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Boxing day December 27, 2006

Posted by Jasper in broadband.

An opinion piece in The Australian came out on Boxing Day which is based on short report I wrote for the Competitive Carriers Coalition. I had hoped it would have hit the streets a few weeks earlier, but such is the workings of the newspaper business. Full (original) text below.

Thinking outside (Telstra’s) box on broadband

In recent weeks, key industry leaders have openly criticised the status of broadband in Australia. Rupert Murdoch chairman of News Corporation (publisher of The Australian) labelled broadband services in Australia “a disgrace” and said that the federal government and Telstra should invest up to $12 billion in a new network – comments later echoed by James Packer. Telstra claims that its incentive to invest is restricted by the regulatory regime for access to its network.

However, turning to Telstra to solve our broadband problems is antiquated and inappropriate. It is a far cry from the approach adopted in other jurisdictions to assume that the response to low broadband availability must be assisting the incumbent to undertake core investment. Options are available that can promote bringing fibre closer to end-users without providing more assistance to Telstra.

Australia can learn from approaches undertaken overseas to improve our broadband access. Evidence suggests that Australia is far from the forefront in broadband penetration and inadequate in broadband speed – a fact acknowledged by Telstra Chief Executive Sol Trujillo. In terms of access speed, around 35% of plans in Australia have speeds of 256Kbps or less. This contrasts most starkly with Sweden where some 25% of plans have speeds of 20Mbps or up to 80 times faster those on 256Kbps plans. Further, it is important to remember that the world does not stand still. To improve our standing we have to improve faster than the current trendsetters, not just catch up to where they are now.

Turning to the incumbent for help would have been appropriate in pre-liberalisation days before the introduction of competition. Today we move in a different era, where answers are needed to a different set of questions. Indeed in no jurisdiction have politicians or regulators looked blindly to the historical incumbent for help to ensure the broadband future. On the contrary, in countries like Sweden, which has an extremely successful broadband strategy, the government has stimulated the building of new networks as a competitive alternative to the national champion TeliaSonera.

That said, a range of policies have been put in place to stimulate investment overseas, suggesting that one solution does not fit all. It would be a mistake simply to import experiences from other countries with blind faith in their workings. The solution must be tailored to Australia’s economic, geographical, cultural and educational situation.

To encourage further investment, we must also recognise that broadband poses many uncertainties for investors. The most significant is demand. Some believe demand for broadband will be driven by video services while others focus on options for social interaction. Each of these has implications for the roll-out of infrastructure. Regardless of beliefs, the only thing that is certain is that demand for broadband services is uncertain and unknown. However, demand‑side uncertainty can be reduced. South Korea is a good example of a country that has pursued a successful demand‑side strategy. This policy has focused on education and targeting of those that are less technically adept. Broadband is available to almost 100% of the South Koreans and some 26% of the population are subscribers.

An alternative is to create a better environment for investment in broadband by stimulating the supply side of the market. International experience here is broad and varied. There is, however, a clear tendency to delegate locally – moving away from a focus on national solutions to allow greater flexibility in responding to local need and conditions.

The most effective broadband strategies are those that touch upon a wide variety of factors and engage a broad set of players – an approach that Senator Helen Coonan’s recent blueprint for Australian would appear to endorse. Of particular importance is the focus on competition and its crucial role in the creation of a viable and sustainable broadband market.

Indeed it is exactly the focus on competition that has spurred much of the debate in regulatory circles of how best to encourage investment in broadband, including both vertical and horizontal separation. The importance of competition is acknowledged even in the United States where there is no requirement for a regulated access regime. The fundamental underpinning of US regulatory regime is that the future number of end-to-end broadband providers will be sufficient to ensure adequate levels of competition in the market. Under these circumstances, there is no need for regulated access to new fibre networks.

A sustainable broadband market requires sustainable competition. Turning to Telstra is the wrong response and not what has been done in other jurisdictions. It is a wrong response because it is an answer to the wrong question. It is backward-looking and stifles competition in an environment that needs to be forward-looking and pro-competitive. Creating a competitive environment is the only way to improve Australia’s broadband situation.



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