Speech to ACCAN Conference: Connecting the Country

Nearly twenty years ago I joined the staff of a newly appointed federal Minister for Communications, Senator Richard Alston.

Many issues pressed for the Minister’s attention. People in the bush complained that their internet speeds were hopeless – as low as 1.2 kilobits per second.

As for mobile, coverage outside the metropolitan areas was poor – with the mobile networks of Telstra, Optus and Vodafone reaching only around 90 per cent of the Australian population.   In landmass terms, this represented essentially the major capital cities and significant regional centres. Mobile take up was much lower than today: in 1996 only 24 per cent of Australian households had a mobile phone. Today, there are around 31 million mobile subscriptions, which averages out at around 1.3 per person.  

The changes in mobile communications since that time have been profound.

In 1996 a mobile phone essentially gave you voice services only – although if you had one of the newfangled GSM phones you also had text messages (but only to people on the same network as you).

Today, the mobile networks are the platform for Australians to use not just voice but broadband services.

In the past few months I have been to a number of country towns to discuss communications issues and particularly mobile coverage. A clear theme from those meetings has been how much country Australians, no less than those in the cities, rely on smart phones and tablets for internet access – and in turn for engaging with government departments, businesses and of course friends and family.

There have been some other clear themes from these meetings which powerfully highlight the rationale for the policy which the Coalition took to the last election, of investing $100 million to improve mobile phone coverage in regional and remote areas.

One, obviously, is safety – road safety, bushfires and other natural disasters such as floods repeatedly come up as reasons why people are very keen to have more extensive mobile coverage.

Another is tourism - with tourism operators reporting that in a town which does not have coverage, tourists will often not stop for the night, or will stay for a shorter time than they had planned.

Another is doing business – and the importance of mobile data, typically 3G in country areas, for emails, websites and other tools of modern business.

Interestingly, there has also been a strong theme about cost. A good example is a lady in regional Victoria who said to me that she used to just have a mobile phone; but when she moved to the town she is now in, which has poor mobile coverage, she had to get a landline and this was costing her a lot more than her previous mobile service.

I am pleased therefore to have the chance to speak at this important and timely conference, which is a good opportunity to discuss some of the issues regarding the Coalition’s programme to improve mobile coverage, with a $100 million public investment and the expectation of leveraging another $100 million from the private sector.

I want to first point out that this programme builds on the Coalition’s track record in regional and remote communications; then to discuss some of the key principles we have laid down; and finally to turn to some of the questions and issues on which we are presently seeking feedback.

Building on the Coalition’s Track Record.

Let me start therefore with the Coalition’s track record in regional and remote communications.   This has always been a greater priority for us than for our political opponents.

The Coalition represents 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.

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 already 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 Communications Fund of $2 billion which had 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.

Some Clear Principles

Drawing on this extensive experience in regional and remote communications policies, there are some clear principles which the Abbott Government believes are important - and which we are bringing to bear in designing the mobile coverage programme.

 

Importance of Competition

The first principle is the importance of competition.

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.

When government funding is necessary, it should support competition and be contestable.There are two key ways we are applying this principle in the mobile coverage programme. The first is in allocating the public money which is being spent here through a competitive process. Funding applications will be assessed in a transparent tender process against clear criteria designed to maximise the economic, social and competitive benefits of this substantial investment.

We have also indicated, in the discussion paper we have issued, that the government would be open to proposals from specialist infrastructure owning companies such as Crown Castle, Broadcast Australia or others.   If these companies have different incentives and interests than the carriers, then it is possible that they may have an appetite to put more on the table than the carriers. I have no idea whether or not that will be so – but it certainly seems a good idea to use a competive selection process to test the issue.  

The second is in the impact we want the programme to have on competition in mobile communications in regional and remote Australia. Critically, we want the programme to stimulate competitive entry by carriers in locations where they do not presently have coverage.

One way to achieve that would be through roaming arrangements – under which the carrier which builds a base station allows the customers of other carriers to also receive coverage from that base station (and, obviously, receives revenue from those other carriers for doing so).

The rules of the competitive selection process will not mandate roaming – but if a carrier or consortium of carriers puts forward a proposal which includes roaming, we will certainly look at that with great interest.

The rules of the process certainly will mandate open access and co-location provisions. These will be designed to ensure that if a base station by one carrier is built with the aid of public money, it will be cheaper and easier for another carrier to co-locate on that base station than would be the case under the existing industry arrangements.

The only potential exception to this principle might be in very remote parts of Australia, where it is highly unlikely a second or third carrier would be prepared to incur the cost – even a reduced cost – of gaining access to the first carrier’s base station because the amount of traffic available is so tiny.

In such situations, it may be wiser to capture the cost savings from allowing the build of a smaller tower on the grounds that there is no need to support the equipment of a second or third carrier.

Good Programme Design

A second policy principle is good programme design to make sure we get maximum bang for buck from the public money we are spending. On the one hand, as I have discussed, we need to leverage competition and a potential appetite for market entry from multiple carriers.

On the other hand, we need to understand the limits of the programme – and the inflection point beyond which commercial appetite for delivering coverage is low. In seriously remote areas, the cost of installing, operating and maintaining mobile infrastructure is very high; while the number of users, and hence potential revenue, is very low.

Approximately 5.4 million square kilometres of Australia’s landmass remains without mobile phone coverage (over 70 per cent). This includes rural and remote community centres, major highways and transport routes, popular seasonal tourist locations, locations at high risk of natural disasters, and key mining and agricultural areas.

Even by leveraging co-contributions and the NBN fixed wireless rollout, it will not be possible to address all such cases with the additional $100 million that is available. The challenge is to design a programme that achieves the best value for money in terms of additional coverage and targets those areas of greatest need.

Sustainable Benefits

The third policy principle in funding regional and remote communications is ensuring that the new network facilities can operate sustainably.

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.

With this programme, the key point is that when a site is funded, it will be up to the carrier to cover its ongoing operating costs.

Better Leveraging of NBN Build

The last principle I want to touch on is one more specific to our particular times and circumstances: 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.

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.  Let me quote from what we said in our mobile coverage policy:

The Coalition will actively seek opportunities to leverage off the rollout of the wireless National Broadband Network (NBN) to improve mobile coverage.

NBN is rolling out hundreds of towers in regional Australia to provide fixed wireless broadband services. NBN Co will install power, access roads and backhaul for each facility, so there is an opportunity for mobile network operators to affordably colocate with NBN Co and expand the mobile phone network through this process.

In fact, the opportunity is even bigger than we thought when this policy was prepared. NBN’s national fixed wireless network will have 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?

These are questions which NBN Co has been specifically asked to look at. The company has just kicked off a second phase of its strategic review, this time specific to the wireless and satellite parts of the business, and that review is an opportunity to look at better leveraging NBN Co’s fixed wireless build for improved mobile coverage.

Let me give a couple of examples from my recent trips in regional Victoria. The Member for Corangamite, Sarah Henderson, organised a community meeting in Dereel for me to hear the community’s desire for improved mobile coverage. Dereel already has NBN fixed wireless broadband. The Member for McMillan, Russell Broadbent, organised a similar meeting in Dumbalk – where there is already a tower installed by NBN, although the fixed wireless network has not yet gone live.

One of the non-Telstra carriers has provided directional cost estimates of building a new mobile base station in a rural area from scratch. The civil works cost about 60 per cent; in addition backhaul, when converted to a capital cost equivalent, makes up some twenty per cent of the cost.

These numbers would suggest that the incremental cost to the mobile carriers of building a base station in either Dereel or Dumbalk should be considerably lower than in a town where they would have to start from scratch.  

It is not just the civil engineering costs where there could be savings. If mobile carriers had the opportunity to buy backhaul from NBN Co – which necessarily has already installed either a fibre or a microwave connection to their towers – this could offer savings compared to the steep prices which are today charged for backhaul in the many areas of the country where there is only a monopoly provider.

Under the previous government, 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.

Of course, there are some complexities to consider. One is whether the towers have been designed to take the equipment of other carriers – the mobile phone antennas for example which need to be added to the towers. To date, many of NBN’s towers have not been designed for this – which makes sense when considering costs from an NBN-only perspective, but which makes a lot less sense if you are also considering mobile coverage issues.

Another is whether the tower location is optimal from a wireless engineering perspective – given that the considerations for a mobile network may not be the same as for a fixed network.

Nevertheless, the economic principle seems pretty clear – there are significant opportunities to leverage the NBN fixed wireless build by allowing (and indeed planning for) the towers to be re-used for mobile coverage as well.

Some Questions and Issues

I have talked about four key principles: competition, good programme design, sustainability, and leveraging the NBN.

In the last part of my remarks, I want to touch on some of the questions and issues we are still grappling with. Our views on these issues will certainly be informed by the responses we get to the discussion paper the government has issued – so if you have not already made a submission I would urge you to do so. They close on February 28 so you still have a bit of time.

 

How the Funds Get Allocated

Let me turn first to a pretty central issue: how should we allocate the funds.

In the discussion paper we explore three possibilities in relation to the larger, $80 million component of the fund. This is the component which relates to major transport routes, small communities and areas that are prone to experiencing natural disasters.

The first option is a single mobile carrier, or group of carriers, being contracted to deliver the services for the entire $80 million - a winner take all approach. The key advantage of this approach is its simplicity and the potential for a single carrier to offer economies of scale. But it may also result in a lack of competitive tension.

The second option involves all carriers bidding for specific sites and establishing an order of merit of base stations. This may involve a mix of carriers being selected to deliver the programme in different parts of the country. The key advantage of this option is that it would result in greater competitive tension – for example because a carrier that may not feel it can offer a competitive national bid may nevertheless be able to offer a competitive bid for a region of the country.

The third option would open the programme up to network infrastructure providers building, owning and operating the mobile base stations, which would be available to all carriers to install their own mobile equipment. This option would help with the objective of achieving greater competition in the mobile telecommunications market.

It is also possible to consider a mix of options. For example, we could end up with a mix of options 2 and 3.

How to Secure Co-Investment

Encouraging co-investment will be crucial to making sure we get the best possible outcome from the programme. While this is likely to come mostly from the companies that tender under the programme, some other parties might also be interested in putting in money.

There are three obvious possibilities: state and territory governments; local governments; and businesses in a particular location (for example tourism businesses).

The Commonwealth government is speaking with state and territory governments, and local councils, about these issues. We are interested to find out what they think about the design of the programme, the identification of priority locations and most importantly, any co-investment that they may be prepared to make.

This co-investment could be in the form of cash - but it could also be ‘in-kind’. For example, state and territory governments, or councils, might be able to provide access to land for new base stations.

Or they could give access to infrastructure they own or control: this could be towers owned by fire and emergency services organisations, or it could be optical fibre owned by state governments which could be used for backhaul. The Victorian government for example has significant optical fibre assets.

If a particular local community wants to bid for a site – most likely with the local council as the formal bid proponent, but it could be another party such as a local business – it would be a good idea to consult with the relevant state or territory government. This would help to ensure the community is presenting the best possible case for that site to be funded.

A number of communities have already approached us with indications of a willingness to provide either financial commitments or in-kind support, such as making a site available. Local governments in particular can play a crucial role in bringing together these community interests to strengthen the case for improved coverage in their local areas.

How to Choose Which Locations Get Funded

Obviously, the issue of most interest to communities which don’t have coverage today is how we will choose the sites which will be funded to get new mobile coverage.

The key principle is allocating the funds to the areas which have the highest need. We have identified potential principles in the discussion paper, including whether a proposed base station matches with a site on the list developed by the government; and the number of people who will benefit from additional coverage to be provided from the site (based for example on the number of premises located within the coverage area, or the number of kilometres of highway which will get coverage).

To start with, we need to hear from as many people as possible about areas which do not have coverage.

I have been encouraging local communities to identify specific black spot locations to the Department of Communications. To date, over 800 locations have been identified.

This database of locations will be made available to potential tenderers. Applications that propose base stations that match these locations will be given priority in the assessment process.

Inevitably, we will not have enough money to fix every blackspot which is identified. That is why we are encouraging local communities to help make the case –to contact their federal members of parliament to lobby them, to provide their information to the Department of Communications by emailing [email protected]; and to approach their state or territory government as well to see if it can provide any further support.

Planning Permission

There is one other key issue where local communities – and their political representatives on the local council – can assist in making the case for being chosen to receive funding. That is the issue of planning approval.

As I have mentioned, I have recently attended meetings in a number of towns where people could express their wish for better mobile coverage in their town. In at least two cases, it turned out that a mobile carrier had planned to build a tower in recent years – but the council had failed to give planning permission, typically following objections from a small minority of people.

Anything which a local council can do to streamline planning approval for a tower is likely to increase the prospect of funding being received for that location under this programme.

Conclusion

It is clear that there are many questions to consider around the design of the Mobile Coverage Programme.

The Government is not only keen to hear from mobile phone carriers and other industry participants, and from state, territory and local government about the design of the programme – but also from residents and community leaders in regional and remote communities around Australia.

The Coalition has a long and proud track record of improving communications in regional and remote Australia.

Today we are again making regional and remote telecommunications a priority.

We aim to drive the public dollars as far as we can in– so we can get base stations to places they would not be otherwise going any time soon.

Let me close by encouraging everyone here to play your part – by giving us your views through the submission process, by encouraging parties which may have an appetite and capacity to co-fund, and by engaging with the carriers so they understand how important a priority this is.