National Telecommunications

1

• National Telecommunications
• Summit - Sydney
• 30th May, 2005
• Rosemary Sinclair
• Managing Director
• Australian Telecommunications Users Group

2
Benchmarking

• Australia against the rest of the world
• G7
• European Union
• OECD
• Japan/Korea
• Technologies and services
• economy, growth and productivity gains
• mobile
• prices
• broadband

3
Growth Competitiveness

• Finland (1)
• United States (2)
• Sweden (3)
• Taiwan (5)
• Denmark (4)
• Norway (9)
• Singapore (6)
• Switzerland (7)
• Japan (11)
• Iceland (8)

• United Kingdom (15)
• Netherlands (12)
• Germany (13)
• Australia (10)
• Canada (16)
• United Arab Emirates ()
• Austria (17)
• New Zealand (14)

Source World Economic Forum - Davos
4
Network Readiness

• Singapore
• Iceland
• Finland
• Denmark
• United States
• Sweden
• Hong Kong
• Japan
• Switzerland
• Canada
• Australia

• United Kingdom
• Norway
• Germany
• Taiwan
• Netherlands
• Luxembourg
• Israel
• Austria
• France
• New Zealand
• Ireland

Source World Economic Forum - Davos
5
e-Government readiness

• United States 0.91
• Denmark 0.90
• United Kingdom 0.89
• Sweden 0.87
• Republic of Korea 0.86
• Australia 0.84
• Canada 0.84
• Singapore 0.83
• Finland 0.82
• Norway 0.82

• Netherlands 0.80
• Germany 0.79
• New Zealand 0.78
• Iceland 0.77
• Switzerland 0.75
• Belgium 0.75
• Austria 0.75
• Japan 0.73
• Ireland 0.71
• Estonia 0.70

Source UNPAN
6
EIU e-Readiness index

• Denmark (1)
• USA (6)
• Sweden (3)
• Switzerland (10)
• UK (2)
• (tie) Hong Kong (9)
• (tie) Finland (5)
• Netherlands (8)
• Norway (4)
• Australia (12)

• Singapore (7)
• (tie) Canada (11)
• (tie) Germany (13)
• Austria (12)
• Ireland (16)
• New Zealand (19)
• Belgium (17)
• South Korea (14)
• France (18)

Source EIU
7
Costs of using Telecoms

• leased lines
• business basket
• residential basket
• mobile basket

Australia is either close to average of the OECD
30 or a little worse.
8
Leased Line charges (2Mbps)
9
Basket of Business charges
10
Basket of Residential charges
11
Basket of Mobile charges
12
Network development

• Not a leader, tracking close to OECD averages
• Australia looks more European than Asian
• Fixed telephone networks
• ITU world rankings
• 1990 18th
• 2000 28th
• persistent dominance by Telstra
• Mobile telephone networks
• ITU world ranking
• 1999 24th
• 2000 29th
• modest competitive dynamics driving the market
• far from rapid growth
• Poor performance on cable TV

13
Mobile penetration
14
Cable Television
15
Broadband in the OECD
16
Where is Australia?

• OECD (30 countries)
• June 2001 12th
• June 2002 18th
• June 2003 20th
• June 2004 21st
• World Rankings
• 20 OECD members
• plus Hong Kong, Taiwan, Singapore Estonia, etc.

17
Broadband and GDP
?You are here
18
100 kbit/s as of monthly income
?You are here
Source International Telecommunication Union
19
France

• A surprisingly competitive market
• Often includes flat rate charge for calls to
  fixed numbers in France (not mobile or premium)
• Cegetel
• 14.90 for 20 Mbits/s plus 10 for calls
• Free.fr
• 29.99 for 20 Mbits/s down, 1 Mbits/s upstream
• 100 TV channels telephone calls
• France Telecom wanadoo.fr
• 29.90 for 8 Mbits/s (after 6 months 39.90)
• Telecom Italia Alice
• in France 29.95 for 8 Mbit/s unlimited download
  including calls
• in Italy 39.95 for 4 Mbit/s

AU 1 0.60, so 30 AU 50
20
Hong Kong, SAR

• very densely populated
• competition through access to the wiring cabinets
  of apartment buildings
• highly competitive market
• HKBN launched residential Gigabit Ethernet in
  April 2005
• 1Gbit/s for HK 1,680
• 100 Mbits/s for HK 268
• 10 Mbits/s for HK 148
• also pressing forward on wireless technologies

AU 1 HK 6.08
21
Fibre To The Home (FTTH)

• already some FTTH deployments
• significant in Japan and USA
• patchy in Sweden and Italy
• sometimes just near to the home, then copper or
  WiMAX
• do the access and unbundling regulations for
  copper networks work for fibre?
• or, do we need something different to ensure
  investment and competition?
• can we avoid a decade of lobbying and litigation?
• which countries will achieve mass markets for
• services
• equipment

22
General telecoms reviews

• Australia
• DCITA
• Ireland
• Commission for Communications Regulation
• New Zealand
• Ministry of Economic Development
• United Kingdom
• OFCOM
• review of the review by Parliamentary Select
  Committee

Seems to be a popular activity in Anglophone
countries, not elsewhere
23
Canada

• Best comparison for Australia
• a post-imperial, former dominion
• large spaces, small population, few cities
• but diffusion from an important near neighbour
• Long history of success in broadband
• Competition in urban areas
• Aggregated purchasing in rural areas
• Satellite and FWA in outback
• SSI Skyline Northwest Territories
• 1.5/0.25 Mbps, 5GB/month for CA59.95GST
• 90 per cent of homes in Yellowknife with 20 miles
  radius using 2.5GHz band non-directional

AU 1 CA 0.975
24
Canada versus Australia 2004

• Telus ADSL
• basic offer
• 1.5/0.5 Mbps
• 6 GB download
• CA 24.95/month
• office offer
• 2.5/0.6 Mbps
• 15 GB download
• CA 79.95/month

• Telstra Bigpond
• basic offer
• 0.256/0.06 Mbps
• 0.2 GB download
• AU 29.95/month
• highest offer
• 1.5/0.256 Mbps
• 20 GB download
• AU 149.95/month

6x and 9x
30x
0.8x
AU 1 CA 1.045
25
Canada versus Australia 2005

• Telus ADSL
• Basic offer
• 1.5 Mbps
• CA 29.95
• Office offer
• 4.0/1.0M Mbps
• 30GB
• CA 159.95

• Telstra Bigpond
• Basic offer
• 256k/64k
• 200 MB then 0.15 per MB
• AU 29.95
• Highest offer
• 1.5/0.256 Mbps
• unlimited, but penalty after 10 GB
• AUS 99.95

AU 1 CA 1.045
26
United Kingdom users

• UK users continue to report
• lack of availability
• poor quality
• absence of SLAs
• unresponsiveness and lack of care
• reality is not at all like the hype
• many users still waiting for broadband
• SMEs confused by broadband, not aware of benefits
• after twenty years of liberalisation, rural areas
  want government aid, not competition

Dont follow us. Were lost.
27
Telstra (2)

• long history of dominance through vertical
  integration
• record of anti-competitive behaviour
• few surviving competitors, especially in the bush
• this is a strong disincentive to market entry
• globally unique in having
• xDSL and cable
• CDMA and GSM/UMTS
• satellite
• primary factor in the poor performance of
  Australia when compared with other countries

28
Telstra (3)

• finally, the privatisation
• but the prospect of its enduring dominance
• market structures
• uncompetitive
• unattractive for market entry
• playing tough politico-regulatory games
• needs only a modest level of competition to
  pacify regulators

29
OECD Rural broadband

• the market is
• generating innovative services
• responding to increasing demand in those areas
• prices sometimes lower and speeds higher than in
  urban areas
• competition is emerging in rural areas
• governments should take this into account before
  embarking on programmes to subsidise
  infrastructure
• multiple answers, multiple technologies, multiple
  levels of economies of scale

30
Serving the Outback

• requires competitive backhaul and IP
  interconnections
• many new technologies and business models
• aggregation of demand can boost market entry
• leading countries are combining satellite and
  Fixed Wireless Access (FWA)
• Sioux Valley Wireless (South Dakota)
• GCI Broadband Services (Alaska)
• Xtratyme (Minnesota)
• Prairie Inet (Iowa Illinois)

31
Where are Australian FWAs?

• is the spectrum available?
• is there sufficient entrepreneurial spirit?
• is there a backhaul bottleneck?
• is the incumbent behaving anti-competitively?
• are there pilot projects?

32
EU Regional policy

• To promote the development and structural
  adjustment of regions
• Geographical targeting
• Technological neutrality
• Open to all operators and service providers
• closed infrastructure is subject to state aid
  rules (Article 87 of EC Treaty)
• unless a Service of General Economic Interest
• Open calls for tenders
• Cost accounting rules for transparency
• Evaluation and monitoring
• Approval of some initiatives, e.g.,
• GSM infrastructure for zones blanches
• broadband for rural Spain and forLimousin
  (France)

33
Electricity companies

• long-term investors
• large customer bases
• strong billing platforms
• skilled workforces
• Fibre To The Home (FTTH)
• Tokyo Electric Power Company (TEPCO)
• 100Mbps FTTH 6,480 (AU 77) per month
• Powerline Communications (PLC)
• supporting decisions by EC and FCC
• interference problems
• Endesa in Spain

34
Best practice for Broadband

• Infrastructure competition
• separate ownership of cable TV from xDSL
• open up spectrum for WLAN and FWA
• get utility companies into the market
• allow ISPs to construct infrastructure
• Service competition
• make local loop unbundling work
• provide regulated wholesale products
• bitstream access
• Wholesale Line Rental (WLR)
• Open access for content
• especially must have content (e.g., AFL)
• Benchmark against the best and the most
• appropriate, not the weak and the convenient

35
Conclusions

• Market forces could deliver a lot more
• needs a strong policy direction
• Setting tough goals
• Pro-competition
• Market opening
• Built on global experiences

36
Issues

• Ensuring a competitive outcome despite the
  privatisation of Telstra
• Maximising market entry
• Maximising market delivery of services
• Improving the ranking of Australia
• nationally
• regionally

37

• Ofcoms Strategic Review of
• Telecommunications
• Phase 2 analyst briefing
• Clive Ansell Anne Heal
• 25th November 2004

38
Phase 1 questions - Ofcoms conclusions

• 1. Attributes of a well-functioning market ?
  Innovation and choice are now more important - as
  are consumer information and the ability to
  switch easily
• 2. Effective and sustainable competition?
  Achievable in core and backbone networks, but
  more difficult in local access and other
  bottlenecks
• 3. Scope for reduction in regulation? Yes, as
  focus on bottlenecks to guarantee genuine
  equality of access creates scope for withdrawal
  from regulation elsewhere
• 4. Incentives for investment? Ofcom proposals
  should encourage investment in scale and reach by
  BTs competitors and allow BT appropriate rates
  of return for 21CN etc
• 5. BT separation or equivalence still relevant
  questions? Yes, but separation would be
  difficult equality of access is preferred

39
Phase 2 - Summary of Ofcoms message

• Telecoms is an important economic sector in its
  own right, with a growing impact on our lives
• The industry has delivered for business and
  residential customers over the last 20 years
• But the fixed sector is fragmented and dominated
  by BT
• And a complex regulatory mesh has led to
  micro-management of BT and competition based on
  regulatory arbitrage
• Faced with the technology shift to digital, it
  is becoming clear that the current market and
  regulatory structure is unsustainable. It is that
  challenge that our Phase 2 proposals seek to
  address. (Ofcom, November 2004)

40
New regulatory principles

• Promote competition at the deepest levels of
  infrastructure where it will be effective and
  sustainable
• Focus regulation to deliver equality of access
  beyond those levels
• As soon as competitive conditions allow, withdraw
  from regulation at other levels
• Promote a favourable climate for efficient and
  timely investment and stimulate innovation
• Accommodate varying regulatory solutions for
  different products and, where appropriate,
  different geographies
• Create scope for market entry that could, over
  time, remove economic bottlenecks
• Light touch regulation in the wider value chain

41
Ofcoms three options

• Option 1 across-the-board deregulation and
  reliance solely on competition law to police the
  market
• Option 2 market investigation reference under
  the Enterprise Act
• Option 3 focus regulation on enduring
  bottlenecks, and require BT to deliver real
  equality of access to its networks

Ofcom prefer Option 3 but, if this does not work,
will reconsider Option 2
42
The driver behind equality of access

• Negative perceptions dating back to the
• time of privatisation around wholesale..
• product quality
• product development
• transactional processes
• transparency

43
Two dimensions to equality of access

• Equivalence BTs wholesale customers to have
  access to
• the same or a similar set of regulated wholesale
  products as BTs own retail activities
• at the same prices as BTs own retail activities
• using the same or similar transactional processes
  as BTs own retail activities
• Behaviour substantial internal changes to BT
  including
• changes to organisation and management structures
• removal of inappropriate incentives
• better control over information flows
• transparency of internal policies and processes

Ofcom expect BT to provide prompt and clear
proposals for delivering equality of access
44
Five-stage withdrawal from voice regulation

• Stage 1 (ongoing) BT to deliver fit-for-purpose
  WLR
• Stage 2 (2005) review the withdrawal of fixed
  retail voice regulation
• Stage 3 (2005) review the withdrawal of
  regulation in certain wholesale markets, e.g.
  wholesale IDD
• Stage 4 (2008-2010) review the evolution of
  remaining fixed wholesale voice markets in light
  of 21CN implementation
• Stage 5 (ongoing monitoring, review by 2008)
  assess whether a single inter-platform voice
  market including fixed and mobile should be
  defined. This could lead to complete removal of
  SMP voice regulation

45
The regulatory contract and BTs returns

• Regulated returns must give BT the right
  incentives
• Core considerations are
• relative importance of incentives for BT to
  invest
• scope for investment by competing network
  providers
• need to protect consumers from excessive charging
  
• 21CN - the more this facilitates competition, the
  greater the risk to BT and the higher the
  permitted return should be
• Migration to 21CN/NGNs - next Network Charge
  Control must consider incentives and regulatory
  certainty
• Current generation access networks - little new
  investment in prospect so consumer protection is
  the priority - hence the cost of copper study

46
Next generation access networks

• Ofcom raise several possibilities that could
  support the deployment of local access fibre and
  wireless technologies in a competitive
  environment
• equality of access - i.e. mandated sharing of BT
  duct - with standard rate of return
• equality of access with risk-adjusted rate of
  return
• time-limited forbearance
• time-limited forbearance plus open access to BTs
  ducts
• Ofcom also float the idea of a separate new
  entity which would provide next generation local
  access this could involve divestment of dark
  fibre and duct assets by BT
• None of these is singled out as Ofcoms preference

47
Consumer protection options

• Better consumer information
• leave provision of information to the market
• Ofcom to provide comparable pricing information
• promote provision of basic information by
  intermediaries
• encourage a responsible approach to comparisons
  in advertising
• restrict the range of tariff packages and
  structures in the market
• bill formats that are easier to understand and
  help comparison
• Simpler processes for switching supplier
• regulating retail switching costs
• positively encouraging switching
• encouraging migration between tariff plans
• encouraging providers to reduce the complexity
• of switching processes

48
USO

• Importance of the USO as a safety net for
  vulnerable consumers is reaffirmed
• There are no proposals for change now
• But the USO may need to evolve in the future
• new funding mechanisms
• new ways of providing the USO
• extension to cover broadband

49
BTs assessment of the Phase 2 document

• The document reflects BTs key Phase 1 messages
  that
• regulatory micro-management is part of the
  problem
• regulation should be focused on bottlenecks
• infrastructure competition and investment must be
  encouraged
• Ofcom recognise the radical transformation
  underway and highlight key transitional issues,
  including
• evolution of a wider communications value chain
• migration to Next Generation Networks
• implications for regulated products, potentially
  with a geographic dimension
• greater importance of innovation to consumers

50
BTs assessment of the Phase 2 document

• Many detailed proposals are positive, for example
• the clear path for deregulation of voice services
  - although we believe some of the timescales are
  conservative
• possibility of an early review of business
  services
• Some are very complex to implement
• equivalence and behavioural/organisational change
• Some options would be problematic in principle
  and practice
• potential requirements for duct sharing
• possibility of intrusive consumer regulation

51
In summary...

• We welcome Ofcoms call for a new settlement
  where regulation is tightly focused on
  bottlenecks, with deregulation elsewhere
• This would be a real prize for the industry,
  consumers and UK competitiveness
• We will engage constructively with Ofcom and the
  industry during the final phase of the Strategic
  Review, looking forward to achieving regulatory
  certainty that will encourage investment and
  innovation

52

• BT unveils proposals to
• stimulate the UK telecoms
• industry
• Formula for world class services and value for
  everyone

Analyst briefing 8 February 2005
53
Key BT proposals

• BT to set up an Access Services division to
  provide transparent and equal access to BTs
  local network
• BT to cut a range of wholesale broadband prices
  and introduce faster services
• BT reaffirms its commitment to LLU and proposes a
  further price cut (subject to the completion of
  other consultations)
• BT to increase the commercial attractiveness of
  WLR
• BT to offer fair access to 21CN

54
BTs principles for a new regulatory strategy

• Increase transparency, focus regulation on
  bottlenecks, reduce regulation elsewhere
• Encourage infrastructure-based competition
• Ensure successful investment in next generation
  networks is rewarded
• Provide companies with the confidence to innovate
• Ensure regulation benefits the consumer
• Enable BT to compete fairly and on a level
  playing field

Commit to creating a climate of confidence for
infrastructure competition, investment and
innovation
55
Access Services Division

• Responsible for assets and services relating to
  the local loop
• To demonstrate equality of access for all
  parties
• This division to be fenced off and subject to
  high levels of regulation and governance whilst
  remaining inside BT
• Revenues of c.3bn, assets of c.8bn and c.26k
  staff
• Aligned incentives to deliver equality of access

56
Equality of Access Board

• To oversee the delivery of equal access
• Oversight and reporting, including KPIs
• Two independent members, appointed in
  consultation with Ofcom (potentially one from
  Ofcom)

57
Wholesale Access Price Cuts

• Approx 8 cut in prices for IPStream customers in
  areas where there is high demand, high take-up
  and lower costs
• Cut in Datastream prices to ensure continued
  compliance with the regulatory margin rule
• Price cuts for Full LLU customers of a similar
  percentage to IPStream (subject to the conclusion
  of other Ofcom consultations and normal
  regulatory processes)
• Price cuts to ensure service providers can sell
  competitive services in all parts of the UK
  through a variety of routes to market
• BT committed to ensuring LLU is a success

58
Faster broadband services announced February 3,
2005

• Higher broadband speeds in order to meet
  increasing demand for more bandwidth hungry
  applications such as video
• Trials for speeds of up to 8Mbits begin in April
• Higher speed services expected nationally in the
  Autumn
• Trials of ADSL 2 technology to test even higher
  speed services up to 18Mbit/s

59
Wholesale Line Rental

• BT to increase the margins that WLR operators
  will have between what they pay for line rental
  and BT Retails market price to customers (beyond
  that originally agreed with Oftel)
• BT to continue to develop the systems and
  processes around WLR to support expected demand

60
Rapid growth in WLR
61
Ofcom needs to play its part

• Focus regulation on BTs local loop through its
  Access Service Division
• Roll back other regulation on a progressive and
  rapid basis to simplify the complex mesh of
  regulation built up over the last twenty years
• Ensure successful investment in next generation
  networks by all is properly rewarded
• Recognise BTs investment in 21CN depends on BT
  receiving assurances it can generate appropriate
  economic returns

62

• Telecommunications Competition
• Regulation Issues Paper - April 2005
• Government is considering options for limited
• reform

63

• Go Easy on Telstra
• Senator Minchin
• Australian Financial Review, May 20 2005
• http//www.finance.gov.au/scripts/Media.asp?Table
  MFAId589

64

• The Nationals' priority in telecommunications is
  to make sure that regional Australia has the
  services it needs now -- and in the future --
  regardless of who holds Telstra shares
• John Anderson, Deputy Prime Minister
• BUILDING AND CONNECTING AUSTRALIA NATIONAL
• PRESS CLUB, 25 MAY 2005
• www.ministers.dotars.gov.au/ja/speeches/2005/AS10_
  2005.htm

65
Policy work in hand

• Full implementation of Estens - REGIONAL
  COMMUNICATIONS
• Consideration of the adequacy of CONSUMER
  PROTECTION measures - USO, service quality
• Consideration of PRICE CONTROLS report -
  extension will allow line rentals to increase YET
  AGAIN
• Policy and regulatory settings for next
  generation networks - JAM TOMORROW
• Telecommunications Competition Regulation Review
  - options for limited reform
• Scoping study into the further sale of Telstra

66
Competition regime

• Access - XIC
• Timeliness
• Access disputes
• Undertakings abuse - Mobile termination
• Effectiveness - Telecommunications Adjudicator
• Backhaul - WISPs
• Anti-competitive conduct - XIB
• Broadband decision - about conduct not access
  prices
• Regional/WISP experience

67
Structural Issues

• The Government has ruled out forced structural
  separation of Telstra.
• Recent suggestions have been for operational
  separation.
• Suggestion that OS be confined to future new
  networks - MISSES THE POINT
• OS IS ABOUT DEALING WITH EXISTING ENDURING
  BOTTLENECKS

68
Accounting Separation

• Will NEVER BE effective
• DOESNT DEAL WITH REAL INFORMATION
• Notional allocation of costs, revenues and assets
  
• IT IS NOT DIRECTED TO CHANGING INCENTIVES
• Does not require any change in the nature of
  commercial transactions between Telstras various
  business units, internally or externally
• Changes to BEHAVIOUR AND GOVERNANCE are key to
  the UK proposals

69
ATUG Concerns

• Management of market power post T3
• Consumer protection - buying power, information,
  regulation
• Where markets fail to deliver what is the role
  for government
• Availability of capital for investment post T3

70
Thank You

• Rosemary Sinclair
• PO Box 1500,
• North Sydney, NSW, 2060
• Email rosemary.sinclair_at_atug.org.au
• Skype rosemary.sinclair