INTUG ATUG 2003

A scorecard for Australia:
the broadband ashes

Ewan Sutherland



Mr Chairman, Ladies and Gentlemen

It is extremely kind of you to invite me back.

I had thought I had been sufficiently uncharitable last year about what passes for Australian telecommunications policy to have been struck off the guest list. I am therefore not sure whether I failed in that or whether you like me to be rude.

Having recently come from Tokyo my personal scale of politeness has to be recalibrated for Australian sensibilities. I am suffering from culture lag.

I spoke earlier this week on broadband at RMIT where I was, at least in part, wearing an academic cap. Today, I can be more brutally political. There is no point in pulling punches, nor do I have to aspire to academic balance, nor to consider the long term.

As users, we are looking to get something done and done quickly, this year, before it is too late.

I have to be careful about what I say, since it will be reported back to the civil servants I meet at ITU, OECD and APECTEL. However, I have the advantage over them, in that I am free to express my own views and to say things for which they would have their tongues cut out or be put in charge of public relations at Woomera.


Davos - World Economic Forum

Each year a selection of important people gather at the exclusive Swiss skiing resort of Davos for the World Economic Forum. This year it included a GSM customer from Toorak called Ziggy.

The Forum publishes a report on the competitiveness of nations, ranking one against another. Australia had declined from fifth position in 2001 to seventh position in 2002.

Table 1     Growth competitiveness index

Country
 ranking
2002
 ranking
2001
United States 1 2
Finland 2 1
Taiwan 3 7
Singapore 4 4
Sweden 5 9
Switzerland 6 15
Australia 7 5
Canada 8 3
Norway 9 6
Denmark 10 14
United Kingdom 11 12
Iceland 12 16
Japan 13 21
Germany 14 17
Netherlands 15 8
New Zealand 16 10

Source: http://www.weforum.org/pdf/gcr/GCR_2002_2003/GCR_Executive_Summary_2002_03.pdf


Table 2    Rankings of microeconomic competitivness index
Country
 2002
 2001
United States 1 2
Finland 2 1
United Kingdom 3 7
Germany 4 4
Switzerland 5 5
Sweden 6 6
Netherlands 7 3
Denmark 8 8
Singapore 9 9
Canada 10 12
Japan 11 10
Austria 12 11
Belgium 13 15
Australia 14 14
France 15 13
Taiwan 16 21

Source: http://www.weforum.org/pdf/gcr/GCR_2002_2003/GCR_Executive_Summary_2002_03.pdf


That seventh position overall is arrived at by a calculation based on several other indices. Notable in these is the 9 for the technology index.


Table 3     Rankings on growth competitiveness component indexes

Country
 GCI ranking
 Technology
index ranking
 Public institutions
index ranking
 Macroeconomic
environment
index ranking
United States 1 1 16 2
Finland 2 3 1 14
Taiwan 3 2 27 6
Singapore 4 17 7 1
Sweden 5 4 15 34
Switzerland 6 6 8 5
Australia 7 9 5 4
Canada 8 8 9 12
Norway 9 10 12 7
Denmark 10 11 2 31
United Kingdom 11 15 6 16
Iceland 12 16 3 24
Japan 13 5 25 29
Germany 14 12 14 22
Netherlands 15 19 10 19
New Zealand 16 27 4 17
Hong Kong SAR 17 32 13 3


Australia then stands relatively highly in terms of overall economic competitiveness and growth, but with a poorer performance than is desirable on technology. We will see shortly, why this might be.

The OECD earlier this week published its Economic Survey. This gave a broadly favourable view as one of the best performers in the OECD. Specifically, it noted:
The implementation of Australia’s ambitious and comprehensive National Competition Policy over the past seven years has undoubtedly made a substantial contribution to the recent improvement in labour and multifactor productivity and economic growth. The Productivity Commission estimates that Australia’s GDP is now about 2½ per cent higher than it would otherwise have been, and Australian households’ annual incomes are on average around A$7 000 higher as a result of competition policy. Unfinished business encompasses the completion of the legislative review and the subsequent removal of restrictions which have been shown not to be in the general public interest; the introduction of a contestable national electricity market at the household level; the acceleration of the slow pace of the reform of rural water supply; enhancing competition in fixed-line telecommunications; and opening the postal services market to competition. Some of these reforms are advancing slowly because of resistance from groups that benefit from protection. This calls for continuing strong efforts of the government to convince opposing parties of the overall beneficial effects of enhanced product market competition, possibly accompanied by financial assistance to support the transition to new, more efficient arrangements. [emphasis added]
Senator Alston was correct in linking the use of ICTs with economic growth. However, he somewhat overstated this linkage in the Australian case.


Broadband Internet access

Broadband has taken a central place in the international debates over telecommunications policy, not least because the story is a good deal more cheerful than 3G, which someone recently suggested stood for Greed, Gullability and Gomorra; as in the city destroyed by fire and brimstone in the Book of Genesis.

The other biblical quotation of relevance concerns the sins of the fathers being visited unto the third generation.

Broadband has been debated at the Organisation for Economic Cooperation and Development (OECD), at Asia-Pacific Economic Cooperation (APEC) and at the International Telecommunication Union (ITU). We have had study groups, reports and workshops. I can give you megabytes of documents.

Almost from nowhere, broadband topped the list of policy debates in 2002 and again in 2003.

The obvious place to turn now is to Senator Alston's views on broadband. He has been a bastion of Australian telecommunications for many years. There was a cruel suggestion that he did not expect to get re-elected and thus had no programme when he returned to office.

In 2002 Senator Alston suggested that it was unimportant whether Australia was 12th or 14th in the OECD broadband league table. That is just as well, since Australia has slipped from being the twelfth man to being ranked 19th in the OECD last September. It has most recently been overtaken by the former colonial power, the United Kingdom. However, the UK offers are generally less than one megabit per second, often 512kbps and still only amount to only 2 per cent broadband teledensity.

Interestingly, some non-OECD countries have come into play, Singapore, Hong Kong SAR, and Taiwan. They lower the Australian position, to 22nd. The recent success of Estonia in pushing past Australia means it is 23rd. A position from which it will slip further, as other countries have already put together an active broadband policy.

The growth figures being thrown around are wildly misleading. Growth of 150% or 350% still leaves Australian very far behind the pack of ICT leaders

If it is any consolation, and I do not think it is much consolation, New Zealand is 25th and sinking every bit as fast.

With the target of one million broadband lines by 2005, Telstra is aiming at 5% broadband teledensity which should see Australia stop a couple places short of 40th position. 

To make matters worse, the OECD and ITU fear their league tables can be misleading, since they include everything from 256k bps up. They are increasingly like to split the tables into "fast narrowband", from 256k to 2M bps and genuine broadband, above 2Mbps. Perhaps a separate category will be necessary for services above 50M bps, such as VDSL.

South Korea passed the 10,000,000 broadband access line in October 2002 and has now reached around 12 Million.

It is worth recalling that South Korea was devastated by a war in the early 1950s and suffered a severe economic crisis - requiring IMF intervention - as recently as 1997. Yet it is fast closing on 20 broadband lines per one hundred population and, consequently, saturation.

These are minimally 1M bps, that is ADSL "lite". They are generally 8 or 12 Megabits per second on both  cable modem and Asynchronous Digital Subscriber Loop (ADSL). These higher speeds are commonly available from KT (Korea Telecom) and Hanaro, the leading suppliers. There is no 256k or 512k in South Korea. Nor are there surcharges for exceeding some arbitrary limit of a few megabytes or gigabytes per month.

The official aim is 20M bps to every home in 2008, with broadband part of the universal service obligation.

The Japanese story is very similar. Japan is adding some 300,000 users per month. With a total of 6.1 millions users at the end of January 2003. Additionally, there are some 2 millions of cable users and 230,000 users of fibre to the home. The prices is around ¥ 2,500 to ¥ 3,500 per month for 12 Mbps, depending on the ISP. Again this ADSL.

As new subscribers become harder to get in Korea, as the market saturates, so the operators will encourage them to migrate to higher speeds for video on demand. DVD quality video can be achieved at 4Mbps. However, the big development in 2003 is VDSL, that is Video Digital Subscriber Loop (VDSL) at 50M bps, enough for High Definition Television (HDTV) on plasma screens.

We need now to turn back to Richard Alston, who expressed the view that all that the Koreans did was to play games and look at pornography. Well, he might have implied they did something more than just watch the pornography, but we can probably avoid an in depth examination of that topic. He left us to conclude that the Korean economy would waste away as people wasted their time playing with their computers and with themselves.

Strangely, we have no comparative international statistics on the use of pornographic materials. So we do not know if Koreans or Australians watch more, less or different pornography.

It is good knockabout political stuff, suggesting that the South Koreans are playing games and watching porn. However, it is not terribly helpful and might be thought to be distracting and even disingenuous.

At the end of 2002, there were more broadband lines in South Korea alone than in the European Union, including all fifteen member states and the ten accession countries. To be fair, there are enormous variations in Europe, with
The laggards are in pretty deep trouble, since they do not seem able to get started. The Government of Ireland is trying to use development funding for infrastructure to serve "metropolitan" area from Cork to Donegal. It remains a problem of which operator will connect the customers to the infrastructure.

Broadband is very much an Asian phenomenon, at least for the present. The "regional" figures, are very impressive indeed.

If we look across North-East Asia, we see rapid growth in broadband. The foundations for this were laid many, many years ago. Even where the growth is exponential, it started slowly.

Japan chose to act on broadband, and by the middle of 2001, when its growth took off at a very rapid rate. It is in the process of overtaking South Korea, but only in terms of ADSL. Both have about six million ADSL lines. It can reasonably expect to overtake the broadband total for Korea by virtue of a larger population, but not until 2005.

Singapore and Taiwan are also in the fast lane. Hong Kong declared in 1999 that it needed to be an information leader and not a follower.

To date, China has achieved, only 0.4% broadband teledensity. However, that is three million lines and it also rising very rapidly. China can be expected to pass South Korea very soon in the size of its market, perhaps in early 2004.


at 31 December 2002
 Broadband lines
(millions)
 		households
(millions)
 		population
(millions)
South Korea
 		11
 14
 47
Japan
 		6 47
 127
China
 		3
 350
 1,280
Taiwan
 		3
 6.8
 22.3
Hong Kong, SAR
 		0.8
 2.1
 6.8
Singapore
 0.2
 0.9
 4.3

An important issue to ensure that in-building wiring systems are as flexible as possible. This generally requires some sorting out of the respective rights of the building owners with each other and with tenants. This can play a vital role in the distribution of Internet access from fibre, WLL and VSAT.


Death by lobbying

What distinguishes North-East Asia from Europe and the USA is the existence of a settled political order. There are no acrimonious disputes dragged through the courts for years, nor are there appeals to the courts about the decisions of regulators or ministries. There is no extensive lobbying of parliament in order to have it smother competitors. There are no price squeeze cases heard at great length before the competition authority. It is rapid and unrelenting progress.

In Europe, the incumbent operators have killed off competition; aided by the collapse of the financial markets. They have simply delayed the wholesale offers for broadband in the expectation of the death of their competitors, knowing they have deeper pockets. It has been an unpleasant, unsavoury and messy business. It leaves the good parts of Europe at one tenth the speed of Korea and Japan, while the bad parts languish with dial-up.

The USA had been unique in having a logjam awaiting a decision, not by the market, but of the US Congress and the FCC. One or other was to legislate the rules for the exclusive rights for the winner. The FCC Chairman Michael Powell, son of Colin Powell, had been determined to hand the market to the Baby Bells. So much for unfettered capitalism!

The decision a few days ago of the FCC was one in which much of the policy on local loop unbundling was rolled back.

There are days when "unbundling the local loop" means preparing the rope with which the new entrants will be hanged.

Yahoo BB! has been very successful, in part, because voice telephony is the killer application. They now have over one million VoIP subscribers connecting free to each other and at about 2 cents per minute anywhere in Japan. To keep the tariff simple, the price to the USA is the same. Admittedly this is on top of US$20 per month for 8 or 12 Mbit/s. They have been so successful, that the incumbent operators, NTT, has now matched their prices.

In the USA we have seen VoIP and ADSL offers in



Australian broadband

The position for broadband here in Australasia is not wildly impressive. The overall ranking is poor and declining, yet there are some successes, such as in Canberra.

In one sense, broadband might be thought not to matter. There are no specific killer applications, so nobody is missing out on anything very specific today.  

On one level it is about a high-tech image. Ireland, supposedly, the digital island, is being badly harmed by the impasse on broadband. Not being able to provide cheap broadband makes Ireland a less attractive location than its competitors in the search for Foreign Direct Investment (FDI).

Similarly, having to explain the absence or considerable expense of broadband in Australia is a hindrance to foreign direct investment and to the many thousands of students who come from Asia to study in Australia. Will a teenager in Singapore or Hong Kong study somewhere that does not have multi-megabit broadband connections?

The content providers will not have a market here in Australia for years. While other countries leap ahead, they will have to wait.

In terms of productivity, access to broadband can be a significant factor. It is an important factor in economic growth.  It can bring into the economy those caring for children, the ill or the elderly.

There are also environmental benefits. If someone can work from home for a few hours or a couple of days a week and not have to drive in through the Western Suburbs, the benefits in congestion and reduced greenhouse gases are considerable.

Across the Tasman Sea, New Zealand talks a lot about some projects which have brought a few tens of thousands of broadband lines to some rural areas, mostly at very modest speeds. The New Zealanders might contrive to stimulate supply by generating rural demand for broadband, but it would be the first such case.

Telecom NZ gives a fairly convincing impression of not believing that broadband is important. It only develops an interest when resisting tooth and nail the imposition of local loop unbundling.  Like many incumbent operators it is too concerned to preserve around NZ$ 500M in leased line and other data services to businesses. 

Telstra remains a narrowband operator, with revenue flows and business models from the 1990s. It has yet to face to painful process of rebuilding itself for a broadband future. It has to accept the need to find new revenues from new activities, as voice telephony revenues collapse towards cost.

Canada is another former Imperial dominion, one with a population distribution broadly comparable with Australia, but with the addition of a lot of snow. Yet it has achieved a very much better performance in broadband and is working hard to remain a leader.

Here in Australia we have had the BAG, the Broadband Action Group, in which Rosemary Sinclair has played a part. This is a classic "Yes, Minister" approach of ensuring a positive name, some humour combined with and an assertion that something is being done, even if they had no idea of what that something was going to be.
Sadly, the Report suggests that the bag was empty or filled with political hot air.

There is nothing in Australia today that will drive the industry to catch up with North-East Asia nor even to stop it from slipping further down the league table.

The numbers, as usual, speak for themselves.

at 31 December 2002
 Broadband lines
(millions)
 		households
(millions)
 		population
Australia
 		0.03
 7.1
 19.8
New Zealand
 		0.05
 1.2
 3.8
Nouvelle Caledonie
 800
 0.077
 0.2

It is not merely those in rural Australia who will not be getting broadband modems any time soon, those in Bondi and Toorak will be lucky or wealthy.

Unsolicited advice

Having described the problem, one has to try to devise a way out, to offer some unsolicited and probably unwelcome advice.

Why the reticence from Telstra and Telecom NZ? One answer is the absence of a competitive challenger, the longer they wait the more likely they are to control the creation of the market, to dominate it and to be able to extract money from it. Another reason is the protection of existing revenues from leased lines. Yet another is managing the premature deaths of competitors, they prefer to be a serial murder rather than the more obvious night of the long knives. They are also protecting their voice revenues from the collapse that VoIP will bring.

A further reason is the hope that the political tide will turn and that monopolies will come back into fashion or that in desperation the politicians will offer some sort of Faustian deal.

The ITU suggested that the availability of flat rate dial-up is an impediment to growth of broadband in Australia and NZ. It is really metered broadband in Australia and NZ that are the barriers. Flat rate dial-up is available in Canada and has not stopped take-up of broadband there. More importantly, flat rate dial-up Internet access is available in Korea, though hardly as soul uses it.

This strongly suggests that it is broadband pricing and not dial-up pricing that determines the speed of take-up. Even in the United Kingdom demand has substantially increased since broadband prices have been reduced and again flat rates for dial-up are available. We had a long and wasteful debate in several countries, led by AOL, demanding rather than seeking FRIACO.

The privatisation of Telstra has been a long and drawn out process, one that is now stalled. Financial markets find the prospect of fresh telecommunications shares to be extremely unwelcome. The South African government is going to sell shares in Telkom SA in the coming weeks, despite a pretty ghastly financial market and some very low prices.

The Chinese Government had problems selling shares in China Unicom last year.

It is highly unlikely that we will see T3 in the near future and perhaps not for years. Getting a good financial market aligned with a an affirmative government decision will not be easy.

People who believe in T3 doubtless also that the NASA moon landings were in a studio in Hollywood. They are, perhaps, the people who put down "Jedi" as their religion in the last census.

We have constant problems around the world with governments continuing to hold shares in telecommunications operators. Even when the shares are moved to another ministry, someone is looking over the shoulder of the regulators with a view to the effect on the share price.

Extreme cases can be seen in France and Germany. Both operators remain largely state owned but have accumulated levels of debt normally associated with corrupt third world dictatorships. In both cases the governments are forced to back their incumbent at least to avoiding bankruptcy. The German government lost more money in the precipitous fall in DTAG share prices than it made in the famous 3G spectrum auctions.

Even when fully privatised, governments retain an interest. The European Commission has just taken legal action to try to force some governments to part with golden shares.

Even beyond that, operators are often perceived as national champions and have an undue influence on policy formation. Instead of gently introducing operators to competition, we have encouraged them to specialise in lobbying skills.

Australia is no different. The continuing shareholding by the government and its desire to raise money by selling those shares places an unnatural and undesirable strain on policy formation in Australia.


Structural separation

There was a brief debate over structural separation, driven in Australia by the Labour Party. However, they quickly bottled out of that fight.

The same debate has been taken up elsewhere either as a rather extreme economic doctrine or in the belief that it might terrify incumbent operators into making local loop unbundling work.

It comes originally from a bunch of economists who believe in structural separation as the one true faith. If something is not structurally separated then it should be. It is to be applied to gas, to electricity and to telecommunications. Perhaps they would also apply it to homes and families.

The OECD as good economists are on the one hand in favour of this and on the other hand opposed. The hard line economists, armed with a lot of calculus, are in favour. The telecommunications experts oppose it.
It is a rather worrying debate, in the absence of even one example in telecommunications where it has worked. It is incredibly hard to see a way to apply it to telecommunications.

We already have some competition with mobile networks for call origination and to some extent with cable television networks. There is already infrastructure competition and we need to see more, not less.

Anyone who tries to sell you structural separation as a policy should be transported to the UK and made to spend a month travelling on the railways there, obliged to ask fellow travellers what they thought of Railtrack.


International Internet connectivity

One of the subjects close to the hearts of Australia's representatives at international meetings is the system of International Internet Connectivity (IIC), sometimes known as International Charging Arrangements for Internet Settlement (ICAIS). This was originally raised by Telstra, but it now admits it does not have a problem. Its position changed after it acquired DynegyConnect. Nonetheless, Australia continues to pursue this issue for domestic reasons and to support other countries in the region, notably Singapore, South Korea and China.

There is a marked contrast between the old accounting rate regime and the Internet peering regime. In the former, the developing countries received money for international connections. In the Internet, they have pay for links to the Internet and then pay for the exchange of traffic.

The ITU's World Telecommunications Standardisation Assembly (WTSA) last year passed a resolution calling for the inclusion of many factors. However, these remain fundamentally commercial negotiations.

Table     Bandwidth index: ranked by overall international Internet bandwidth measures (2001)

rank
 		country
 		Mbit/s
 		bits/capita
 		bits/subscriber
1 Hong Kong, China 6,308 933.2
 		240
1 New Zealand 1,900 489.6
288
3 Taiwan, China 7,228 322.6
114
4 Singapore 2,6392 638.8
 		285
5 Australia 7,000 361.1
167
6 Japan 22,705 178.4 94
7 Brunei Darussalam 60 179.1 261
8 Macao, China 120 267.9
 		346
9 Korea (Rep.) 5,432 116.1
61
10 Maldives 5 16.4
409
11 China 7,598 5.8
44
12 Thailand 642 10.5 43
13 Mongolia 10 4.2
100
14 French Polynesia 8 31.7
83
15 Bhutan 2 2.9
100

Source: ITU, Asia-Pacific Telecommunications Indicators, 2002.


There is a very useful study by the OECD on Internet traffic exchange and development. This suggests that the market has responded to problems of interconnection and peering. It concluded the market was competitive.
http://www.oecd.org/pdf/M00027000/M00027258.pdf

There have been examinations of international International connectivity by the US Department of Justice and the European Commission in the then proposed merger of Worldcom and Sprint. The market was, at Tier One level, found to be competitive.

It is all too evident that the ICAIS issues is not holding back developments in South Korea and Japan. Nor does it seem to limit growth in China, despite their repeated complaints.

However, it does constrain the growth in New Caledonia, where the expensive satellite link to the Internet is very expensive.

The ACCC is due to look at the competitiveness of domestic Internet peering and transit in the coming weeks. Only four operators have peering, the rest claim to be disadvantaged. This may be a comfortable oligopoly.

An obvious contrast is with Europe and the USA where the geography allows ISPs however small, to interconnect IP traffic at nearby centres. For example, a Belgian ISP can route traffic to Amsterdam or London in a cost-effective manner. That is not a possibility in Australia given its enormous remoteness.

An obvious question is whether the complaints about Internet peering is merely a symptom of the reluctance to accept consolidation. There are economies of scale in ISP operations which have led to consolidation in other countries.


Conventional telephony

The subject of telephony in Australia has recently been the subject of detailed consideration in the Report of Regional Telecommunications Inquiry (The Esten Report).   

Fixed teledensity and world rankings

Country 2000 1990 Rank
2000		 Rank
1990		 Change
Bermuda 86.98 61.68 1 2 1
Gibraltar 85.91 39.07 2 29 27
Guernsey 84.65 57.85 3 4 1
Jersey 84.11 59.93 4 3 -1
Cayman Islands 82.12 47.04 5 16 11
Luxembourg 75.00 47.75 6 15 9
Switzerland 72.66 57.35 7 5 -2
Denmark 71.95 56.68 8 7 -1
Iceland 70.10 51.02 9 11 2
United States 69.97 54.45 10 9 -1
Sweden 68.20 68.08 11 1 -10
Canada 67.65 56.49 12 8 -4
Cyprus 64.71 41.89 13 25 12
Netherlands 61.79 46.41 14 17 3
Germany 61.05 44.08 15 22 7
Liechtenstein 60.82 57.22 16 6 -10
United Kingdom 58.85 44.07 17 23 6
Japan 58.57 44.11 18 21 3
Hong Kong 58.31 45.01 19 20 1
France 57.92 49.52 20 13 -7
Virgin Islands (U.S.) 56.96 45.26 21 19 -2
Saint Kitts and Nevis 56.87 23.74 22 55 33
Taiwan, China 56.75 30.95 23 38 15
Faroe Islands 55.44 48.1 24 14 -10
Finland 55.02 53.41 25 10 -15
Norway 53.20 50.18 26 12 -14
Greece 53.16 38.86 27 30 3
Australia 52.46 45.63 28 18 -10
Malta 52.16 36.03 29 32 3
Northern Marianas Islands 50.54
30    
New Zealand 49.98 43.36 31 24 -7
Antigua and Barbuda 49.94 25.25 32 50 18
Belgium 49.80 39.25 33 28 -5
Singapore 48.44 34.94 34 33 -1

The equivalent mobile teledensty rankings, show Australia in a respectable, but far from exciting ranking.

Country 2000 1999 Rank
2000		 Rank
1999		 Change
Luxembourg 86.11 47.97 1
 		11
 		10
Hong Kong 80.92 64.14 2
 		1
 		-1
Taiwan, China 80.24 52.24 3
 		7
 		4
Austria 76.15 51.98 4
 		8
 		4
Norway 75.09 61.29 5
 		4
 		-1
Italy 73.73 52.83 6
 		6
 		0
United Kingdom 72.70 45.69 7
 		14
 		7
Finland 72.04 63.38 8
 		2
 		-6
Sweden 71.72 58.29 9
 		5
 		-4
Israel 70.18 47.18 10
 		12 2
Singapore 68.38 41.88 11
 		19 8
Netherlands 66.99 42.52 12
 		18 6
Portugal 66.49 46.73 13
 		13 0
Ireland 65.75 44.20 14 16 2
Switzerland 64.39 42.68 15 17 2
Denmark 63.11 49.47 16 10
 		-6
Slovenia 61.21 31.75 17 25 8
Spain 60.93 30.60 18 28 10
Germany 58.60 28.54 19 30
 		11
Iceland 57.11 61.93 20
 		3
 		-17
Korea (Rep. of) 56.69 50.03 21
 		9
 		-12
New Zealand 56.33 36.61 22 21
 		-1
Greece 55.73 36.74 23 20
 		-3
United Arab Emirates 54.80 34.71 24 23 -1
Japan 52.62 44.88 25 15 -10
Belgium 52.51 31.39 26 27 1
Jersey 51.56 28.52 27 31
 		4
France 49.33 36.56 28 22 -6
Australia 44.69 33.35 29 24 -5
Liechtenstein 44.68 29.29 30
 		29 -1
Czech Republic 42.42 18.95 31
 		50
 		19
Martinique 41.03 26.00 32 32 0
United States 39.79 31.55 33 26 -7
Reunion 39.50 16.07 34 34 0


In a couple of weeks, the OECD will published its Communications Outlook 2003, comparing the thirty countries on telecommunications. This will update the standing of Australia which is, overall, quite respectable, but not what it could be.

Mobile voice telephony

Even in the remoteness of Brussels we heard the story of the telecoms CEO who had his own personal GSM cell installed in his garden. No doubt it was fully justified, such things always are. The Australian suburbs are notorious for being so spread out as to make GSM coverage problematic.

The general ranking of Australia is shown by the ITU as being a little better than broadband, at number 18.  Again, it is some way ahead of the Kiwis who are at 25.

Table    ITU Mobile/Internet Index: ranking, density and growth in 2001

country
 		rank
 		density
2001
 		CAGR
1995-2001
Hong Kong, China 1
 		85.46
 		36.92
Denmark 2 73.67
 		29.29
Sweden 3 79.03
 		23.09
Switzerland 4 72.38
 		50.10
United States 5
 		44.42
 		22.98
Norway 6 82.53
 		24.22
Korea (Rep.) 7
 		60.84
 		59.90
United Kingdom 8
 		78.28
 		41.41
Netherlands 9 73.91
 		66.41
Iceland 10 82.02
 		38.68
Canada 11 32.00
 		23.96
Finland 12 77.84
 		25.35
Singapore 13 72.41
 		42.41
Luxembourg 14 96.73
 		56.83
Belgium 15 74.72
 		78.37
Austria 16 80.66
 		60.21
Germany 17 68.29
 		57.06
Australia 18 57.75
 29.21
Portugal 19 77.43
 		68.03
Japan 20 58.76
 		35.89
France 21 60.53
 		73.10
Greece 22 75.14
 		75.07
Italy 23 83.94
 		51.87
Czech Republic 24
 		65.88
 		127.92
New Zealand 25
 		62.13
 		35.47
Spain 26 65.53
 		73.41
Slovenia 27 75.98
 		95.28
Israel 28 80.82
 		47.25
Estonia 29 45.54
 		67.66
Ireland 30 72.94
 		59.80
Poland 31 26.02
 		127.03

Source: ITU (2002) Internet for a mobile generation, ITU, Geneva.


INTUG has been engaged in a long war with the mobile operators on the subject of international mobile roaming.  We have sought to have the prices reduced, because the the operators run a cartel. We have also tried to get them to create global or multi-country services, that is without roaming. We were told this was unrealistic and impossible.

You can imagine our surprise then when we found that Vodafone offers that service here in Australia to their customers. But only those roaming from New Zealand and Fiji. They are charged the same rates for international calls as if at home. We would very much like them to go further, but it is the start of a pan-Pacific service.

One of the surprising stories to come out of Australia concerned Telstra in Hong Kong. Here Telstra raised its flag on Victoria Peak and proudly proclaimed that Hong Kong belonged to them. It paid hundreds of millions of Australian Dollars for a half share of CSL, one of six mobile operators in one of the world's most competitive mobile markets.

The money was given to Richard Li, son of Li Ka-Shing, who runs Pacific Century Cyber Works (PCCW). PCCW which owns the incumbent promptly announced that it was covering Hong Kong with WLAN and would even use it pay phones to increase the coverage. It seems that PCCW has the better and cheaper strategy for Hong Kong.

China absorbed 6M phones in February 2002, has reached 400M phones. This year, Chinese mobile users sent over seven million billion text messages in the first week of the lunar new year. At a charge of 0.10 Yuan (US$0.012) per message, the new year's cell phone messaging translated to about 104 million Yuan (US$12.56 million) in revenues.

The move to 3G, so far, defies any sensible statistical analysis. Nonetheless, it is worth noting that companies are seeing their share prices go up when they abandon 3G licences. When Quam sent back its German licence, the prices of both Sonera and Telefonica de Espana rose. The concern is less the licence fees and more the cost of building 3G networks, combined with the lack of services to run over 3G.

There are proving to be immense difficulties in moving from GSM to 3G/UMTS. The route from cdma2000 seems a little easier. It is really about revenues from mobile data and VANS and those seem very slow in coming..

It is unclear whether they even have the billing software, for when the services come online.


Mobile data

My friend, Mr Smith from Byron Bay, has kept me amused by stories of GPRS in Australia. He has had the joys of setting up his handset and PDA and of trying to find and sustain services. It is not a reassuring story, when you need a degree in computer science to configure a GPRS device for use.

The current rates in Europe are about £1 per megabyte, though a bit more for small usage customers and a bit less for heavy users. Orange, in the UK, is offering a rate of £4 per megabyte for pre-paid customers. We assume they have put the decimal point in the wrong place.

Vodafone in the UK is offering a domestic price of £1 per megabyte over GPRS. For those roaming to continental Europe, the price goes up to £10 per megabyte. I was sitting two weeks ago with someone from Microsoft in a meeting in Paris, his Belgian GSM operator was unable to explain why he could not get GPRS roaming to read his electronic mail. So he had dial back to Brussels.

I still have no idea who wants to pay these sorts of prices. It seems doomed to fail or to be slashed by a couple of orders of magnitude in the coming months. Even then it may be too late to restore the faith of business users or financial analysts. While consumers can eventually be won round, analysts are a harder bunch to persuade to reconsider.

MMS is gradually being interconnected between operators with roaming being offered. SingTel lists many countries where MMS roaming is available. It then kindly offers the service for free. It will be interesting to see what the roaming prices are this summer in Europe and whether people send their postcards by MMS.

We are left concluding that all the hype about the wonders of mobile data for 2.5G and 3G has proved to be nonsense. The mobile operators seem to know next to nothing about the mobile data market and will struggle for many months or more likely years to develop markets.

There may be some hope in the development of games for mobile phone handsets. Initially, as standalone games, but increasingly for networked games. Lord of the Rings comes increasingly as games in which, I am told, you kill orcs and trolls on your computer and your mobile phone handset.

The ARPU figures are a cause for despair, there is no evidence of data and value-added services providing revenues. FOMA seems to be getting no increase in revenues for DoCoMo. However, the other Japanese operators seem to making a greater success of it.

SMS revenues are high, but that is just a cartel exploiting kids.  It costs almost nothing to carry as it is carried at low priority in the signalling channel.

Wireless is much more than just one technology or range of frequencies. It encompasses:
Wireless Local Area Networks (WLANs) are one of the few hot spots in the world of telecommunications. Proof again of the success of the Silicon Valley model.

There is a very interesting experiment on WLAN in Adelaide. However, in general in Australia deployment of WLAN is severely hindered by the high cost and limited availability of leased lines and ADSL.

Again, Korea and Japan are different. They are rolling out services very much more densely than in Europe or the USA. Clearly, they have a different business model in which it will be very easier to find a hot spot to use. Hanaro and KT are looking to have one million customers each, that is in a country of only twice the population of Australia.

Sharp and Vonera have announced the first voice over Wi-Fi devices. They will soon be available. There are interesting consumer applications as well as applications within companies.


Conclusions

Telecommunications remains a vital and pre-eminent source of economic growth. It is not something Australia can afford to continue getting it wrong. Investment in broadband will generate growth, with a substantial economic multiplier.

It is the duty of government to remove obstacles that hinder the adoption of telecommunications by companies and by individuals. Especially when those obstacles come from the incumbent operator, the mobile oligopoly or from regulation designed for a former time.

Government and regulators, such as the ACCC and the ACA, must be alert for new abuses. Sometimes telecommunications operators are more creative in these abuses than they are in the development of new services. Perhaps we should have an Oscar for the most creative obstruction of new entrants

Given the very rapid pace of change, government and regulator alike must exercise their roles carefully, but without delay.

It is not something where the government can simply hide its head in the sand. Things will not get better of their own free will. To try to evade such responsibilities is it to play with economic fire.

We have seen in the Global Competitiveness Report that Australia is underperforming on technology, something which is entirely unnecessary.

The ranking in fixed telephony is perfectly respectable for a country of the size and population distribution of Australia. However, the mobile density is only average in country where I am told people are constantly out of doors. A reasonable comparison would be with Sweden and Finland, at least in terms of what is achievable.

The broadband ranking is a disgrace for a developed country in the Pacific. Worse than the ranking itself, is the absence of the market or regulatory dynamics to start off on the long haul to catch up the Koreans and the Japanese - the Sumo-size champions of broadband.

It is not merely that getting broadband out to suburban Australia is not happening, but that what is offered is so very slow. The service delivered is one tenth or less of that of the world leaders, 256k as against 12M bps.

If a company in Australia is thinking of developing a broadband application, it can experiment with it today in South Korea, Japan or China, in the knowledge that once broadband arrives in Australia, it will have the service perfected.

It will always be harder and more expensive to provide telecommunications to people in Woomera and Byron Bay, than in Toorak and North Sydney. We should not have to worry about the cities, markets can deliver services to them. Yet cable television is not competing with Telstra on broadband in the suburbs. If they were to offer "triple play" it might provide sufficient competition to get even Telstra to improve its performance.

If people insist on using broadband services in the sunshine, then residential WLAN will adequately cover balconies, terraces, gardens, yards and, in some cases, beaches. I am sure the Koreans will be happy to develop a broadband enabled surf board, after all DoCoMo is planning to equip twenty million cats and dogs with 3G phones. At least the animals will not be aware that 3G is dead dog of a product.

If the present board of disrectors will not launch into broadband, then as a guardian of the public interest, it falls to the minister to protect the future value of T3 by replacing the leadership at Telstra. Now seems a good time to do that.

Thank you very much for your attention.

copyright © INTUG, 2003. http://www.intug.net/talks/es_2003_03_sydney.html

Last updated 5 March 2003.