Clearly there is an urgent and unquestionable need for major infrastructure investment in this country. Be it roads, ports, clean energy, water or telecommunications, the cries for multi-billion dollar infrastructure projects get louder by the day, along with the push for governments to fund or subsidise more and more of this investment.
The fact that Australia has experienced over a decade of sustained economic growth, yet is suffering from outdated and sub-standard infrastructure in so many sectors, begs the question - why have businesses (and governments) not made these investments during the good times?
With the implementation of the Hilmer competition reforms and a range of sector-specific regimes at the Federal and State levels, it has long been presumed that Australia has world-leading structures for regulating market power and encouraging competition. But there has been little serious empirical testing of the validity of this presumption, making it more an article of faith.
Hilmer reported back in August 1993, fifteen years ago last month. In telecoms, the competition regime took effect eleven years ago, in July 1997. With the passing of time and in light of the unmet cries for further investment, one must ask whether competition policies and regulatory regimes devised so long ago require an ‘eyes wide open' reassessment. The world we now live in is a very different place to the mid-1990s, with the rise of phenomena like globalisation, the internet and other technological advances, and the increasing significance of the natural environment.
The aim of the Hilmer agenda was to drive down the cost structures of newly corporatised and/or privatised assets that were largely characterised by significant spare capacity, inefficiencies and low levels of productivity. Largely this work is now complete and today the primary policy issue is how to bring on new capacity.
In telecoms, the gap between policy goals and the real-world they are meant to govern is readily apparent. Today's telecoms sector is unrecognisable compared with 1997, but the telecoms competition regime has remained virtually static. In 1997, broadband did not exist. Virtually all telecoms services were delivered over the fixed network. The primary aims of the competition regime were to encourage new entrants, to reduce prices and to enable access to bottleneck fixed line services.
Today, there are more than 100 telecoms carriers and many more service providers offering services which were not even contemplated in 1997 over fixed - fibre, copper and cable - wireless and satellite networks. Prices have fallen virtually across the board and, in some cases, are now a fraction of what they were in 1997. Mobile and data now predominate with more mobile services than fixed services in Australia.
In spite of these radical changes, the telecoms competition regime has been subject to only one major review, which was conducted by the Productivity Commission in 2001, and its findings were largely ignored by government. Neither the fundamental changes in the telecoms market nor the impacts of generational advances in technology have been seriously factored into the telecoms competition regime.
There is a consensus that a multi-billion dollar investment in high-speed broadband infrastructure is the most pressing telecoms priority and one of the most pressing economic and social priorities for the nation. Paradoxically, there has been virtually no reasoned debate around why this investment has not occurred in Australia, a country which has such a proud history as an early-adopting, technological frontier.
The reasons why Telstra has not invested in a fibre-to-the-node network are well known. They relate to the uncertainty inherent in the regulatory regime leading to a lack of confidence about achieving a return that does not dilute shareholders' capital.
It is now generally recognised that special arrangements outside the regulatory regime are likely to be required for Australia's high-speed broadband infrastructure so that the builder can get the certainty required to make such a major capital investment.
The decision by Singtel Optus not to upgrade or fully utilise its competing cable network, but instead to access Telstra's network to supply about one-third of customers within its own network's footprint, is a strategy that is completely unheard of internationally. It is seen as bizarre by international telecoms experts and is a clear illustration of a regulatory regime that makes it cheaper and easier to buy from a competitor rather than to invest in and use one's own infrastructure.
In stark contrast, in the mobiles sector, which has remained relatively immune from the regulatory regime, there is very significant competitive investment and Australia is leading in the world in the rollout of modern, high-speed, wireless broadband.
Together, these examples provide a clear indication that the existing telecoms regulatory regime is holding back infrastructure investment at the very time that such investment is so urgently required in Australia.
Sadly, there appears to be a common interest amongst the policy makers who devised the regime; the regulators who oversee it; and the industry players who benefit from it, in maintaining this status quo. However, it has become increasingly clear that this inaction is not standing Australia in good stead.
A root-and-branch review and subsequent modernisation of the telecoms regulatory regime is urgently required. No one denies the importance of competition and the need to regulate bottlenecks. But it must be recognised that true competition and real choice for consumers are principally the products of investment, innovation and market rivalry, rather than regulations and regulators that seek to manufacture industry structures and market outcomes.
Kevin Rudd has quite rightly identified broadband as the great enabling technology. If Australia is to derive maximum benefit from the global digital economy, the need to encourage and reward investment in high-speed broadband infrastructure simply must be the number one objective of a modern telecoms regulatory regime.
David Quilty was appointed to Group Managing Director, Public Policy and Communications at Telstra on 1 September 2008. Most recently he held the position of Director of Government Relations and headed up a team responsible for representing Telstra's policy and political interests with Federal and State Governments. Before joining Telstra in January 2006, David worked as a Senior Adviser in the Cabinet Policy Unit from September 2003 to December 2005; and was Chief of Staff to the Minister for Communications, Information Technology and the Arts from May 1997 to September 2003. Prior to that, David worked in a number of political advisory roles, including a position of Senior Adviser to the Prime Minister and an Adviser to the Leader of the Opposition.
David Quilty will be a keynote speaker at the upcoming GAP Congress on Regulatory Affairs: "Opportunities for Business".
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Comments
So who is paying for this again?
This is an interesting blog ahead of the conference. To be honest when the public think about infrastructure they think about ports and roads, bridges and airports - things, that on a daily basis mean something to the citizen. Things they can see and feel and touch. Things that they can tangibly see as something there money has funded and therefore, they use every day.
If you were to honestly ask the everyday average taxpayer what fibre to the node was or whether they saw investment in broadband infrastructure worthy of billion dollar taxpayer funding, I dare say they would rather see money invested in those things they can touch - the roads and ports.
The challenge for Government isn't really the regulatory approach or the Government's desire to further unwind the regulatory regime. The challenge for the Government is making sure they take their own shareholders along for the ride and in so doing, making sure the shareholders understand what the destination actually is.
In addition is the explanation to taxpayers (shareholders) on what the net benefits to them are - not just business and industry, but to the public at large who majority fund these projects through the national tax take. This is the forgotten element in the debate being had between the competitors and individual telecom companies and the Government. Again, does the person on the street know what fibre to the node is?
In terms of the regulatory regime there are some good points made and I should note in my response that I am in no way favouring Telstra over SingTel. I should also disclose I spent some time reviewing knowledge and information management strategies at the former Australian Communications Authority - so I know a thing or two about the regulatory regime and compliance framework.
There does need to be a review of the current regulatory regime to further unwind the complex rules and regulations that govern access to Telstra's network. This has happened the world over as Governments introduce true market competition. The very fact that it is cheaper for SingTel to purchase from Telstra as opposed to upgrade or fully utilise its existing network is an example where the competitive nature of the industry is well away from where true market forces would have it. But then this is something not unique to Australia where at the coalface of small business you have an ice cream factory in North Queensland who find it cheaper to buy milk from the local Woolworths supermarket as opposed to the farm gate because the supermarket sells cheaper thanks to bulk purchasing and volume sales. You know there is something wrong when it is cheaper to buy from the supermarket than directly from the primary producer where the supply chain has been removed.
On the other end of the policy debate is the need of Government not to look as if it is protecting the incumbent, in this case Telstra. The policy debate is therefore a happy medium between competing and opposed views - would everyone agree that there is a need for further deregulation, uncoupling, unbundling and a reduction in compliance - yes. Would everyone agree that a national broadband framework is good for business and farmers - yes, and is it time for a wide ranging review? Yes.
Does the public really understand the mumbo jumbo of the debate? Do they understand things like fibre to the node? Do they honestly understand what the net benefit to them is? No.
Is the taxpayer, the ultimate shareholder of the Government, ultimately responsible for pay for it? Yes - maybe it's time someone cut through the mumbo jumbo and got the people involved in the discussion.
As I have said in previous posts - Government and business wins when the people who really matter understands the debate
That aside, good post with food for thought - do you think anyone from Optus will have a crack?
Matthew Tukaki, Director of Government Policy & Strategy, SansGov (Sanseman Government) PO BOX 3295 Redfern Sydney NSW 2016; Mobile +61 (0) 449 703 118; matthew.tukaki@sansgov.com
www.sansgov.com
Quilty = Shareholders over 20MillionPublic, No Credibility
My take on the past and future from a personal prospective:
John Howard was no Robin Hood when he stole Telstra from the many and sold it to the few that could afford to buy shares.
It is rich that Mr. Minchin can now take the populist high moral ground claiming Telstra should not be broken up and unfortunately Kevin Rudd hasn't a reply, it is through no fault of his own that funds have dissolved reducing the possibilities!
There is now no easy answer, the previous Government failed to leave its options open in regards to network access or planning for broader population revenue through long term infrastructure!
Both Governments greed based ignorance towards the obvious limitations to self-regulation will only be realised when the top end of town start to suffer on an individual level, the resultant extent of divide at this point will be extreme and lasting!
I think even in the face of a harder road we need to break Telstra up!
I provide a website for David Quilty and Telstra Boards Geoffrey Cousins!
http://www.broadband.notice.com.au/
Fix the immoral behavior of your company before you come preaching what's good or not for AUSTRALIANS Do you really think money and status equates to superior intellect and morals? Only in your delusional world! Please give a message to Mr. Cousins for me, it reads:When I went to school humans were part of nature and the environment, I do not agree with cutting our forests down and polluting but at least am not a hypocrite.
GO to www.broadband.notice.com.au and show some decency towards your fellow man, I need a internet connection for an IT business WHICH BY THE WAY is a relatively sustainable resource compared to other business industries!
Regulation is increasing
I note that the number of regulatory instruments applicable to Telstra's business has grown since 1997 from 20 to 348.
Many of these are due to the complex regulatory framework under which the telecommunications sector is governed, but it is worth noting that more than 100 are from quasi-regulatory agencies such as the Australian Communications Industry Forum.
I also note that Telstra provides the government with an estimated 486 reports annually -- a total of 162,000 pages.
I have, to contextualise that figure, noted that this would be the equivalent of 163 editions of Tolstoy's War and Peace -- see "The regulatory paperwork mountain", Now We Are Talking, Facts & Figures.
The number of reports required by the ACCC have been increasing by two to three each year -- see Telstra Corporation Limited, Submission to the Australian Government Regulation Taskforce, November 2006.
Some of these anecdotal impressions of the regulatory burden may even understate the economic impact of regulation, by focusing inordinately on the paper-burden cost, rather than the total regulatory cost.
Paper-burden costs typically constitute one-third of the total cost of regulation.
These costs include the cost of employees dedicated to regulatory compliance, and external legal, economic, and financial consultants.
Rapid legislative and regulatory activity imposes its own costs.
The enormous amount of regulatory change since the 1996 Wallis Inquiry has added substantially to the administrative burden of the insurance industry, for example -- see Insurance Council of Australia, Submission to the Australian Government Regulation Taskforce, November 2005.
Furthermore, a by-product of rapid activity is widespread uncertainty, which has the effect of depressing investment and economic activity.
But the contemporary political focus on "red tape" presents the problem of over-regulation in a narrow light.
The structure of regulation is so central to some firms' business models and profitability that regulatory governance and compliance is an "all-of-firm" question.
For these firms, it is not easy to separate regulatory compliance costs from business costs.
The anecdotal estimates above, which focus predominantly on the easy-to-measure paper-burden costs, are likely underestimations of the total costs for many industries.
The full cost of regulation is much greater than the visible cost of compliance.
Certainly, the distribution of costs brought about by regulation varies by industry.
In the food sector, the primary cost of regulation is a paper-burden cost.
But for much of the economy, the paper-burden cost is dwarfed by the restrictions on economic activity imposed by the regulations.
For instance, the "chilling effect" of access regulation far outweighs the paper-burden cost of those regulations by holding back infrastructure investment.
The cost of investment forgone is much harder to quantify, but a much more significant burden than the paper-burden.
As Gary Banks argues, "regulations not only create paperwork, they can distort decisions about inputs, stifle entrepreneurship and innovation, divert managers from their core business, prolong decision-making and reduce flexibility" -- see Gary Banks, "The good, the bad and the ugly: economic perspectives on regulation in Australia", Address to the Conference of Economists, Business Symposium, Hyatt Hotel, Canberra, 2 October 2003.
These effects are, on average, far more significant than the red tape which is required by regulators to assess compliance.
Focusing only on paper-burden costs is like focusing on the time spent filling out a tax return rather than the amount of tax paid.
Political platitudes to lower the red tape burden offer little, at least if they are not part of a general push to decrease overall regulatory intervention in the economy.
It would be a mistake to limit the analysis of regulation to the regulatory paper-burden.
Nevertheless, the increases in the compliance cost of regulations can provide a rough proxy for the increases in the regulatory burden across the economy.
Take the bad with the good?
Neither imposed regulation nor self-regulation is exclusive, coming under a banner of good governance.
Yet they are rarely both emphasized with balance in the real world of competition and individual interests.
After reading most of the TPA, industry and department codes it would seem that grey areas create more grey areas helping to maintain the legal profession along with building on the complexity to administer and comply with requirements.
In the area of communications, government sees the need to fund or nurture a growing industry around support to protect customers in what can be an otherwise powerless environment, Telstra contributing countless suggestions in an effort to appease them.
The more governments re-delegate responsibility the more complex regulation can be expected.
Unfortunately for the telecommunications industry, Telstra is a big part of the regulation problem for both existing and potential competitors.
Some of the regulations and codes have been challenged exhaustively by Telstra using money from their founding owners.
Concise regulation is an aspiration!
Gary Looney