NBN Rebooted: Speech for the Communications Alliance conference

I am pleased to be here this morning to speak at this important conference.

The theme of ‘NBN Rebooted’ is one of which captures very nicely the current state of telecommunications and broadband policy in Australia.

The previous government’s policy of rolling out a national broadband network, launched amidst much self-congratulation and talk of bold visions, has run into the hard rocks of reality.   It has fallen to the new Coalition government to refloat and reshape this project – and turn it from theory to practice.

We do so with a realistic appreciation of the scale of the task.

Today, I want to focus on one aspect of that task: communications in regional and remote Australia. According to Kevin Rudd and Stephen Conroy, the NBN was going to solve forever the complex challenges of regional and remote communications.

While the NBN certainly has the potential to make a very big difference in regional and remote communications, achieving these outcomes was always going to be more complex than Labor assumed.

Labor simply does not understand regional and remote Australia – including its communications needs – as well as the Coalition.

We represent the majority of people from these parts of our country ; and many Coalition parliamentarians, including some of our most senior ones, live in the bush.

Today I want to talk about the Coalition’s approach to regional and remote communications. It starts with a realistic appreciation of the challenges. It builds on our long track record of working to improve regional and remote communications. We apply some clear principles – including competition, efficiency, and sustainability.

This leads us to five key policy priorities:

• Maintain the satellite and wireless rollouts
• Improve the operational performance of satellite and wireless - including through considering varied business models
• Deliver fixed broadband services to many more country towns than under Labor’s plan
• Leverage the NBN build to better support mobile communications
• Specific funding support to extend mobile coverage in regional and remote Australia.

A Realistic Appreciation of the Challenges

The Coalition starts with a realistic appreciation of the challenges in delivering broadband services to regional and remote Australia. The first challenge is that ours is a vast country, and very sparsely populated in much of its landmass. This means that the per user cost of rolling out a communications network in regional and remote areas – be it fixed line, wireless or satellite – is very high because the very high capital costs needs to be spread across relatively few users.

A second challenge is that people in regional and remote Australia generally have lower incomes than those in the cities – leading in turn to lower broadband usage.  

According to the ABS, median household weekly income in major cities in 2011 was $1322; in regional and remote areas it was over $300 less. It is no surprise that broadband take up is lower: in 2010-11, 76% of households in capital cities had broadband access, but the figure was nearly ten percentage points lower outside the capital cities.

As the Coalition has consistently pointed out, the NBN will operate under a regulatory framework which, quite properly, allows it to charge prices which generate a return on the capital invested – but the consequence of such a framework is that the more gold plated you make the network, the more capital you invest, and the higher prices will be. That will make it harder for lower income households to afford the NBN – and regional and remote households have lower incomes than metropolitan ones.

A third difficulty is that competitive markets are harder to achieve in regional and remote areas than in the cities. Telstra’s historical dominance in regional and remote areas, in both fixed line and wireless networks, makes competitive entry by new entrants challenging.

Builds on the Coalition’s Track Record

Over many years, the Coalition has built a track record of policy measures to improve services in regional and remote communications – measures designed to respond to these policy challenges.

When the Howard government privatised Telstra, starting in 1997, a significant proportion of the proceeds were reinvested in rural communications.

Some of the issues addressed with this spending seem primitive by today’s standards – such as the problem faced by residents of so-called Extended Zones, which covered around 80 per cent of Australia’s landmass. These people could not call their neighbours without paying a timed call charge. Solving this required a major network upgrade – funded in part by $150 million from the sale of Telstra.

As broadband became a common consumer service in metropolitan Australia, the Coalition’s policy focus shifted towards stimulating affordable rural broadband.

Another key priority under the Howard Government was the provision of additional wireless infrastructure in regional and remote Australia, both fixed and mobile. Around $145 million was spent between 2001 and 2007 on improving terrestrial mobile phone infrastructure.

In 2007, the Howard Government announced a major infrastructure project, allocating $958 million to deliver high-speed broadband to regional and remote Australia over a new wireless network, to be built and operated by a joint venture between Optus and Elders called OPEL.

Of course, history shows that Stephen Conroy cancelled the OPEL contract once Labor came to government in 2007 – despite his repeated promises during the election campaign of that year to honour the OPEL contract.

Had the contract been proceeded with, today there would be a fixed wireless broadband network operating throughout regional and remote Australia.

Another poor decision by Stephen Conroy and the previous Labor government was to ransack the fund of $2 billion which has been set aside by the Howard Government to fund rural communications, using proceeds from the third tranche of the sale of Telstra.  The money was scooped out and tipped into the general NBN pot – and the fund no longer exists.

Applies some clear principles

This brief history helps to illustrate some clear principles in the Coalition’s approach to regional and remote communications policy.

The first is the importance of competition. I noted earlier that competitive entry is more challenging in regional and remote Australia than in the cities. But if competition can be stimulated, it delivers significant benefits. In a genuine competitive market, the providers in that market put pressure on each other to deliver continued improvements in technology, service and price. Equally, when government funding is necessary, it should support competition and be contestable.

The second is that any public funding should deliver sustainable benefits. The best way to achieve this is to work with private sector players – contributing to the capital cost of network facilities in areas where it cannot be commercially justified. Once the facilities are built, our aim is to have them operated by viable, sustainable private sector businesses which continue under their own steam, rather than requiring an ongoing government subsidy.

The third principle is efficiency in public funding - or making sure you get maximum bang for buck. This takes shrewd policy design. One model is to start with an expression of interest process, to test the ideas of industry about what they could do with a specified amount of public funding; and then have a second stage which is the formal competitive procurement process.

Five Policy Priorities

If I now turn from the general to the specific, I want to highlight five specific priorities which the Coalition is pursuing in regional and remote communications.

The first is to maintain the satellite and wireless rollouts.

We have always acknowledged that the choice of wireless and satellite as technologies for NBN Co to use in serving regional and remote Australia is sensible, and in our policy document we have made it clear that we will proceed with the fixed wireless and satellite networks serving the least densely populated parts of Australia.

The economics is pretty uncontroversial – satellite has a high per customer cost but it is unchanged wherever you are; fixed has a low per customer cost in high population density areas but it rises very quickly as population density falls; and wireless sits somewhere in the middle. Therefore as you move to lower and lower population density areas, first wireless and then satellite become the economically preferred technologies.

Accordingly, when Ministers Turnbull and Cormann issued the Interim Statement of Expectations to NBN Co a few weeks ago, they directed the company to continue deploying the fixed wireless network in regional areas; to continue to offer services over the interim satellite service; and to continue work on the build and launch of the long-term satellites.

Our second priority, however, is improved operational performance of the wireless and satellite businesses - including potentially through considering varied business models.

The fixed wireless build is proceeding very slowly. On the most recent numbers released by the company under the Coalition’s new policy of transparency, the wireless network covered just under 50,000 premises, with only 4,010 activated.

That is an underwhelming performance, some four and a half years after Kevin Rudd and Stephen Conroy first announced the NBN.   It compares very unfavourably with Telstra’s achievement, under Sol Trujillo, of rolling out the NextG network around Australia in a little over a year.

So we will be looking closely at how the operational performance of the business can be addressed.   NBN Co has a strategic review underway, and while naturally the first priority is the fixed broadband rollout (which makes up by far the largest part of NBN Co’s activities), the company’s board and management will also be looking very closely at ways to improve the fixed wireless rollout.

We have made it clear that this work should include a consideration of different business models. To quote from our election policy:

“The Coalition has indicated an interest in seeking opportunities to allow investment in the fixed wireless network to also improve coverage or increase competition amongst mobile carriers in regional areas.

Similarly, we have signalled that we are open to different business models for the satellite business, stating in our policy that:

We will consider opportunities to realise value from the satellite contract by seeking private operators or owners for the NBN satellite service, if this enables price and service levels for regional consumers to be improved.’

A third priority for the Coalition is to deliver fixed broadband services to many more country towns than under Labor’s plan. Labor generated considerable discomfort in regional and remote Australia with its dividing line between those to be served by fixed line services and those to be served by wireless. The initial policy was that towns above 1,000 people would get a fixed line service; later this became towns with more than 1,000 premises (which of course is a substantially larger number of people).

Under the Coalition’s plan to deliver fixed broadband principally using fibre to the node, many small country towns which would have missed out under Labor can now look forward to receiving a high speed fixed line broadband service. There are many small towns where just about every building falls within a one kilometre (or even smaller) radius from the exchange - making it possible to serve them with VDSL without even needing to build any nodes, simply by putting the equipment into the exchange.

Of course, another benefit of the Coalition’s plan is that the fibre to the node rollout will happen considerably more quickly than under Labor’s plan to install fibre all the way to each premises. So many people in country towns can now expect to get high speed fixed line broadband more quickly than would have been the case under Labor.

Our fourth priority is to leverage the NBN build to better support mobile communications. If you talk to people in regional and remote Australia, they point out that the previous government spoke constantly about the NBN – but had little to say about improved mobile communications to their communities.

This was a curious omission – particularly given the explosion of mobile broadband devices and services in the last five years. Broadband is now as much about mobile networks as fixed networks – yet under Labor, there was little thought given to whether the NBN could support increased mobile services in regional and remote Australia.

In the Coalition’s view, there are real opportunities to be explored here. NBN Co is building out a national fixed wireless network with a couple of thousand base stations. To take one question, if NBN Co builds a tower to deliver fixed wireless services, could that tower also be used by a mobile operator to deliver mobile wireless services?

Would that make it cheaper and easier for mobile operators to serve larger areas of regional and remote Australia than they presently do? In the economic jargon, are there economies of scope between building a fixed wireless network and a mobile wireless network?

Let me quote from what we said in our broadband policy released earlier this year:

Wherever possible, the Coalition will ensure that NBN Co assets such as towers or backhaul will be made available to carriers to facilitate improved services.

The Coalition will be mindful of competition as well as broadband policy objectives in considering opportunities to alter the fixed wireless rollout.

The Coalition welcomes proposals from interested parties (including existing carriers and network or infrastructure operators) regarding contractually feasible adjustments to the fixed wireless rollout which: improve the quality/coverage of mobile services in regional areas; increase competition and choice for regional mobile consumers; reduce the net cost of the fixed wireless network; or address ‘black spots’.

We will have more to say in due course about our thinking in this area, particularly as we work through the strategic review which is presently underway into NBN Co.

But I do want to particularly highlight the reference to backhaul in our policy document. Clearly, if you are a carrier considering building a new base station in a rural area, you not only have to worry about the cost of the tower and the electronics; you also have to worry about the cost of building a fibre optic or microwave link to go to that tower – and it may need to run for 10, 20 or 50 kilometres before it connects to the nearest existing piece of the fixed network.

NBN Co will have backhaul to all of the towers in its network. Under the previous government, however, it seemed NBN Co had little appetite to sell backhaul to mobile operators. We take a different view, and if NBN Co can make the economics work we will certainly not be standing in their way.

Our fifth priority is to give specific funding support to extend mobile coverage in regional and remote Australia.

During the election campaign, we announced our policy to invest $100 million to expand the mobile coverage footprint and increase competition in regional Australia.

Eighty million dollars will be provided over four years to expand the mobile network along major transport routes, in small communities, and in locations prone to experiencing natural disasters.

An additional $20 million will be provided to address unique mobile coverage problems, such as locations with high seasonal demand.

Expanding mobile coverage in these areas has clear economic and social benefits, as well as public safety benefits for people living, working and travelling in these areas.

The Government’s $100 million investment is expected to generate matching funding from industry, local and state governments, and communities.

In designing this programme, we are looking at similar programmes in New Zealand, the United Kingdom, and France. While the situation in Australia is somewhat different to these countries, some key questions are similar. For example:

• How do we secure the best value for money outcome?
• What is the right balance between coverage and competition outcomes?
• How can we ensure the right open access arrangements?
• Is there a possible role for network infrastructure providers?
• What role should there be for state and local governments?
• How is the coverage benefit level defined? Is it in terms of area, number of premises, or kilometres along highways or major roads? If it is all three, how do we strike the right balance between these?
• How should the minimum level of service be specified? Is it in terms of downlink/uplink speeds or in terms of minimum voice levels?

The Government will release a discussion paper reasonably soon, seeking input on these issues. In addition, I have already begun a program of travelling to a number of regional centres to consult with locals regarding mobile coverage challenges.

Conclusion

It is timely and appropriate to look at how the NBN is to be rebooted. The Abbott Government is hard at work on investigating that very question.

Today I have sought to highlight some of the opportunities we see to improve the services that NBN will deliver to regional and remote Australia – and how those improvements fit into the broader context of our policy approach to regional and remote communications.

I can confidently say to residents of regional and remote Australia – based on the Coalition’s track record and our stated policies, you can expect a much greater focus on regional and remote communications than was ever likely to be delivered under the previous government.