Network Insight Institute

Paul Paterson

Paul Paterson, Director Regulatory, Telstra

It is my pleasure to talk to you on the state of play in the broadband market and to do so from a Telstra perspective. I plan to talk to you about the take-up of broadband in Australia, then focus on the availability, or reach, of broadband; and I will also touch on the regulatory context.

I also want to take a couple of moments to explode some common myths that circulate in policy and regulatory circles around broadband and goings-on in the broadband market, and finish with a quick comment on some initiatives by Telstra to actually drive broadband out there.

First: in terms of the take-up of broadband, ACCC figures indicate that broadband take-up in Australia reached 500,000 services in June 2003 and grew by 93,000 services over the June quarter. It has doubled since June 02 and over that 12-month period there has been 166 per cent growth in ADSL.

Half a million services reflects very rapid growth indeed. Focusing in on that growth, Telstra shares the vision of the Broadband Advisory Group, that Australia will become a world leader in effective use of broadband. We believe that broadband penetration will continue to grow strongly as the market moves from what we see at present as the early adopter stage, through to a mass market adoption phase. Some estimates from AT Kearney indicate there is currently 5-6 per cent residential penetration, with an Australian Industry Group survey finding around 40 per cent business penetration; and fast growth in both those areas. The business penetration lifts to 60 per cent if you include first generation broadband (that is, ISDN), and the industry advisory group which has looked at these business numbers suggests it will be up to about 70 per cent in the second half of 2004.

Importantly, the industry advisory group sees no difference in regional and metro broadband penetration for business. After a somewhat later start than in other countries in ADSL for technical and regulatory reasons, there has been in our view robust early adopter growth in Australia by international standards. We are now at the point of inflection between that early adopter stage and movement into the mass market.

In terms of Telstra's investment in broadband, we are investing over $1 billion in the ADSL platform, which provides widespread availability to Telstra BigPond customers; and also to the customers of the 200-plus ISPs who in turn provide service to their customers over the Telstra platform. This represents one of Australia's biggest infrastructure investments, surpassed only by the Snowy Mountains Scheme. As a point of comparison, it is larger than the investment in the Adelaide to Darwin rail link. In that investment, Telstra bears all the technology and volume risk in that other service providers access that network capacity unit by unit as they see fit.

In terms of broadband availability in Australia, the very large investment in ADSL mentioned above, along with cable and satellite investment by a number of parties, means that second-generation broadband is now available to almost every home and business in Australia. Currently we have around 1000 exchanges enabled for ADSL. It is available to around 7 million premises, or 75 per cent of the premises in Australia. Telstra's cable modem service passes 2.5 million homes, which is around 35 per cent of premises. In addition, in the cable space there are also Singtel Optus, TransACT, and Neighbourhood Cable doing business in that same area.

Finally, there is satellite broadband coverage across the length and breadth of Australia. ISDN (first generation) broadband is available to up to 96 per cent of the population. Importantly, broadband in rural and remote areas is available on terms and conditions fairly similar to those for metro users. Figures from McKinsey show that Australia's position in terms of regional broadband availability is world class.

In terms of the regulatory environment, broadband growth is in my view occurring in the context of a broader, steadier evolution in the telecommunications regulatory space and wholesale space, to a mature regulatory environment which is characterised by stable and predictable prices, no access disputes, and commercial agreements rather than regulatory proceedings.

In terms of competition, the broadband market is particularly competitive. As I mentioned earlier, over 200 ISPs are accessing Telstra's ADSL platform to provide competitive broadband services to their customers. In fact, there is now a massive wholesale market, in which somewhere around two out of every three ADSL services going out of Telstra go out through our wholesale channel. Optus has just got into that wholesale market itself.

There is also scope to provide ADSL over ULL (the unbundled local loop) and spectrum sharing as part of the regulatory framework within which we work. There is competition in cable modems, with Telstra and SingTel Optus having a very similar footprint and (to the best of our knowledge) having a similar number of customers. In regional areas, there are players such as TransACT and Neighbourhood Cable. There are approximately 20 ISPs providing a broadband satellite service; and of course competition is occurring between all of the different broadband technologies. So whichever way you look at it, the market is very competitive.

Let me touch on some myths that exist in regulatory circles and policy circles. The first is that Telstra provides its retail business on favourable terms compared to its wholesale business; that is, it gives itself a leg up in terms of providing ADSL services. That myth is just plain wrong. Telstra provides ADSL on an even-handed, first-come first-serve basis. ADSL services are provided with identical quality over the same platform, and at times under the close scrutiny of the ACCC.

The second myth that is sometimes kicked around is that incumbent telcos have held back on broadband rollout and promotion for fear of weakening their legacy service revenues. In my experience and observation that is wrong. At Telstra we really do see broadband as the way of the future and our concern, if anything, is that if we are not driving very hard we will be left behind.

Finally: the myth that broadband competition is compromised where the same telco owns both telephony and a pay TV network. This myth is also wrong. It is not supported by international evidence, as we documented in our submission to the Senate broadband inquiry. We have every incentive to drive broadband take-up on both of those platforms. There is some alternative cable network in Australia in addition to SingTel Optus. If anything, the lower rate of cable broadband penetration in Australia compared to other countries is due to the lower rate of Pay TV take-up. If you look at the proportion of Pay TV customers with cable broadband, it is high by international standards in Australia.

There are a number of initiatives being put in place by Telstra, by the Government and by others, to drive growth. Telstra has established a broadband fund which uses cash and bandwidth grants to promote the development of broadband content applications and tools. Telstra has a program of removing network blockages that arise from pair gain systems in our network. We also have a very strong marketing campaign around BigPond broadband, which of course spills over into the whole broadband marketing in terms of awareness and demand interest.

In the ADSL arena, we have put in place the ADSL demand register, and we now provide an ADSL service quality guarantee. The ADSL demand register is a means for customers in the areas with no ADSL to register their interest in subscribing. When an identified threshold in terms of the number of customers expressing interest is reached, Telstra then investigates enabling that exchange.

To summarise, after a later start than some countries in the ADSL market, broadband take-up in Australia is now moving very fast and in our view is at the inflection point of mass consumption. This is occurring on the back of world-class availability across the whole country. There are high levels of competition in the broadband market. There is a stable and mature regulatory environment. Telstra, the Government and no doubt others have a range of initiatives to drive broadband take-up.

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