Whatever Happened To The Dot-Com Revolution? Lindsay Tanner - Shadow Minister for Communications

Speech

Transcript - Sydney Institute - 26 August 2003

The so-called "dot-com revolution" was the buzzword on everybody's lips in the late 1990s as Internet stocks soared and huge personal fortunes were made overnight.

In early-to-mid 2000 the collapse of the NASDAQ index saw the dot-com boom come crashing down in a heap. Billions upon billions of dollars were lost and the telecommunications industry is now burdened with debt of around $1 trillion. Internet stocks have lost as much as 95% of their value since those heady days in the late 1990s. The term dot-com is certainly less in vogue today than it was three years ago.

The Australian telecommunications and information technology sectors also suffered with the collapse of the dot-com boom. Hundreds of millions of dollars were lost in the ill-fated One-Tel venture. Telstra has written off billions in Hong Kong based cable and mobile phone networks. In Australia Telstra has lost many millions of dollars on dot-com investments like Solution 6, Sausage Software and Keycorp.

Just this year Australia has seen $1 billion worth of telecommunications assets fall into receivership. Significant cable networks IPI and NextGen connecting our major cities and offering some nascent competition to Telstra and Optus are in receivership and up for sale. The outlook for the communications investment market is very gloomy. Today the term new economy instils none of the hope and confidence for the future that it once did.

But tonight I want to talk about the positive aspects of the new economy. I want to look at the Australian context, and consider how we might do better.

In typically descriptive language, former Prime Minister Paul Keating once said that, "we have to be on the board of the new economy with our toes hanging over the front". That statement is as true today as it was before the dot-com collapse.

While Australia's traditional mining, pastoral and manufacturing industries will always be important, it is the new information economy where a great deal of Australia's hopes of future growth and prosperity lie. This is where many smart jobs are, it is where our strengths in education and language can come to the fore. It's where our children can expect to find employment, opportunity and fulfilment.

The new economy is fundamental to Australia's economic future. Australia has several natural advantages in this area: a world class education system, English language skills, a multi-lingual population, and enormous creative talent. Australia's traditional barriers of distance mean little in the information economy where digital signals pulse around the globe in the blink of an eye. Australia should be a world leader in this area, not a world follower. Yet the vision and evangelism necessary to drive Australia's transition to a new economy is sadly lacking.

At the heart of our ability to succeed in this area is our communications sector. Government settings play a crucial role in the success of Australia's communications industry. Communications policy is central to Australia's prospects in the new economy.

Any discussion of Australia's performance in the information economy requires close analysis of our broadband performance. Broadband is one of the key drivers of the new economy and its potential to enhance the productivity of businesses, particularly small and medium sized

businesses, is enormous. Accenture estimates that widespread broadband adoption in Australia has the potential to inject between $12 billion to $30 billion in extra economic activity annually.

In the information economy of knowledge workers, broadband connections are vital. Those who work in such jobs have experienced the frustration of waiting for large files to download on standard dial up Internet. Precious minutes of productivity slip away as you wait over your computer with ever mounting frustration. We are now even hearing stories of computer rage, driven by poor dial up Internet speeds, drop outs and pair gains system constraints.

Too much emphasis has been placed on the entertainment and content applications of broadband. Far too little emphasis has been placed on the potential of widespread broadband access to enable the Australian economy and Australian businesses to reach new and exciting levels of productivity and competitiveness.

Only recently AC Neilson analyst Andrew Tolpin was reported as saying, "it's not content driving people to broadband, it's speed of connection". Telstra has been hiding behind the content excuse for some time. Claims have been made that poor broadband uptake in Australia is related to a lack of compelling content. Anyone who has ever logged on to the web will know that the real problem with the Internet is too much content, not too little. The real restraints on Australia's broadband uptake are price and availability, not content.

The focus on new applications for broadband is important, but without appropriate infrastructure, it will be of limited value. The applications, some of them even apparently mundane, are already there. Finding and disseminating information are integral aspects of most business activity.

Communications Minister Senator Alston mused several years ago that broadband was just about porn and video games. Broadband in the home might be about porn and video games to some extent, but in the workplace it is about productivity. Unfortunately time has not enhanced his understanding. As recently as June this year Senator Alston was still decrying the economic importance of broadband:

"It does not necessarily have much to do with benefiting the economy if it is simply providing services to households a little faster than they might otherwise receive them because of their own level of demand."

This statement reflects a fundamental misunderstanding of the enormous economic importance of widespread broadband access on the part of our Communications Minister.

It is little wonder that Australia's relative performance in broadband is so poor given the disregard for broadband. Despite some recent belated catch-up growth spurts which have now slowed, Australia's broadband penetration remains poor in comparison with our key OECD competitors.

According to the OECD, Australia dropped from 13^th to 19^th on the OECD table of broadband access in 2002. The OECD reported Australia as having 1.9% of inhabitants connected to broadband compared with 11.7% in Canada, 8.5% in Belgium and 7% in the USA.

Australians have generally been at the forefront of new technology up-take, but in broadband we are slowly slipping to the bottom of the international table. It is a scandal that our Government is unconcerned about this. Broadband is a central component of the information economy and Australia is lagging behind. It is simply not good enough.

So where are we going wrong with broadband? The blame for Australia's poor broadband performance lies squarely with the Howard Government and Telstra. There are three main reasons Australia is languishing in broadband performance:

• Inadequate facilities competition
• Inadequate leadership from Government
• Inadequate investment and leadership from Telstra

At present there are two main competing technologies for affordable broadband: cable and ADSL. ADSL is provided over existing copper networks and is thus an effective monopoly held by Telstra, despite third party access arrangements that have been subject to much criticism. Cable infrastructure is also dominated by Telstra, through its ownership of the Foxtel cable and indirectly though Foxtel's content agreement with its main cable competitor Optus. Pay-TV which in countries like Canada and the UK has been an effective source of broadband competition is becoming a virtual monopoly in Australia, 50% controlled by Telstra.

Strong facilities based broadband competition is clearly lacking in Australia. ADSL and cable access is dominated by Telstra and it is rolling out these services at its leisure, rather than in the loss leading manner that is typical of companies seeking to compete robustly in new markets. Some smaller competitors are emerging such as TransACT cable in the ACT and Western Power's "Bright" broadband initiative in Western Australia. While these developments are encouraging these competitors do not have the resources to form a network capable of competing with Telstra on a national scale.

The second causal factor in Australia's broadband performance is inadequate leadership from Government. This is summed up by the disdainful comments by the Minister for Communications Richard Alston, quoted above. The fact that we do not have a Minister who is an evangelist for broadband is part of the problem.

The Minister has sat by while Telstra has failed to account to Parliament for its inadequate broadband performance. He immediately dismissed a report by the Australian Competition and Consumer Commission calling for Telstra to get out of Foxtel, and even to divest itself of its HFC cable to provide for more competition in broadband. The Minister had previously said he would give the report, which he himself commissioned, careful consideration. As soon as Telstra's monopoly interests were threatened he immediately dismissed the report. Unfortunately for Australia, the Government is so blinded by its desire to sell Telstra at the highest possible price that considerations of calling Telstra to account for its inadequate broadband performance do not rate.

The Minister recently stated his broadband policy is "focused on the commercial and competitive roll out of broadband on a light touch basis." Unfortunately the touch is so light that the Government is effectively doing nothing.

Senator Alston has simply sat back and watched as the broadband debate has unfolded in Australia. He convened a Broadband Advisory Group that came up with some modest motherhood statements in February this year. The Minister has failed to adequately respond to this report. Where is the bold plan for action? Where is the broadband access target for Australia?

Broadband use correlates closely with income. The higher the income the more likely a household is to have broadband Internet access. A research survey this year found that Internet connections of those with household incomes of over $75,000 were more than twice as likely to have broadband connections than those with incomes under $45,000. These issues go to the heart of what type of society we want to be.

Some critics have suggested that Australia's broadband connection prices and the widespread use of download caps make broadband comparatively expensive in Australia and therefore deter wide spread take up. In April this year, IDC Australia analyst, Landry Fevre, stated that high connection and monthly charges are impeding broadband take up in Australia, arguing that European broadband connection prices are half that of Australia. Broadband pricing and access arrangements in Australia need serious scrutiny. At Labor's initiative, a Senate inquiry on broadband competition has been established and will undoubtedly provide some invaluable insights on these issues.

The final factor in Australia's poor broadband performance is inadequate leadership and investment by Telstra. The Economist said in 2002:

In many parts of the world, incumbent carriers still have the sort of stranglehold over local telecoms services as they did before deregulation—allowing them to dictate the pace and price at which they roll out broadband services to subscribers. The result has been broadband gridlock on a monumental scale.

Unfortunately for Australia we are one of the many parts of the world suffering from this problem.

I was in the outer northern suburbs of Perth earlier this year visiting the City of Wanneroo. Wanneroo is in Perth's growth corridor, one of the fastest growing areas of Australia. The Wanneroo Council has gone to great lengths to develop an economic development strategy which complements the rapid growth in population in the region. The lack of widespread broadband availability within their city has been a major constraint on their ability to attract small and medium size businesses to locate there.

The Howard Government claims to be a great supporter of small business. Yet it has done little to facilitate small business access to broadband. The future competitiveness of many small businesses will depend on their access to high speed communications.

Recently at a public meeting I conducted in Caboolture, north of Brisbane, a small businessman who had chosen to locate there lamented the negative impact of the lack of broadband access on his business. I regularly receive letters and emails from people complaining about inadequate broadband access. Many of these are from the outer suburbs of capital cities and from provincial cities.

Telstra still tends to treat its massive telecommunications network like it is a voice only network, rather than a voice and data network. This is evidenced by Telstra's widespread use of the broadband inhibiting pair-gains technology. Pair gains may be useful for a voice only network, but are massively disruptive for those seeking data on their phone lines, whether at high speed or lower speed. Telstra has only recently begrudgingly conceded it needs to roll back the use of this technology after reports criticising its use and a concerted campaign by my federal parliamentary colleague, Senator Kate Lundy.

Telstra's annual capital expenditure has fallen by hundreds of millions of dollars in recent years. At a time when Telstra should be building its next generation data network, there are widespread reports of Telstra keeping its ageing copper network held together with plastic bags and temporary gas bottles.

My great fear is that when the age of broadband truly arrives Telstra's network will be so diminished by years of underinvestment and staff cut backs that Australia will have to play catch up for many years. I want Telstra out there building the network that will enable Australia to be a leader in the global information economy. Telstra should be a builder not a speculator. It should be a carrier, not a broadcaster.

The great irony of Telstra's slow response to the broadband challenge is that it should be rolling out and promoting ADSL as a means of prolonging the economic life of its primary asset, the fixed line network. The longer it lingers, the more opportunities it allows for competing technologies, like wireless, where Telstra has no natural advantage over its competitors.

It was only in July this year after much criticism, that Telstra announced it would be investing around one billion dollars in broadband infrastructure over the next five years. Dr Switkowski's comments at the World IT Congress in Adelaide last year that content is a key driver for broadband seem to have been forgotten. Telstra has finally realised that investment in broadband infrastructure is what really matters. While belated recognition of the importance of broadband infrastructure is welcome, it pales into insignificance when compared to Telstra's massive capital expenditure cuts under the Howard Government. As with much of Telstra's announced spending it is also difficult to determine whether this is existing capital outlays dressed up in a press release.

Telstra needs leadership that is unequivocally committed to broadband. Telstra needs a plan to transform a rather dilapidated copper network designed for a voice environment into a network capable of delivering high speed broadband access to all Australians. Most of all, it needs a majority shareholder that understands the critical importance of this objective, and is prepared to drive outcomes.

Canada is a country relatively similar to Australia, but unlike Australia it has a seriously impressive broadband take up that is second only to South Korea. Recent research by ComScore Media Metrix suggests that 53% of Canada's 17 million Internet subscribers have broadband access. They ranked Canada's broadband penetration rate as 30%, well above the OECD's 2002 ranking of Canada at 11.7%, which is still second in the OECD and well above Australia's 19^th ranking on 1.9%. A recent Financial Review assessment attributed Canada's elite broadband status to lower prices, better competition, particularly between phone companies and pay-TV providers, and Government support. These factors are all sadly missing in Australia.

Two research reports came out recently which paint a disturbing picture for Australia's future in the information economy. One from IDC Australia predicted that by 2007 Australia would have a broadband penetration rate of only 13%. A similar report for Forrester Research predicted that Europe would have penetration rates of 30% in 2008, with the Scandinavian countries and the Netherlands leading the way. While these reports employ different methodologies the underlying trend is clear: Australia is lagging the world in broadband take-up and this is showing no signs of improving. The Government is asleep at the wheel.

While Telstra remains a dominant monopolist with limited competition, effectively run by a Government that has forsaken Telstra having any nation building function, Australia's broadband prospects remain bleak. We need both the Government and Telstra to develop a vision for broadband. In particular, we need Telstra to re-focus on its primary responsibility as the universal connector. If Telstra takes the lead in delivering broadband it will continue to dominate our telecommunications sector for years to come, to the great benefit of its shareholders and the Australian community.

Three years on from the dot-com crash there is still a cloud over the communications industry. Yet Australians are increasingly beginning to understand the benefits of broadband. Exciting 3G mobile networks with remarkable voice and data capabilities are beginning to show up in the hands of ordinary consumers. Young people are embracing new communications technologies eagerly and will be the key drivers of our future in the information economy.

Billions of dollars were squandered in the dot-com boom. The rail industry experienced similar boom and bust periods prior to stabilising and becoming a central feature of the industrial economy. The information economy is potentially worth tens of billions of dollars more to Australia's economy and it will be a key future driver of our economy. We must not give up hope in our ability to lead the world in this area.

Australia needs a government that it is committed to the information economy and committed to broadband as its engine. It needs Telstra acting as a nation builder, committed to a national plan to roll out equitable broadband access to all Australians. It needs a Communications Minister who is an evangelist for broadband, not an apologist for poor broadband performance. Australia at present stands at the fringe of the information economy. We have all the natural advantages to enable us to be at its very heart, but none of the political will. Our future economic relevance depends on our ability to meet this challenge. It's time for a concerted national effort to connect Australia, and lay the new foundations for a successful modern economy in the twenty first century.

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