Speech to the 2015 CommsDay Summit

Over the past few years there has been a lot of public policy attention given to fixed line broadband – including an unprecedented degree of public investment.

We politicians have been busy telling the fixed line industry that we are from the government and we are here to help – and paid less attention to the mobile industry.

At the same time the volume of mobile customers and traffic has been surging – and the cost of mobile services continues to trend down.[1]

Some would say that is no coincidence – it is less intrusive regulation which has led the mobile sector to flourish.

Today I want to talk firstly about the extraordinary growth in mobiles – reflecting the reliance we now place as a society on mobile communications.  Next, I want to touch on some of the major policy issues that this presents – and in the third part of my remarks, discuss the Abbott Government’s response to these policy issues.

There has been a profound expansion of mobile communications – and this is only going to continue

But let me start with the observation that the statistics on mobile growth reflect a profound change in the way that we live our lives.

If we could take a typical Australian from 1985 and transport that person forward in time thirty years to 2015, one of the biggest differences to strike our time traveller would be the sight of people everywhere talking on, viewing data or pictures or video on, listening to, typing on, or otherwise interacting with their mobile phone.

Today, the use of mobile phones is virtually ubiquitous – not just for voice but for data – with over 31 million active mobile subscriptions.[2]

Over 26 million of these subscriptions include an internet service and over three quarters of Australian adults access the internet through their mobile phones.

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. 

Each of the mobile operators is reporting a similar story.  After Telstra launched its 4G network, it reported in late 2013 that 4G data traffic nearly doubled every three months.[3]

Optus experienced 40% growth in data traffic between 2013 and 2014[4], and 4G mobile data users have been found to consumer 68% more data than 3G users.

Vodafone’s weekly overall data consumption more than doubled between 2014 and 2015, with 4G data consumption up by 647% in the same period.

And the growth is expected to continue – according to ACMA, mobile data use will rise from 22.2 petabytes a month in 2013 to 81.1 petabytes in 2017.[5]

The statistics reflect the profound change in behaviour that would be so noticeable to our time traveller. In modern society, we make very heavy use of our mobile devices. 

As one quite telling example, two thirds of the 8.5 million calls to Triple Zero are now made from mobile phones.

One thing that has struck me, visiting many parts of regional and remote Australia in the last eighteen months, is the importance of mobile services in the bush.

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.  

It is not difficult to observe the trends that are likely to drive ever increasing usage of mobile services, and in particular a continuing growth in data volumes.

The development of machine to machine applications and the internet of things will be one driver.

Huge growth in the volume of data for video is another.

These are some of the trends on the demand side; on the supply side the mobile network operators are putting more spectrum into service and continuing to upgrade their networks to 4G – with 5G expected before too long. [6]

This is driving key policy questions

With mobile communications being used ever more extensively, the social and economic value at stake is higher than ever. One recent report found that mobile broadband contributed $33 billion to the economy over a six-year period to 2013, largely through productivity gains.[7]

In turn this means the importance of a sound policy framework is higher than ever.   There are a number of obvious questions on this front.

How best to allocate radiofrequency spectrum to meet demand

The first such question is how best to allocate radio frequency spectrum.

The current legislative framework for the management of spectrum is over 20 years old. When introduced, it was at the forefront of world trends, for example in its use of market mechanisms.  A lot has changed since that time however.

Profound technological advances now 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. 

Today, our spectrum management framework is not flexible enough to respond to the rapid advances in technology. For example, introduction of ultra-wide band technologies was delayed due to the inflexibility of the current framework.

How best to stimulate innovation and new technology

A second obvious question is how best to stimulate innovation and new technology. 

Some might say there is no need for policymakers to worry about this.  After all, new technology has been introduced into the Australian market 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.

One factor is the underlying competitive structure of the market. Australia has a competitive market in mobile, with three vertically integrated network operators, Telstra, Optus and VHA. At times there have been four operators. Competition between the 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.

It is therefore very important that we maintain this vigorous, competitive market. Under the previous Labor government, we saw the very odd sight of Broadband Minister Stephen Conroy engaging in a direct personal attack on Vodafone and its then CEO Bill Morrow, after Bill had the temerity to pen an opinion piece in the Financial Review on the subject of competition in the mobile sector, particularly in rural and regional areas. 

In my view the Minister instead should have been thanking the global shareholders of VHA, for their decision to inject significant additional capital into their local subsidiary after its well-publicised network difficulties.

Certainly the Abbott Government is strongly committed to vigorous competition in the mobile market, and to a policy framework which encourages and facilitates that.

If competition is one driver of innovation, another is spectrum allocation processes.

Stimulating innovation is a key reason why we use auctions to allocate spectrum – to the use with the highest value to the community.

Unfortunately, governments can sometimes get their priorities wrong, and see spectrum auctions as primarily about raising revenue. This was the error the last government made with the 700 MHz auction, for example, when then Minister Conroy set an unprecedentedly high reserve price for the auction.

Whether we are making best use of mobile for social and economic purposes

A third set of questions is whether we are making best use of mobile networks for social and economic purposes. Our existing regulatory frameworks tend to assume that the fixed network is the one to which we attach various regulatory obligations, such as the customer service guarantee.

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 a country town in Victoria, 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.

The Government’s response to these policy issues

The Abbott Government is responding to these policy issues in a number of ways. In this last portion of my speech I want to mention several of these responses: the spectrum review which we are carrying out; our policy to spend $100 million on mobile black spots in regional and remote Australia; our plans for 1800 MHz spectrum in regional areas; and the Productivity Commission Inquiry into Public Safety Mobile Broadband.[8] [9]

Spectrum Review

In May last year, we announced a review of Australia’s spectrum policy and management framework.

The review has looked at ways we can modernise the framework to deal with some of the factors I mentioned earlier – such strong growth in demand for spectrum, and new technologies to facilitate spectrum sharing.

It also looked at ways we can simplify the regulatory framework for spectrum – in line with the Abbott Government’s focus on deregulation. We want to make it easier and less costly for spectrum users to operate under the regulatory framework.

The review team has now submitted its report to the Minister and the Government is considering the recommendations.

There are some clear findings about weaknesses in the current arrangements. They are too slow and unnecessarily rigid and cumbersome. This operates to compromise a key policy objective: that spectrum is allocated and put into productive use quickly and efficiently. It also imposes unnecessary costs – on both industry and government.

We have previously indicated that there are three main areas for potential reform.

The first is a clearer and more simple policy framework, with clear roles and responsibilities for the Minister and ACMA. For example, on the one hand there is scope to remove the need for the Minister to be involved in administrative processes. On the other hand we could provide additional specific Ministerial powers of direction.

The second main reform area being considered is to have a simplified and more flexible licensing system. Rather than the legislation providing for three different types of licenses, it would set out a single licensing framework. ACMA would then have 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.

The third potential area for reform which we have signalled is to introduce greater flexibility into the current television broadcasting framework.

Coming out of the review process some other potential reforms have been identified:

• Greater user involvement in spectrum management;
• A more transparent and flexible approach for spectrum pricing to promote efficient use and re-use of spectrum;
• More flexible allocation and reallocation processes by providing the ACMA with the discretion to determine the allocation method and processes and allocate encumbered spectrum;
• Providing the ACMA with a graduated set of enforcement tools.

There has been an encouraging response to the proposed reforms in the consultations we have held. Generally, industry participants support a simplification of the regulatory framework, and clearer definition of the roles of ACMA, the Department and the Minister.

However, we have heard some concerns about the scope and circumstances under which Ministerial policy statements and directions powers would be used.

Unsurprisingly, there has been good support for changes that would result in faster and less costly spectrum allocation and reallocation processes, and that would give licensees greater powers to enforce their own property rights.

We have valued the close participation of industry stakeholders in the review process, and we aim to continue to work with spectrum users as we proceed to decisions and to implementation. This is an extremely important regulatory framework for the entire communications sector, but particularly for mobile telecommunications.

$100m Mobile Black Spot Programme

Let me turn now to another Abbott Government policy initiative which seeks to respond to the ever growing importance of mobile communications. I said that one of the central policy questions was whether we are making sufficient use of mobile communications for social and economic purposes.

One aspect of that question goes to the availability of mobile coverage in regional and remote Australia.

This was an issue the previous government paid very little attention to, with no public money allocated to funding the rollout of additional mobile phone base stations in regional and remote Australia over the six years of the Rudd-Gillard-Rudd Government. 

That is why the Coalition has established the $100 million Mobile Black Spot Programme which is intended to improve coverage along major transport routes, in regional communities and in locations prone to experiencing natural disasters.

Last week a significant milestone was reached, with proposals being lodged with the government by the mobile network operators.  We will now go through a careful assessment process, base station by base station, in accordance with the procedures set out in the programme guidelines. Naturally therefore I am not going to comment on individual proposals.

But I do want to say that I am pleased overall with the range and quality of proposals. I am also pleased that the Commonwealth funding of $100 million has been enhanced with significant funding commitments from state governments including Western Australia with $35 million, New South Wales with $25 million, and also Queensland, Victoria and Tasmania.

We aim to announce the locations which have been successful in receiving funding, at which new or upgraded base stations will be built, by 30 June this year.

The first base stations to be funded through the programme are expected to begin rolling out in the second half of 2015, and the roll out will continue over the next three years.

This programme will obviously not solve every coverage problem in Australia. Ours is a very large country, and around 70 per cent of Australia’s landmass still does not have terrestrial mobile coverage. However I believe this programme will deliver a significant one time impact to improve mobile coverage in outer metropolitan, regional and remote Australia.

Productivity Commission Inquiry into Public Safety Mobile Broadband

One of the other aspects of whether we are making sufficient use of mobiles for social and economic purposes relates to communications for emergency services.

Recently we announced that the Productivity Commission has been asked to carry out a cost-benefit analysis on the best way to secure a mobile broadband capability for public safety agencies by 2020.

The Commonwealth, State and Territory governments all recognise that a national public safety mobile broadband capability would enhance the delivery of public safety services. It would improve responses to emergency service events and enable agencies to better communicate with other agencies within and between jurisdictions.

However, delivering this 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. Naturally the public safety agencies are eager to see a solution which delivers them enhanced mobile services, to better increase their efficiency and responsiveness. If there is to be a feasible solution it will require innovative thinking and close engagement from the communications industry, end users in the public safety and emergency services sector and government. 

The Commission is expected to release an issues paper by the end of the month and I encourage all interested parties to fully engage with the process ahead of the final report in December.

ACMA consultation on 1800MHz arrangements

I want to mention one other timely example of the pressing demand for spectrum from the mobile communications sector. ACMA has brought forward a proposal to reallocate the 1800MHz band in regional Australia for spectrum licensing.

The key driver is increasing demand for LTE technology, including 4G, in regional areas. Expanded provision of 4G in regional Australia, delivered in a vigorous competitive environment, would have clear economic and social benefits.

ACMA has been working hard to facilitate this spectrum being made available as early as possible, and is proposing an auction for November 2015.

It is also looking at other measures which might allow reallocated spectrum to come into service as quickly as possible. ACMA recently issued a discussion paper canvassing a number of options including ‘interim access’ to the band – through allowing the purchase of apparatus licenses in advance of the auction – or ‘early access’ through allowing those who purchase spectrum at auction to start using it much earlier than the mid-2017 time that would ordinarily apply.

These are complex issues and ACMA is presently considering the feedback it has received on the discussion paper before determining a way forward.  Whatever decision it comes to, however, the government is pleased that ACMA has sought to be responsive to industry’s strongly expressed appetite to make 1800 MHz spectrum in regional Australia available to serve mobile communications users.

Conclusion

I want to conclude with the observation that in an industry as fast changing as mobile communications it is impossible to predict the future. In the early nineties, nobody expected mobile would become a ubiquitous communications service, eclipsing fixed line services.

When I was at Optus, one wise old hand who had worked on the original bid for the second telecommunications licence in 1991 told me that at the time mobile was really seen as a sideshow. The big money was going to be in long distance. The consortium only acquired a mobile licence because it was a condition imposed by the Government.

In the thirty years or so that the industry has been going there has been wave after wave of disruptive innovation. The feedback we have received in the spectrum review confirms that this is only likely to continue.

If there is one core principle for the way government should approach regulation of this sector, it is to encourage competition as a means of driving innovation, and to be as light touch as is possible so that industry participants can get on with serving customers.

The success of the mobile sector to date is a good example of what can be achieved when government sets sensible rules to establish a market, and then lets market participants get on with doing what they do best. 

The mobile communications industry has delivered great service to Australians to date.  Its service will only continue and improve. The Abbott Government wants to make sure you have a regulatory framework which supports rather than hinders your work.

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

[2] Australian Mobile Telecommunications Association, March 2015 ‘Mobile Minute’ – source for figures in this and next two paragraphs

[3] http://exchange.telstra.com.au/2013/10/28/telstra-trials-lte-broadcast/

[4] Paul O’Sullivan, SingTel Investor Day Presentation 3 June 2014 p6

[5] http://www.acma.gov.au/theACMA/engage-blogs/engage-blogs/researchacma/Mobile-broadband-on-the-money

[6] http://www.theaustralian.com.au/business/telstra-unveils-ambitious-timetable-for-rollout-of-volte-5g/story-e6frg8zx-1227243748272

[7] April 2014 – Research ACMA – ‘The economic impacts of mobile broadband on the Australian economy from 2006 to 2013 – Research report prepared for the ACMA by the Centre for International Economics’ - http://www.acma.gov.au/theACMA/Library/researchacma/Research-reports/economic-impacts-of-mobile-broadband-1

[8] http://www.pc.gov.au/news-media/latest/public-safety-mobile-broadband

[9] http://www.joehockey.com/media/media-releases/details.aspx?r=462