Mobile World Congress, Shanghai: Innovation Series Speech

No industry operates in a vacuum.

But there are few industries which have the broad social and economic impact of the mobile communications sector.

I first began working in this space as a young ministerial adviser almost twenty years ago.  Later I spent eight years on the senior management team at Australia’s number two operator Optus, before being elected to the Australian Parliament.

So I welcome the opportunity today to offer some comments about the economic and social implications of the absolute explosion in mobile takeup and usage we have seen – and which all the projections suggest will only continue.

I want to first reflect briefly on the staggering growth we have seen – and continue to see – globally and in Australia.

Next I will argue that this presents some key policy challenges for governments – largely around how best to leverage this technology for maximum social and economic benefit.

Finally, I’ll touch on some of the priorities for the Australian Government in this space.

Staggering Growth – Which is Expected to Continue

Turning firstly to the extraordinary and continuing growth of mobile communications, I suspect all of us who have worked in this industry for any period of time will have our own favourite illustrations of the profound change we have seen.

One of mine is something I was told by a wise old hand at Optus.  He had served on the bid team which responded to the Australian government’s competitive bidding process to choose a second telecommunications operator to enter the market in 1991.

At the time mobile was seen as a sideshow. The big money was going to be in long distance. Optus only acquired a mobile licence because it was a condition imposed by the Government. 

Today we can laugh at that quaint misjudgement of nearly a quarter a century ago – a period in which a mobile phone has gone from being a luxury item used by a tiny number of business people in wealthy western countries – to one of the most widely owned devices in the world.

At the end of 2014, there were 3.6 billion unique mobile subscribers worldwide.[1] Half of the world’s population now has a mobile subscription – up from just one in five 10 years ago.

According to the GSMA “Mobile Economy 2015” report, an additional one billion subscribers are predicted by 2020, taking the global penetration rate to approximately 60%.[2] 

Of course it is not just the absolute number of services.

On every dimension the role of mobile is expanding – penetration, minutes of use, extent of network coverage, the number of end users abandoning fixed line, the relentless improvements in technology, or the ever increasing use of data over mobile devices.

To take the example of data usage over mobile in Australia, of the 31 million mobile services in operation, over 26 million include an internet service and over three quarters of Australian adults access the internet through their mobile phones.[3]

The volume of data that we access over mobile devices is rising sharply – total mobile internet downloads rose by 97% in the year to 30 June 2014.[4] 

If we step back from the statistics, we can see that the near ubiquitous availability and use of mobile phones and devices is creating a profound change in the way that human beings behave and carry out social and economic interaction.

Nor is it just human beings – with a major driver of mobile growth being the development of machine to machine applications and the internet of things. 

Some key policy challenges for government

Mobile communications has a central role in modern society – because of the profound social and economic benefits it brings.

But this presents a range of policy challenges – as governments work to support the mobile industry in delivering these benefits as broadly as possible.

Let me touch on just a few.

Maintaining a competitive mobile sector

A priority for any government is maintaining competition in mobile, rather than allowing one operator to dominate.

Let me illustrate the importance of competition with a brief review of the outcomes in Australia, where there have been three and at times four competing operators over the last twenty years.

Start with take up. In June 1996 there were 3.6 million mobile services.[5]

By June 2013, there were over 31 million mobile services in operation.[6]

Next look at the prices customers pay for their mobile services.  In the 15 years from 1997 to 2012, the cost of mobile calls fell by half.[7]

Perhaps the most important benefit competition has delivered is the rate at which the latest technologies are rapidly introduced.

Some might say there is no need for policymakers to worry about the introduction of new technologies in mobile.  After all, new technology has been introduced into developed markets at a dizzying rate over the past twenty five years: from AMPS to GSM to CDMA to 3G to LTE and many other variants in between.

But clearly policy decisions can encourage – or interfere with – innovation.

In Australia as in other markets, competition between operators has been a key factor in spurring the introduction of new technology – indeed the first company to launch a 3G service in Australia was Hutchison when it entered the market in 2003.

Ensuring the mobile sector has the resources it needs

Another challenge for policymakers is ensuring the mobile sector has the resources it needs.

First of all, this means efficient processes to allocate radiofrequency spectrum to its highest value uses.  In many markets this means the use of auctions to allocate spectrum – and rules which allow spectrum to be traded.

But it is important to make sure these rules are as up to date as possible – particularly in the light of profound technological advances which make it possible to use spectrum more efficiently, flexibly and intensely. To mention just a few:

- Analog technologies have been supplemented or replaced by digital – in mobile phones, in broadcast radio and television

- Improved modulation and compression techniques bring greater capacity and reliability

- Interference mitigation techniques let spectrum be used and re-used more efficiently

- There are emerging technologies which let different users share spectrum without interfering with each other.

Capturing the economic activity that mobile platforms can generate

A third priority for national governments is ensuring that their economies capture the economic activity which mobile platforms can generate.

In Australia, one credible estimate is that the current wave of mobile technologies could deliver an economy-wide productivity benefit of $11.8 billion in the next ten years.[8]

Mobile commerce represents about $4 billion a year to the Australian economy, and mobile devices and apps are an increasing source of innovation and productivity growth.[9]

One obvious area is the burgeoning app economy.  US researchers recently looked at the Australian economy and estimated that the Australian app economy employed roughly 140,000 workers as of June 2014. [10] This includes core app economy jobs, for example, developers and other IT workers; and indirect app economy jobs, for example, sales and marketing people.

But if economic activity in the mobile sector is one thing, economic activity facilitated by mobile infrastructure is another thing – and rightly of just as much interest to government as economic activity facilitated by more traditional infrastructure such as roads or ports or airports.

In the last eighteen months I have travelled to many locations in regional and remote Australia, working on a policy to subsidise the rollout of new mobile network to these areas.  This has given me a real insight into the importance of mobile networks as economic facilitators for industries like agriculture, mining and tourism.

A farmer in Western Australia told me he wanted mobile coverage in the paddock so that while on the tractor he could use his mobile to sell his wheat online.

The operator of a tourist park in Narooma, in southern NSW, told me there is no mobile coverage in his park, and one in 10 of the people who drive up choose not to stay as a result.  

Avoiding a digital divide in mobile

This brings me to another policy concern – avoiding a digital divide in mobile.

The term ‘digital divide’ entered the public policy lexicon in the mid-nineties. At the time it principally referred to the concern that poorer people could not afford to buy personal computers and hence would miss out on the benefits of using the internet, and in turn their children would be condemned to disadvantage.

Thanks to the explosion of mobile services, their ever growing affordability, and the rise of smart phones and tablet devices, as a society we have been spectacularly more successful in addressing this divide than would ever have seemed possible twenty years ago.

But there is one aspect of the divide which certainly exercises us in Australia: with a population of only 23 million in a country the size of the continental United States, still today some 70 per cent of the landmass does not have terrestrial mobile coverage.

People in small country towns and working on farms or mines with no mobile coverage face a significant safety, social and economic disadvantage.

Mobiles and public safety

This brings me to a final policy challenge I want to mention – whether we are making best use of mobile networks to address public safety requirements.

In Australia, and in many other countries, our existing regulatory frameworks tend to assume that the fixed network is the one to which we attach various regulatory obligations.

They also tend to assume that mobile services are the luxury, premium services and it is fixed line services which are the more basic, and cheap service. This assumption is not necessarily correct today.

I was struck by a lady I met last year in rural Australia, who complained that when she moved into the town and found that it had no mobile coverage, she was forced to get a landline – which was considerably more expensive than the mobile service she had previously been using.

Then there is the question of whether we are making optimal use of mobile networks for emergency services.   For example, the obligations to repair networks quickly attach to fixed networks not mobile networks.

After a cyclone or a flood, would it make more sense to put our priority effort into getting the mobile network back up as quickly as possible?  If the regulatory requirement forces operators to prioritise repairs to fixed line networks, is that a misallocation of resources?

Some priorities for the Australian Government

In Australia the government is working with the mobile network operators and other industry players on a range of these issues.  In the final part of my remarks let me mention some of this work.

Spectrum Review

A clear priority for us is updating our laws governing the allocation and management of radiofrequency spectrum.

We have carried out a major review of the current framework – which found that the current arrangements are too slow and cumbersome.

Our reform priorities have been clearly signalled. First, we want a clearer and simpler policy framework, with clear roles and responsibilities for the Minister and the regulator – the Australian Communications and Media Authority.

Next, we want a simplified and more flexible licensing system. Rather than specifying types of licences in the legislation, we intend to set out a single licensing framework in the legislation, and give the regulator the power to issue licences which varied on a range of parameters: for example the term of the license, the extent to which it offered exclusivity, and so on.

Our third reform priority is to bring greater flexibility into the way we allocate spectrum for television broadcasting.

$100 million Mobile Black Spot Programme

Another priority for us is addressing the digital divide in mobile – and particularly the availability of mobile coverage in regional and remote Australia.

We came to Government in 2013 with a promise to spend $100 million on a Mobile Black Spot Programme to improve coverage along major transport routes, in regional communities and in locations prone to experiencing natural disasters.

After a competitive selection process, we announced the results last month: there will be 499 new or upgraded mobile base stations across regional and remote Australia – 429 Telstra base stations and 70 Vodafone base stations – to be rolled out over the next three years.

This is the most significant one time increase in mobile network coverage to regional and remote Australia delivered by a single public funding programme in the history of mobile communications in Australia.

The Programme successfully leveraged significant co-contributions from State and local Governments, mobile network operators and other third parties, bringing the total investment to over $385 million.

At the same time we also announced an additional $60 million for Round 2 of this Programme.

Leveraging the NBN rollout

Another aspect of our work to stimulate more mobile coverage in regional and remote Australia concerns the National Broadband Network.

The National Broadband Network is building a large fixed wireless network of 2,700 towers as part of its national roll out.

It seems likely from first principles that there would be economies of scope in using one network – be it fixed or mobile – to supply both wireless services and also voice services.

The Government has encouraged NBN to work with mobile network operators to identity opportunities for NBN’s taxpayer funded assets to facilitate increased mobile coverage in regional and remote Australia.  For example, there is scope for NBN to share sites and sell backhaul to mobile network operators. 

As a result, NBN is sharing details of its current and planned tower rollout with the mobile network operators to identify opportunities for sharing. This has created a commercial opportunity for the mobile network operators and NBN to share costs by co-building on sites of mutual interest.

Productivity Commission Inquiry into Public Safety Mobile Broadband

I spoke earlier about public safety issues, and this is another area where we have work under way.

The Australian Government has asked an important economic policy agency, the Productivity Commission, to carry out a cost-benefit analysis on the best way to secure a mobile broadband capability for public safety agencies by 2020.

Delivering such a capability is complex and involves using scarce and valuable resources such as radiofrequency spectrum. The challenge of the task should not be underestimated – when we look at how long it has taken, and how much capital investment has been required, for Telstra, Optus and Vodafone to roll out their networks to the point they have reached today.  This study by the Productivity Commission is the opportunity to examine these issues carefully.

Conclusion

Let me conclude as I began with the observation that few industries have the social and economic significance of the mobile communications industry.

That is why there will always be a strong public policy interest in capturing the greatest possible social and economic benefits from mobile communications.

Wise governments will rely on private sector operators to do the heavy lifting.

But sensible public policy settings can make an important difference in delivering these benefits to as many people as possible.

This industry has made an enormous contribution to social welfare over its relatively short life – and there is every reason to think that the best is yet to come.

[1]GSMA Report, “The Mobile Economy 2015”

[2]GSMA Report, “The Mobile Economy 2015”

[3]Australian Mobile Telecommunications Association, March 2015 ‘Mobile Minute’

[4]Australian Mobile Telecommunications Association, March 2015 ‘Mobile Minute’

[5]AMTA, 'Ten Years of GSM in Australia'

[6] ACMA Communications Report 2012-13, p8

[7]ACCC ‘Changes in the prices paid for telecommunications services in Australia report’ 2013–14, p95

[8] Deloitte Access Economics, “Mobile Nation: Opportunities and Strategies for Retail”, 2 July 2015

[9] Deloitte Access Economics, “Mobile Nation: Opportunities and Strategies for Retail”, 2 July 2015

[10] Progressive Policy Institute, “Jobs in the Australian App Economy”, Dr Michael Mendel, July 2014