIAMS: I would think that's true, but I think if you expect to have a truly competitive environment, they're going to have to lose market share. And I think Telstra's attitude throughout the organisation is that we're not going to lose market share at any price. And I think 'any price' is what makes fear for us as competitors.

MAXINE McKEW: Phil Jacobs, is Optus ready for more competition, say from players like AAPT there, who want to be carriers after 1 July?

PHIL JACOBS: Absolutely we are, and we welcome Larry and the other competitors into the marketplace. We were born of a competitive spirit, we understand what competition can do in the marketplace. This is the next of a number of phases, really three phases, of introduction into competition. We just finished the first phase, which was creating competitive infrastructure. We've invested $4 billion in that infrastructure over the last five years, and we welcome that. But I will tell you that I share Larry's concern.

MAXINE McKEW: Phil, can I just stop you there. Phil, do you really mean it, that you welcome competition?

PHIL JACOBS: Absolutely.

MAXINE McKEW: Well, let me say though, Optus customers are customers who've already changed once, haven't they?

PHIL JACOBS: They have.

MAXINE McKEW: And they could change again?

PHIL JACOBS: Absolutely. But we think the service provider entry into the market is going to drive a whole new level of growth into the market. And undoubtedly we'll lose some customers, we'll even potentially lose market share in terms of percentage, but our belief is that the stimulation of growth caused by the introduction of creative new players like AAPT and others will more than make up for the market share loss that we'll see.

MAXINE McKEW: And do you share Larry's concerns about, perhaps, Telstra's anti-competitive behaviour?

PHIL JACOBS: Absolutely. I think they've shown a track record of anti-competitive behaviour, and there's nothing to lead us to believe that that's going to change. The way the new regulatory structure is set out it will be easier, as Larry indicated, to bundle products and services, to cross-subsidise between services that are competitive with those that aren't, and I think it's a real danger. We are strongly counting on Allan Fels and the ACCC and Neil Tuckwell basically to make sure that that position is not one that's taken advantage of by Telstra.

MAXINE McKEW: But Frank Blount has said: 'We will play fair.'

PHIL JACOBS: He has. And the fact of the matter is the track record speaks for itself, and there's no reason for us to believe, other than a speech at a conference where he was expected to say exactly what he said. But we don't have any confidence that that behaviour will manifest itself in this new environment.

MAXINE McKEW: Stephe Wilks, what would you say? I mean, what is British Telecom hoping to see in the post-1 July era?

STEPHE WILKS: Well, I'm afraid to say I've got to agree with the comments that have already been made. Telstra really has to embrace the thought that it shouldn't keep fighting competition, it should actually try and grasp the new environment with both hands and move forward. And, unfortunately, its track record so far has indicated that it's not rapidly doing that.

We were very impressed that Frank made the speech. We all knew he was going to say that, but it's good that he said it. Hopefully it will get through to the troops and will be somewhere from there. The difficulty we have is, apart from the track record in the past, even now in the access discussions Telstra is showing an indication that when they get hard we're not getting the results we need as quickly as we need. And that's unfortunately an indication that maybe the anti-competitive practices will continue as well.

Fortunately the ACCC has some power now to actually do something about that.

MAXINE McKEW: Chief among those powers being?

STEPHE WILKS: The competition notice, we think, is the key tool that the ACCC is going to be able to use. And it's not just Telstra. Anybody acting anti-competitively can have one of these competition notices served on them, and that gives the ACCC the ability to quickly stop anti-competitive conduct. And something I'm sure Neil Tuckwell will share with us later was that Austel felt it had a lack of power in order to stop activity. It had to go through a long and tortuous process to try and stop anti-competitive activity, and now with this competition notice, the ACCC has the power to actually do something about it very quickly.

MAXINE McKEW: So that would prevent any commercial damage that you'd be concerned about, the speedy resolution?

STEPHE WILKS: Yes. The speedy resolution is the crucial thing here. There are a couple of examples, but one classic example - we spent up to 18 months I think it was pursuing a matter with Austel, and Austel were very clearly onside. They very clearly said to us: 'We recognise that there's an anti-competitive problem here' - had a couple of interim rulings that said that. But the whole time Telstra was still in the market, still selling this anti-competitive product. And even the final resolution has proven not to be as, I think, Austel wanted. No competitor has been able to use the solution that was offered to them. And so for an extremely long period we've had an anti-competitive product in the market, and hopefully the ACCC will be able to say: 'We'll stop that right at the beginning.' The impact on the businesses will be prevented, and then we can actually sort the matter out in a fair way without the new entrants having to suffer.

MAXINE McKEW: Just tell me though, Stephe, this unanimity about the anti-competitive behaviour of Telstra. Isn't this an argument that is used, say, by Mercury in the UK against British Telecom, and in fact they are using this thing about anti-competitive behaviour really to hide behind the regulator instead of getting out there in the marketplace and actually fighting the monopoly player?

STEPHE WILKS: Absolutely. There is certainly a very real risk that competitors don't go out and compete, they simply ask the regulator to help them into business. I think environments mature over time. Australia's had the opportunity of experience around the world, in the US and in the UK. I think all the players here are well aware that commercial resolution is the best outcome. There is absolutely no doubt we would much prefer to do a commercial deal with Telstra, have the self-regulation model work, get access negotiations under way on a commercial basis and not resort to our legal rights. I suppose the key area we're trying to make sure Telstra is clear on is that we will not fear to have recourse to our legal rights if we're forced down that path, but we really would like to do it commercially, there's no question about that.

MAXINE McKEW: Neil Tuckwell, how do you see this? These complaints about Telstra, are they justified and to what extent will they be addressed under the new regulatory regime?

NEIL TUCKWELL: Well, Maxine, in many ways this is the more things change the more they stay the same. We're fortunate that we've now had some six years of experience with the first phase of competition in Australia, and a lot has been learnt during that period. There's been a lot of consumer benefits and clearly some of the issues that the other three speakers have raised have been matters that have had to have been addressed in the last few years.

So these are not new issues. What we are now doing is moving into a new regime. There will be more players, competition will become fiercer, and it's interesting to see that the level of competition that has been achieved to date has varied from one part of the market to another. One of the other speakers talked about international, and there is very strong competition in that area; likewise in mobiles. But, of course, down at the local call market we don't see much competition at this stage.

MAXINE McKEW: Neil, I'll come back to that question of just how much competition we have, but I just want to ask you about the ACCC. To what extent will the ACCC be an interventionist regulator, I suppose as opposed to a reactive one?

NEIL TUCKWELL: Well, clearly that's a matter for the ACCC to decide as the issues come before it. It's already taken a number of initiatives as required by the new legislation, and made its preliminary views known to the marketplace. It's receiving feedback on that and it should have some final views on a lot of those substantive matters available to the players by 1 July, and that will reflect the ACCC's views. Then it's a matter of giving effect to its views through an administrative process.

MAXINE McKEW: All right. To go back to the issue about competition then, how long do you think before we're going to see really quite mature competition, Neil Tuckwell?

NEIL TUCKWELL: Well, I see the next few years as another transition phase between now and the year 2000, and beyond that I see that competition will mature. Now, that will vary from one market sector to another. If we look at international calls - that is calls from Australia to overseas countries - Telstra's market share in that market sector is now below 60 per cent, so there's been very rapid change there.

In the area of mobiles we've also seen very rapid change. One in four people in Australia now have a mobile phone. But down at the local call market, it's basically still a monopoly. So it varies from one market sector to another.

MAXINE McKEW: So what would constitute mature competition, in your view?

NEIL TUCKWELL: Well, certainly I think once you start looking at a 60 per cent threshold or getting below a 60 per cent threshold, you're starting to see the development, or significant development of competition.

MAXINE McKEW: In all markets ....

NEIL TUCKWELL: It varies a little bit from one market to another. But that's the kind of threshold that we looked at at Austel when we examined certain market sectors, particularly international and mobiles.

MAXINE McKEW: Right. Now, Stephe Wilks, what do you think? By the end of the decade do you think Telstra will still have, say, more or less the lion's share of the market in most areas?

STEPHE WILKS: Well, this is where Neil's point, I suppose, comes straight to the fore. It will vary market by market and in the crucial access market this is why interconnect negotiations are so important. In the crucial access market, if Telstra still limits access to the customer, then it's going to be very difficult to have full competition in all the other elements of the market, because it's that final mile that really is the bottleneck. So if we can sort out the access negotiations, if the ACCC continues - and I agree with Neil, it's certainly taken a very good approach so far - if it continues in that vein, then yes, I think we can see pretty solid, mature competition by the end of the decade.

MAXINE McKEW: And the critical question is entry.

STEPHE WILKS: Absolutely. The ability of new entrants to come into the market, the ability to get access to the network, to that last mile of the bottleneck, the ability to get fair access to the rest of the network as they work out whether to build or buy. If we sort all that out now - and this next year will be the time when it all gets sorted - if we can do all that then I think we'll have people coming into the market and we'll have a good, solid base for competition.

MAXINE McKEW: Larry Williams, are you so optimistic?

LARRY WILLIAMS: I'm more optimistic about the long distance which is basically, in my opinion, the only area that there is true competition in today. The local, after five years of deregulation, has no competition. I question Neil a little bit on the mobile market as to whether there's really competition in that market at this point.

I know there's a lot of users on all the various networks, but the prices are still quite high. The access prices that we've been quoted for interconnection are extremely high, so I wonder if there really is any competition there.

MAXINE McKEW: So by say 2000, what would you think - Telstra might still have, you know, an overwhelming majority of the market? Richard Alston, for instance, I know he's the seller here and it's in his interest to talk this up, but he's still talking about Telstra having around 70 per cent of the market. Now, does that sound like competition to you?

LARRY WILLIAMS: I would think it would have to get down near the 60 for me to feel like there was really true competition that would be able to sustain itself in the long term.

MAXINE McKEW: Now, Phil Jacobs, in terms of gaining markets, Optus has certainly attempted to take on Telstra in the area of local telephony, but you've had real problems here, haven't you?

PHIL JACOBS: Well, the product hasn't launched as quickly as we would like it to, although in recent weeks ....

MAXINE McKEW: Why not?

PHIL JACOBS: We've had some technical issues. This is world-leading technology. Delivering both telephony and pay TV services over a single facility, a hybrid fibre coaxial network, has not been accomplished in scale anywhere else in the world, so we're very much on the leading edge.

MAXINE McKEW: But isn't it the problem that it is not leading-edge technology because you are having so many problems?

PHIL JACOBS: Absolutely not. The problems that we have had - and by the way they're largely now behind us and we're moving ahead quickly now in rolling out additional telephony services to our customers - are a function of new software on a new architecture that hasn't been tested before in the kind of scale that we're putting it into. And we're now pleased with the progress that we're making and we absolutely believe this is world-leading technology.

MAXINE McKEW: To what extent have Optus's problems with, say, pay television distracted you, if you like, from this critical area of local telephony?

PHIL JACOBS: I don't think anyone could look at the pay TV industry as a whole in Australia and say that it's been an overwhelming success. I think all of the participants in it have been distracted, to a large extent. I think the industry is showing signs of sorting our problems out. Clearly the announcement today that Telstra and News with Foxtel are close to an agreement I think is another indication of the progress that we're making. We clearly have approached all of the players with our interest in resolving some of this.

Unfortunately, one of the key players is Telstra. They still refuse to come to the table, don't seem to have recognition, although I suspect with the mounting pressure of an oncoming float they will quickly be coming to the table as well. And when that happens I think resolution will occur.

MAXINE McKEW: So how much local telephony would you hope to have, say, five years from now?

PHIL JACOBS: Well, you have to factor when you talk about percentages, look at it in terms of the numbers of households we pass. We pass, with our network today, about 2.1 million homes of a total of about 6.5 million homes in Australia. Within that area our expectations are that we'll enjoy the same kind of success as other carriers, second carriers have around the world, and that is, as Neil said, that would assume that we achieve 30, 35 or even 40 per cent penetration rate in those areas.

MAXINE McKEW: Larry Williams, if Optus can get their act together on local telephony, would you want to be a reseller?

LARRY WILLIAMS: Most definitely. We're waiting for them. Hopefully they will get it to work because we need the competition to Telstra.

MAXINE McKEW: Let's talk about the interconnect fee, you mentioned that. I mean, the interim rate that the ACCC has established at around what, 2.7 cents a minute for peak time, Larry Williams can you live with that?

LARRY WILLIAMS: I think that's a very good framework for us to negotiate from. I would hope that going forward we will get some better relief in the regions and then some of the off-peak times out in the regions where we can better serve our regional customers.

MAXINE McKEW: What do you get for your money? Do you get a good connection?

LARRY WILLIAMS: Today we're running the latest technology. For the last five years we've run inferior technology, but we are moving forward to a carrier interface.

MAXINE McKEW: What do you mean, an inferior technology?

LARRY WILLIAMS: Well, we were forced to use ISDN for the last five years; we are now running CCS7 which is a technical word for protocol. But the key thing going forward is that we need non-code access, which is preselection, and hopefully that will be available to us from 1 July, as committed by Telstra and by the Government.

MAXINE McKEW: Stephe Wilks, what about the interconnect fee for data transmission, which I think is your growth area? That's yet to be announced?

STEPHE WILKS: Yes. Our concern, I suppose is ... I think Larry's right, the technical side of things is taken care of quite well, on the whole. But when you get into a novel service - so far the new connect discussions, the access discussions have all centred on these voice services, when you get into services that aren't quite as common, that's where we're hitting the boundary, that's where we're hitting the edges of Telstra's ability to co-operate with us. And the data services debate is yet to happen. We're yet to fully work out how we're going to interconnect there and what the fees are going to be. And it's a difficult area, and we're going to, I think either get Telstra to recognise it or to come to the table soon or we're going to have to go to the ACCC to get that resolved.

I mean, data is the big growth area for BT. BT is going to stay in the multinational or corporate market, and data, Internet services, those sort of services are, in fact, they're booming. And in order to get access to that market we need to have a fair interconnect.

MAXINE McKEW: And do you have broad concerns about retail pricing generally?

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STEPHE WILKS: Well, on the whole, I suppose retail pricing should be coming down. It should be coming down faster than it currently is. I think the interconnect price that has been suggested by the ACCC is a good start. They are clearly recognising that the interconnect rate has got to come down. It's still something like twice the current rate in the UK where there are any number of competitors, 200 other licensed operators in the UK competing in that market. And they're rolling out infrastructure, even with a very low interconnect rate. So clearly you can do the range of infrastructure rollout and have decent access to the networks. And that should bring a result for retail prices.

MAXINE McKEW: Phil Jacobs, do you think that's right? I mean, the new lower interconnect rate for voice for new players, how is that going to affect Optus, because your rate is higher, isn't it - 3.5 cents?

PHIL JACOBS: Well, actually it's not. It's a blundered rate, and the rate of 2.7 cents really reflects only the five major metropolitan areas, which is roughly equivalent to the rate we pay today for those same areas.

My concern is not that the price is inappropriate but that we still have the ability to negotiate or, if have to, to have arbitrated, a rate that's even lower than that, because based on volume, and if we're in a commercial market we ought to be in a market that's driven by commercial reality and that is those who buy in large volumes get discounts. So what we would expect is this new price would be the ceiling at which we would begin to negotiate down from, and based on our volumes we would expect to see interconnection rates that do rival those for example in the UK.

MAXINE McKEW: So what sort of a price are you looking at, based on a volume discount, if you get it?

PHIL JACOBS: I think we would look at something in the 1.5 to 1.7 cent range in those major metropolitan areas. And that would put us in a position of world leadership, which is absolutely critical, because let's remember what this is all about is creating competitive infrastructure that advantages the businesses and residential customers of Australia and drive us to a position in Australia of being a world player.

MAXINE McKEW: And without that lower rate you won't be able to put as much into infrastructure?

PHIL JACOBS: Absolutely right. We need an incentive. Not only we, but those others who will be carriers in the future need an incentive to continue to build competing infrastructure, because in reality real competition is driven by competitive infrastructure, not simply by the service provisioning elements above that.

MAXINE McKEW: Larry Williams, how would you feel about a player the size of Optus getting a discount?

LARRY WILLIAMS: Well, I'd have a hard time if I'm competing with them and I'm trying to compete on a level playing field, for them to have a 50 per cent reduction, you know, from my cost. And that's what Phil seems to be almost proposing. I've lived with a two and a half times higher ... my cost has been two and a half times his for the last five years. So I would have a hard time with that position.

MAXINE McKEW: What of the argument, though, that Optus needs to build infrastructure?

LARRY WILLIAMS: That doesn't seem to play. I mean, if he's trying to get a cheaper rate from Telstra's infrastructure, it sort of logically doesn't follow that he should get a lower rate and then want to charge a higher rate for his infrastructure. That doesn't logically follow, I don't think.

MAXINE McKEW: After July, are you interested in building as well?

LARRY WILLIAMS: We are looking at several alternatives to build. We prefer not to build but we are looking at building out some CBD areas, we're looking at building some regional areas. We're also looking at some inter-capital fibre builds. We're hoping that this won't be necessary, but it depends on whether we can lease the facilities from Telstra or Optus at competitive prices.

MAXINE McKEW: But you're saying it may be, in the end, cheaper for you to build than to lease?

LARRY WILLIAMS: That's absolutely the case.

MAXINE McKEW: But I guess the overall question of the national policy has to be: 'Do we need any more infrastructure'?

LARRY WILLIAMS: I would say that we definitely don't need more in Australia, but the question is: 'Can we afford to lease it from Telstra and Optus'?

MAXINE McKEW: Neil Tuckwell, how do you see this debate? We've already got problems with perhaps excess cabling.

NEIL TUCKWELL: Well, certainly the whole history of telecommunications, world wide, is that demand grows at a rapid rate and so there's always the ability to fill up cables with new services, lower prices generate more traffic, and so I'm fairly optimistic about being able to fill up cables. Certainly my experience to date says that capacity that's available certainly gets consumed in a reasonably quick period of time.

So whether Larry wants to build or whether he wants to lease, that will be his business decision, and I suspect he'll do a bit of both. So I'm fairly optimistic about that. And, of course, where cables are laid underground and in ducts that are available from other suppliers, then it's out of sight and people really don't care how much capacity is in the ground. So I'm very optimistic about that particular aspect.

MAXINE McKEW: And if today's story in the Financial Review is correct, Neil Tuckwell, that we've perhaps seen a deal between Telstra and News and Rupert Murdoch - lucky old Rupert gets $100 million in compensation - and we could see some, what, sharing between Telstra and Optus? Now, does this make sense to you?

NEIL TUCKWELL: Well, we have a lot of sharing already. For example, Optus and Telstra jointly use overseas cables that go from Australia to other countries, so sharing is not new. The extent to which they wish to share the new cables that they've rolled out is a bit of a question mark in my mind, because Optus has built their cable predominantly for telephony, and Telstra has built it predominantly for pay TV. So I follow that matter with some particular interest, but I must say I'm a little bit bemused by what sharing there may be in that particular area.

MAXINE McKEW: Phil Jacobs, can you just finally enlighten us on that one? What sharing, what deals could we see?

PHIL JACOBS: First of all, we have built up roughly between 600,000 and 800,000 homes with our cable that Telstra has yet to pass. We think that, particularly based on the economics, and obviously now there is discussions about Telstra writing off part of this investment which they've just started to make two years ago, we think it makes perfect sense for them to come to us for additional access to those homes that we pass and we're perfectly willing to negotiate with them in providing them those facilities and access for their pay TV services. Yet they have yet to seriously come to the table with a response to that offer.

But I think it's important to note that infrastructure sharing makes perfect sense in some cases, and where it does we are perfectly willing to participate, not only with Telstra but with other players, in creating infrastructure that supports two businesses.

MAXINE McKEW: Just from a consumer point of view, doesn't it make perfect sense for you to share pay TV content?

PHIL JACOBS: I think, as the industry matures, the idea of non-exclusive content is becoming more and more palatable to all of the players and I would suspect in the future we'll move toward a model where it is non-exclusive content.

MAXINE McKEW: All right. On that note, gentlemen, we are out of time, but thank you all very much for that discussion tonight.