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Telstra's call for development

Sol Trujillo, Information Age

23/10/2007 00:41:29

How long did it take all of you to get to work this morning? If you live further than walking distance to the CBD I would guess most of you experience regular delays either sitting in traffic or catching public transport, sometimes you are late for work, late getting home, late for appointments. Time spent commuting is largely tiring, inefficient and most of all frustrating. And to compound the problem? Just add water. By 2020 there will be at least 23 per cent more cars on Sydney's roads with travel times predicted to increase by around 50 per cent Traffic congestion slows down productivity and obviously increases operating costs.

Now imagine a scenario where travelling around Sydney is just like during the Sydney Olympics. Imagine an additional 7 hours in your week not spent commuting. Imagine what you could do with that time.

Imagine if history had afforded the right policy and investment settings for integrated, reliable and fast public transport infrastructure. Imagine if Sydney's commuting flows operated like Tokyo's high-speed trains.

The right investment settings and the right policies are critical to deploying communications infrastructure.

We have that same window of opportunity just like the one 10 years ago for Sydney's public transport infrastructure.

So again, wouldn't it be great if by 2012 we had nationwide broadband speeds of up to 50Mbps probably more like 100mpbs going to virtually every home and probably every business? What if healthcare, education and business transactions of significant magnitude could be done from across Australia to anywhere in the world - real-time? Imagine the country Australia can be.

Australia's economy is today overly reliant on mining natural resources. When the resources boom slows or ends we are going to need a conduit to the future.

Investment in Australia's communication services ranks 12th - it should be in the top three. If you take Telstra's investment and government subsidies out of the equation there is negative growth in communications investment in Australia. Think about the fact that this may be the only country in the world where that's the case.

Australia is ranked 16th out of 30 developed countries by the OECD countries for broadband penetration and 25th in the world for available internet bandwidth by the World Economic Forum. Two distinct organisations looking at the same issue.

So all of us as professionals and all of us that care about Australia in this room today should ask the question why? Some may say because Australian governments have spent money in the wrong places and adopted the wrong policies.

There is no disputing Australian governments have spent billions trying to stimulate a hi-tech economy. The question I put to you is whether the money has been spent the right way.

Australia has only 11 companies listed on Nasdaq, whereas Israel, with a population only 31 per cent of Australia's, has 71 companies listed on Nasdaq. With a similar distance, density and terrain challenge, Canada has 57 companies listed on Nasdaq.

Why again, is there is no Down Under version of Ericsson, Nokia, Amdocs, Comverse, Google or Microsoft?

Perhaps, because simply spending government money isn't enough. Giving away $1 billion dollars to the SingTel led OPEL joint venture won't deliver Australia a fixed high-speed broadband network for consumers. Your taxpayer money going to Singapore - it does not help.

Governments don't operate like markets - they can't and they shouldn't try. It is the role of government to make the policy settings favourable to investment. Investment will only be made when there is a competitive rate of return to be earned - it's how free markets work.

Ten years ago Optus and Telstra went head-to-head building the Hybrid Fibre Coaxial Cable or HFC networks.

Since 1997, apart from Telstra, there has been no significant investment in this whole fixed line space in Australia.

SingTel Optus's $2 billion HFC network passes 2.2 million households in Australia yet it is virtually used in a minimal way. As a logical person you have to ask why? The answer is that SingTel Optus has some smart people and they have done the maths and thanks to the Australian Competition and Consumer Commission's pricing model it is literally cheaper for SingTel Optus to resell Telstra's network rather than use their own cable network that they built themselves.

That is the ultimate irony.

If you look around all the world, every company that wants to attack a PTT, wants to own their own network and go and fight the incumbent. But in Australia that does not happen, and you should always take a step back and ask why. Some of us say this is simply unbelievable. If you are a rational investor why would you invest in deploying a fixed line network in Australia?

Let me give you a contrast because that sounds pretty negative. In Korea during the same period, capital investment in networks and facilities quadrupled between 1997 and 2001, due to the fact that the Korean Government completely deregulated the provision of services and allowed carriers to charge access seekers market-based rates.

Guess what happened? Some people did not like the rates, some did like the rates but those who didn't went out and built their own infrastructure. In Korea if you go there now people have choices. People invest where there is money to be made. So if you do not need to go out and invest because you can get below cost pricing why do it? That is important for us to keep in mind when we think about the evolution of our economy and this industry in Australia.

So, back to the "why" we don't have investment. It's because money has been spent in the wrong places and because the policy settings don't make it economic. This is not a Telstra issue any more. It is an issue for everyone. To put it in plain English, why would you invest when the regulator allows you to get access to the same service below cost?

Now there is another "unspoken" that needs some air time - distance, density and terrain. Those of you who have been in any business thinking about investing in infrastructure know distance is a big deal, terrain is a big deal. Being a North American and sometimes flying over Iceland, I thought it was the least densely populated country in the world. Well, Australia is less densely populated than Iceland. What does that mean?

That means that if you want to do anything the costs are much higher, because if you have fewer people and more distance and terrain there, your costs are out of kilter.

So when you look at the way the regulatory settings and policies in Australia have worked, you say the costs have to be higher. Now I want you to keep this in mind when you look at the regulated prices for wholesale access to our networks, known in regulatory speak as unbundled local loop service and line spectrum sharing or "ULLS and LLS".

If you have a look at the charts behind me you can see that Australia does has the lowest population density and it has also one of the lowest ULLS charges - we have a similar population density to Canada's and yet their prices are around 75 per cent higher than Australia's. Similarly with respect to LSS, the UK has 82 times more people per square kilometre than in Australia and yet our regulated prices are virtually identical.

Now let me ask all of you in the room, does this make economic sense? It doesn't. It's not logical. So when we think about this issue of pricing versus costing and the way the regulatory framework has worked here, obviously it is a bit perverse because everybody I think wants to see competition. I like competition. I like to see competitors out there. It makes us better.

But you can't do it by subsidising one competitor over another. You have to create the right setting so that people invest. They risk their capital, they go compete. Our competitors, if you take Singapore Tel as an example, are almost as big as Telstra. They just spent $800 million plus acquiring a mobile company in Pakistan, they have spent a few billion in India and some other places around the world, so there is nothing wrong with taking some of that money and investing it in Australia. That's okay with me.

What I have a problem with is when this government, the Australian Government, takes your taxpayer money and sends it to them, and says now come and compete. Our shareholders are Australian. Our customers are Australian. Everything about Telstra is Australian other than a CEO who happens to not be Australian. But that's OK because 99 per cent plus of our employees are Australian.

So when we think about policy the real measure of policy success should be whether the benefits that are brought in a policy setting construct should be about you, all of us as consumers in Australia? Would you agree? Not having broadband and not having other things because of political considerations does not to me make a lot of sense. It is not just about prices it is about services today and in the future. It is about companies that know what they are doing and can deliver. It is about those who invest and risk capital. It is nice to have debates about prices but if you have no services to price...it does not matter. If it is not done well... it does not matter...if not in time...it does not matter.

We all know that significant investment in high-speed broadband infrastructure underpins high growth economies but in the interests of time I won't recount the statistics.

Broadband deployment has a direct relationship with a country's knowledge industry competitiveness and growth in the global marketplace. I personally believe Telstra serves as the central nervous system of the economy, the ICT sector underpins productivity gains in just about every other sector. It is the enabler, the door opener, the grease in the wheels, the magic that makes it happen.

Despite the importance of this sector, Australia's ICT trade deficit is at a record level. But before I turn to Australia's future, I would like to take a moment to explore the current state of play.

The way we live, work and communicate has fundamentally changed - there has been a paradigm shift. Many of you have heard me say' shift happens". As Tony Blair said when he fought the 1997 election - he took an issue a day. In 2005 there was an issue required for the morning, another for the afternoon and by the evening the agenda had already moved on.

We are living in the Web 2.0 world - the world of the C's - community, collaboration, conversation, collective intelligence, content creation and a change of scale. Web 1.0's "killer app" was e-mail.

In January 2007 there were over a billion users of the Internet across the world. Around 90 per cent of Internet users have e-mail accounts and two-thirds of them check their mail at least once a day.

Web 2.0's "killer app" is online communities be they social, business, health or education related. 57 per cent of online community members log on at least once a day and 43 per cent feel as strongly about their online communities as their real world communities. 55 per cent of online teens have profiles and 79 per cent have included photos of themselves.

To me it is exciting to see how our customers are changing their game, changing how they do business and I get a chance to see many stories like these about paradigm shifts of what is happening. So it's not just in this notion of social networking we see in 2.0 but in the enabling that comes with some of this infrastructure that gets built.

Right now all of you right here in Australia have the benefit of having the world's largest, fastest nationwide wireless broadband network. It's right here in Australia. When I travel now to other parts in the world, it's like stepping back in time. Part of the change that is occurring is driven by our passion to bring the best to Australia. It is about changing the game and it is about being more dynamic than the e-mail users of the last 10 years with the integration of pictures and video virtually in any media context. You can do that when you have the bandwidth. The bandwidth implications are phenomenal: • One hour of video download consumes as much bandwidth as a year's worth of e-mails. • A typical video consumes 1000 times as much bandwidth as a sound file and a high-definition video consumes 7 to 10 times as much bandwidth as normal video.

Just to give you an idea, 20 million downloads of an hour-long TV show in video iPod format would require 2.1 petabytes of network bandwidth and about 20 to 30 formats would be required to reach all devices. I want you stop and think about that. Think about the world of YouTube, Flickr whatever it may be. We are talking about petabytes. So the implications of launching and counter-launching global warming policies on YouTube have traffic implications of another kind.

Online video barely existed in 2000. Today, one-third of all Internet traffic comes from Web videos. In the last two years Telstra's IP network capacity has increased 77 times and our wireless capacity has increased exponentially given the launch of our Next G Network.

About half of the Internet's transmission capacity was going unused in 2002. Today that pipeline has almost doubled in size - globally - and yet the unused portion is down to about 30 per cent.

But don't put this traffic explosion down to just consumers. Business and government are heavy users too: • To send one high quality x-ray from Penrith to Royal North Shore Hospital it will take between 6 - 10Mbit/s. • For a small business doing post-production film work based in North Ryde to send broadcast quality film to Los Angeles it will require approximately 100 Mbit/s. • To stream a high-definition 3D rendition of a house for remote auction it will require around 10Mbit/s. • For an Aboriginal artist to display their dot-painting with the level of resolution to a collector online it will require approximately 8Mbit/s.

Think about that.

Only Telstra has the networks to manage this traffic. Over the past two years Telstra has invested around $1.5 billion to increase the capacity of our networks. We are investing in this country.

But the demand for bandwidth doesn't begin and end with fixed line. The use of our wireless networks is also exploding: • In the first half of fiscal 2007 there were 2.2 billion SMSs sent on the Telstra network - up 69 per cent. • There were 13.9 million MMSs sent on the Telstra network - up 53 per cent. • By way of comparison, our BigPond and T.com mail customers send and receive around 6 million e-mails a day or about 2.2 billon a year - not including mail messages that are sent or received from wireless PDAs or any data from the Business/Government segments. • In the first half of fiscal 2007 there was an 81 per cent increase in the number of customers using PDAs and smart phone devices.

The humble mobile is now a digital wallet, video recorder, GPS navigator, diary, BigPond on-demand television, Sensis search, Web browser and a sender and receiver of the sort of files you used to have to go back to the office for. I had this vision back in 2005.

It is now real. Only with Telstra can you access these services on the world's fastest mobile broadband network.

As the mode, frequency and flexibility of our personal and business communication capabilities evolve, so too does the lexicon at the same breathtaking speed with avatars, Real Simple Syndication (RSS) feeds, Wikis, podcasts and mash-ups becoming part of life.

The title of today's speech - Telstra creating the future - reflects our need to anticipate the sort of tomorrow Telstra and Australia needs to prepare for. We will require the kind of next generation networks that can cope with: • voice command; • thought command; and • holograms and virtual reality haptics with user designed interfaces that are networked and tactile with physical feedback. The future entails: • global virtual classrooms; • healthcare defined by genetic analysis, remote preventative screening, diagnosis and bio monitoring; with • all data stored in the network, distributed physically and centralised virtually, and all available real-time.

So the world will be real-time, personalised and in many ways disintermediated from the way that we know it today. Security and authentication will be paramount with end-to-end digital protection.

But this future is only possible with ubiquitous high-speed broadband. And the future is measured not in megabytes or even gigabytes, it will be in petabytes.

Telstra has delivered the Next G network - Australia's Largest and the World's Fastest Nationwide Mobile Network. It was done, we built this thing, in 10 months and covers now 98.8 per cent of Australia's population. And we have plans to take it to 40Mbps in 2009 and perhaps 1 gigabyte in the 2011-12 timeframe.

Only Telstra has delivered the Next IP network which coupled with the Next G network again are the largest fully integrated nation-wide IP networks anywhere in the world. We are bringing capabilities here at a world class level like no others. The Telstra Next IP network is secure, more scalable, more reliable and simpler to access than any other network in Australia.

But now I want to contrast a little bit. The Government's current plan is for the SingTel Optus - Elders joint venture Opel to take taxpayer money to deploy WiMax and ADSL which to me is like saying you are going to build a road without any room for lane expansion, its old stuff.

In contrast Telstra is using proven, globally accepted technologies with the design and architecture to evolve to levels beyond today's comprehension or use. Our freeways have massive room for lane extension and expansion.

Whether it be: • VSDL v ADSL; • HUPA v 2G; • Or even HFC at 50 to 100Mbps to every home.

With Telstra we deliver - we believe in our company today that 'anything is possible'.

So the end point is getting the broadband settings right with a path to the future. Not a path that is: • Politicised; • Slow moving; or • Without market-based incentives...investments are key to any sector's future but especially in this sector. The solution does not lie with bureaucratically engineered: • fractured networks; • limited technology choices; and • multi-member consortiums and partnerships. That's why we have consistently argued our vision for the future - it's a five to ten year vision with speeds moving from, as I have said before, from megabits to gigabits with services that are life and game changing.

We have already proven that we mean what we say. Today Australia is number one in the world for speed and coverage thanks to our Next G network.

We built this network not by platitudes, not by press releases, not by committee and clearly not with government money.

For example we announced our Next GTM network build and actually turned it on in 10 months. The first G9 press release was on 21 April 2006 and a year later they're still writing press releases.

The deployment and success of Telstra's Next G network and Next IP network had nothing to do with regulation and government - it was all about a commercial organisation choosing opportunities for growth and the enablement of Australia's future. It is in residential fixed line services where government regulation is at its most constrictive that Australia lags behind the rest of the world.

Our Plan for Australia is unfolding. We do want to change; we do want to move things faster, whether it be on the wireless or wireline networks. To finish the job we need management not by government but by the marketplace.

So Australia has a choice. Australia is at a critical juncture just like the public transport planners ten years ago. Australia needs fixed broadband infrastructure - in addition to wireless - and I don't think there's any debate or argument about that. Enough people have said it. Enough times.

At Telstra we have the proven we have the: • capabilities to deliver next generation networks; • the people with the right skills and experience; and • The global relationships with vendor partners to get the job done.

We don't look for government handouts or government subsidies because we don't need them. We believe in letting the market work. We don't need bureaucratic interference.

We just need a simple thing, and that is the freedom to operate in a true market environment. All we need is certainty that our shareholders can receive their just competitive return on their investment if we do well. If we don't do well, management will pay the price. The critical yet missing piece to Australia's broadband future is that market based notion.

Only Telstra has the know-how to start the job now. And my comment to all of you, and my statement to all of you here today is that this is an issue that is not just important to Telstra, it is an issue that is important to all of you.

You should know that we stand ready to deliver. Only Telstra is evolving into a media comms company with a Plan designed for Australia. Changing structures, splitting networks, using Australia taxpayer dollars to subsidise foreign competitors are not and will not be solutions to create that exciting future for Australia.

We do have a vision at Telstra about what Australia can be: • a country where you don't have to leave it to get a good job; • a country where you don't have to leave it to be able to go out and acquire new customers; • a country where you don't have to leave it to have a better quality of life.

It is crucial that individuals, like you, speak out and engage.

It is decision time and - think about this - every day of delay and inaction on a broadband policy starts building a millstone around the neck of Australia's future - which I would call the other inconvenient truth.

You cannot regulate your way to the future - you must let the market work.

Thank you for having me here today, and thanks for being concerned and being involved in making a great future for Australia.