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Submission by Australian Consumers’ Association

toSenate Environment, Communications, Information Technology and

the Arts References CommitteeInquiry into the Australian Telecommunications Network1

PrefaceThe Australian Consumers’ Association (ACA) is a not-for-profit, non-party-political organisation established in 1959 to provide consumers with information and advice on goods, services, health and personal finances, and to help maintain and enhance the quality of life for consumers. The ACA is funded primarily through subscriptions to its magazines, fee-for-service testing and related other expert services. Independent from government and industry, it lobbies and campaigns on behalf of consumers to advance their interests.

IntroductionIn this submission we argue the relative failure of competition in the Australian telecommunications marketplace, the need for structural reform of that market and for adequate protection of consumers. An important component of the ‘adequacy’ of Australian telecommunications is the offer made to consumers. In the view of the Australian Consumers' Association, the adequacy of this offer is compromised in two ways; firstly in the competitive structure and operation of the market, and secondly in the state of consumer protection in that market. We also share the concerns of many with the state of rural telecommunications and consider it imperative that an ongoing and sustainable footing be found for rural and regional telecommunications policy. In our view a critical issue is how to engineer the future of Telstra, since this has profound relevance for future consumer outcomes in telecommunications. It must happen in a sensible way that recognises financial, commercial and political complexities, but that delivers real benefits for consumers in the street. It must maximise the opportunities for competitive markets and minimise bottlenecks and choke points, wasteful capital expenditure and consumer abuse in the marketplace, such as unfriendly contracts and selling practices. In our opinion, the aim should be to produce consumer power in an active telecommunications marketplace, combined with adequate consumer protection, both at street level from predatory market behaviour, and at the network level, from monopoly practices and pricing.There should be a policy focus on consumer-oriented outcomes related to competition where it works (in urban retail environments) and management of market failure (rural Australia) and natural monopoly (the core network) when necessary.

Summary of suggested recommendationsSuggested recommendation 1: That the Committee recognise the lack of competition in the Australian telecommunications industry, particularly in local access area, the dominance of Telstra in that market and the potential for consumer detriment flowing from these.Suggested recommendation 2: That the Long Term Interests of End users test (LTIE) should not be abolished from Australian telecommunications regulation.

1 ACA File Reference 02043201

Australian Consumers' Association submission 16 August 2002 of 38

Suggested recommendation 3: That price caps and controls be continued, at a Telstra retail level but preferably at a network wholesale level, with particular reference to network access fees (line rentals) and key consumer services.Suggested recommendation 4: That the complexity and confusing nature of the current telecommunications marketplace be recognised, and consumers be protected by regulation of unfair contract terms and poor selling practices.Suggested recommendation 5: That Australia requires a statutory body to oversee and in the final analysis supply telecommunications services to regional and rural consumers appropriately comparable to urban services on a sustainable basis.Suggested recommendation 6: That the broadband enterprise be conceived as an infrastructure investment to extend digitalisation to the last mile of the telephone network, to provide the retail consumer with bandwidth should fit various purposes, particularly low cost voice telephony.Suggested recommendation 7: That the powers of the ACCC be extended to improve the ability of the regulator to intervene in market processes in a transparent, independent, timely and efficient way.Suggested recommendation 8: That Government undertake the work to split Telstra into separately owned portions, one of which has custody of the critical core network and will remain in public ownership.Suggested recommendation 9: The Australian Communication Authority is directed to include Dealers and Agents into the telecommunications industry and create Telecommunications Selling and Contract Practices Code.Suggested recommendation 10: The co-regulatory framework for telecommunications in Australia should be reformed into one that is less industry dominated and more focussed on consumer outcomes.

Competition and adequacy

We’ve only just begun?Recently Australia celebrated the 10th anniversary of competition in the telephone industry – Optus connected its first customer on June 15, 19922. It is also the fifth anniversary of the Telecommunications Act 1997. It is certainly timely for Australia to take a look at how the experiment in telecommunications deregulation and competition is progressing.

From the consumer perspective, telecommunications has been at the heart of changes to overall household expenditure. This has been as part of the overall shift from expenditure on services rather than goods during the last four decades, driven by growth in overall household expenditure. The share of household expenditure on communication has increased by over 200 per cent - communications services achieving the highest growth in value added in that period. However, it is important to note that the growth is from a low base. ABS statistics comparing household expenditure from 1959-60 with 1999-200 show a growth in communications share from 0.7 per cent (sharing lowest place of goods and services with educational services) to 2.2 per cent (sharing lowest place of services with personal care and

2 http://bulletin.ninemsn.com.au/bulletin/EdDesk.nsf/printing/11C9DFED7BCDE4BBCA256BB60002FB9C


eclipsing only three of ten goods categories.3 Therefore, communications is a vital and growing sector of consumer spending – but it is not the most important one. This latter point is important to bear in mind when assessing the complexity imposed by the telecommunications market that has emerged in Australia.

There has been a massive expansion of the telecommunications industry during the last five years. It accounts for 5 per cent of gross domestic product - or around $25 billion dollars. Since 1997 the sector's growth has been more than double overall GDP growth (GDP 4.2 per cent, telco sector 10 per cent). Mobile penetration has soared onwards and upwards. Internet connections have multiplied as the number of registered telecommunications carriers has burgeoned. SMS messages are flying thick and fast. The number of players in the market has risen from two in 1997 - Telstra and Optus - to more than 60. Some prices have dropped. Between 1998 and 1999, international call prices dropped by 28 per cent, local calls by almost 10 per cent and mobile services by almost 13 per cent.4

However there is a sense in which this consumer apple has some rot at the core. It is instructive to note the results reported in the Deloitte Telecommunication Competition and Outlook Survey - Fourth Edition (2001) survey of industry opinion that “a majority of respondents felt the Act has not been successful in its stated objective. A majority of respondents (44%) indicated that the provisions of the Act are not in the long-term interests of end-users. Furthermore, 16% of respondents indicated that the Act has had 'no effect'”5. Analysts are suggesting that the industry may well need to get used to growth rates a lot closer to GDP than over the last decade, returning perhaps to utility status rather than being a high-tech engine of growth. It is also sobering to note industry estimates of declining numbers of participants in key aspects of the industry. Once more to cite the Deloitte’s survey:

The number of operators seriously expected to survive in the long term is anticipated to be less than the number currently trading and is lower than previous years. This is possibly due to the more difficult economic environment and, consequently, further rationalisation in the industry is expected. Of note, the number of ISPs is expected to increase. The number of full service carriers expected to survive in the longer term has reduced to three with similar reductions to five fixed line/data carriers and three wireless/mobile carriers.6

As will be discussed late in the submission, there have been market setting price controls with a sinking CPI-minus cap on Telstra, and so non-market forces have driven a considerable proportion of price drops. While there is a froth of competitive behaviour in the market place, the bulk of the profit in the industry is earned by one company. Telstra, the former monopoly incumbent is still dominant player in many telecommunications markets. To cite one of their competitors, Optus:

Telstra - by its own boast - retains 75 per cent of the market. Three out of every four dollars spent on telecommunications goes to Telstra. But even worse, they scoop up 90 per cent of the industry's profits.7

3 http://www.industry.gov.au/library/content_library/sChangeAustInd.pdf - saved 4 http://www3.optus.com.au/content/1,1463,124,00.html5 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P46 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P247 http://www3.optus.com.au/content/1,1463,124,00.html


http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf

http://www.industry.gov.au/library/content_library/sChangeAustInd.pdf

Much of the traffic handled by the new entrant companies must at some time pass through the Telstra Customer Access Network, typically on the last mile journey into the home. This extensive copper wiring system is too expensive for another player to duplicate. This is ‘call termination’. If you want to talk to someone by phone, chances are, whomever you choose as carrier for long-distance, mobile, or international components of the call, Telstra will clip the coupon somewhere in transit. Having such a dominant and all pervasive player in the market in the view of the ACA continues to undermine competition.

Is the Australian telecommunications industry competitive?In view of Australian Consumers' Association, what we have in the Australian telecommunications marketplace is the appearance, rather than the substantial reality, of competition. We have companies contesting vigorously - advertising, marketing, selling in shops and on the streets, and concocting ever more complex confections of product and service bundling. The only thing missing is clear, unambiguous customer value from the plethora of choice. We are certainly getting the negative effects of a hotly contested marketplace – poor selling practices from ill disciplined and inadequately trained staff, consumer hostile contracts with lock-in terms and conditions, advertisements with bold aspirational claims and fine print qualifications following the asterisk. The Telecommunications Industry Ombudsman is kept busy with a constant flow of complaints as phone companies and ISPs constantly explore the boundaries of acceptable behaviour towards consumers. We have even have the spectacular collapse of entrepreneurial participant one.Tel, which over stretched in its efforts to build market share and customer numbers without reference to return on investment.

However, it the view of the ACA that the dominance of the market by Telstra, particularly in terms of revenue and profit, based on ownership of the vital core network, means that economically persuasive offers to consumers are hard to find. A discussion of marketplace complexity follows later in the submission. Our perspective is that if greater economic depth existed in the competition, there would be scope for this complexity and confusion to be squeezed out more effectively by market forces. In the shallow, contesting market, consumers confront market forces that conspire to increase complexity, giving rise to what some analysts have dubbed the ‘confusopoly’. There would doubtless be significant kudos to be gained for various interests in declaring the migration of Australian telecommunications to a competitive marketplace done. It would enable the regime of specific regulation to be wound back. It may smooth the way for further privatisation. It would endorse the principles of co-regulation and so forth used to govern the sector. It would be a pat on the back for government and industry. In our opinion, the way to get the required economic depth to the telecommunications market is better access by competitors to Telstra’s network. The access regime administered by the ACCC has failed to deliver this in a timely or affordable way. As discussed further in the submission, we believe a structural solution is required, the equity separation of Telstra into wholesale, network based components and retail businesses.

Unfortunately, effective competition has not emerged across the whole telecommunications landscape of Australia. That telecommunications are insufficiently competitive was confirmed in the Productivity Commission Inquiry Report into Telecommunications Competition Regulation released in 2001. This was


consistent with the view we expressed in our submission to their Inquiry. Subsequently to the substantive work of that Inquiry we have seen high profile and lesser players exit the telecommunications market and substantial retrenchment by others. There are no signs of new players entering the market. These developments are coupled with the global capital drought for telecommunications (As the excesses of the tech boom such as the 3G prices paid in Europe are worked out of the system and back bone fibre over supply in the US) and the maturation of markets such as mobiles and dial-up Internet access.

Telstra remains a huge, vertically integrated incumbent supplier that retains near monopoly control over essential and pivotal infrastructure. The key consumer area that is not being contested is the local loop. In the estimation of the ACA the restraining hand of competition has a particularly faint influence in the local call market, although other telecommunications markets have far from robust competition. Recent pricing decisions from Telstra suggest that for the foreseeable broadband will be ‘dial-up plus’ rather than the brave new world of broadband for all (this will be explored more fully in the bandwidth section of this submission). With regard to mobiles for instance, it was recently reported that:

One analyst at a global merchant bank, who declined to be named, said pricing power was certainly swinging back to Telstra, particularly in the retail mobile phone sector. "Although they do have more control in retail, there is still more competition in the business and small-to-medium sector, and I think Telstra will try to claw back some of its revenue from retail customers to compensate its price-cutting for business," he said.8

Indeed as the Bulletin noted:Telstra should regain some pricing power. Indeed, it is doing so already with the removal of mobile handset subsidies, higher SMS charges and a hike in broadband fees. It would dearly love to do more. That raises a further unpalatable issue for Telstra customers, many of whom remain shareholders. The company is bound to push through more price increases where it can. It could become an issue of robbing Paul to pay Peter. 9

It seems that telecommunication prices are going back up; to a level determined by what telecommunications companies (one in particular) decide the consumer can or will pay.

We may in fact have seen the topping out of this contesting marketplace. Companies have phased out handset subsidies, slashed capital expenditure and have sold up branded retail stores. In 2001 Optus noted that:

The number of key players with revenues of more than $100 million had fallen from 11 in 1999 to six in 2001. One analyst predicts there will be only three by 2002. Telstra has had to issue a revenue and profit downgrade. Telecom New Zealand has just posted a $140 million slump in their profits. Optus has had to revise forecasts. 10

Other observers have noted:The grand promise of telecommunications deregulation and competition has turned into something far more modest. Countless small telephone companies

8 http://it.mycareer.com.au/breaking/2002/01/29/FFX1N6MK0XC.html?NDailyT9 http://www.bulletin.ninemsn.com.au/bulletin/eddesk.nsf/b877473c18af22cdca256a1a00753b9b/fcb42844ed285624ca256b4f007ec2fa?OpenDocument10 http://www3.optus.com.au/content/1,1463,124,00.html


have failed or fizzled, with billions of dollars of investment capital down the gurgler. Although the gains from competition came thick and fast in the early days, the pace of competition (measured by falling prices and market share shifts) appears to have slowed in the past year. And former monopolist Telstra's stranglehold on the whole industry – evidenced by operating profit margins of almost 52% – seems almost as firm as it was in 1992.11

These times may well suit Telstra. There has been a global crisis for the telecommunications industry, which is ongoing – as Dow Jones reports from the USA:

With over 60 bankruptcies to date, it is clear that the sector sank under too much capacity and debt. Telecoms have now shed half a million jobs abd about $US 2 trillion in market cap.12

This is the ‘telco bust’, which has specific implications for Australia given the already dominant position of Telstra. With a firm grasp on the relatively safe income streams of domestic household and business communications, Telstra is poised to weather the storm well. Ironically for a company that was characterised as being left behind in the global telecommunications industry, Telstra has been a performer among its global peers in the past year. However, even Telstra has quite a bit of financial ground to recover.

While Telstra's competitors are screaming, Telstra's shareholders are miserable. [At May 2002 valuations] The 1.5 million mums and dads who pumped $10bn worth of hard-earned savings into the T2 second-tranche privatisation sale have seen the value of their nest eggs slashed by $3.9bn.13

Public shareholders have seen their combined wealth edge up by $5.7bn in just four months, but that hardly makes up for the $30bn they lost when Telstra tumbled from its November 1999 peak of $9.16.14

While this will no doubt be good for shareholders, the outlook for consumers as Telstra and the other surviving telcos set to work to rebuild their balance sheets is not likely to be as rosy.

At the moment, the world telecommunications industry is a disaster. In the US, WorldCom has for the past two years clearly been selling its services at a loss because its profit claims were wrong. Its American rivals have been forced to match WorldCom prices and set out their results honestly. But WorldCom and other American carriers have also have been selling their telephone services around the world and into Australia at prices that were not economic. Now the Americans will have to look at their real costs, and although these will be reduced the price pressure will subside. That's good news for Telstra, although it won't show up in the share market for a long time.15

11 http://bulletin.ninemsn.com.au/bulletin/EdDesk.nsf/printing/11C9DFED7BCDE4BBCA256BB60002FB9C12 The Sydney Morning Herald August 14 2002 P2313 http://bulletin.ninemsn.com.au/bulletin/EdDesk.nsf/printing/11C9DFED7BCDE4BBCA256BB60002FB9C14 http://www.bulletin.ninemsn.com.au/bulletin/eddesk.nsf/b877473c18af22cdca256a1a00753b9b/fcb42844ed285624ca256b4f007ec2fa?OpenDocument15 http://australianit.news.com.au/articles/0,7204,4586248%5e15382%5e%5enbv%5e,00.html


The comfortable position of incumbent operators is noted in a recent report published in the Economist, entitled “The great telecoms crash”, as follows:

Amid the turmoil, the local operators ... are now seen as relatively safe havens. They own the “last mile” of the network that runs into homes and offices, and this local monopoly gives them a firm grip on their customers and solid revenues.16

The proposal by the Australian government to stop Telstra appealing against Australian Competition and Consumer Commission access and interconnect price arbitration decisions has been calculated by analysts to make the difference between the government receiving $4.70 a share and $3.70 a share when it finally sells its remaining 6.4 billion Telstra shares.17 Other analysts have come up with a similar figure:

Guy Hallwright, a telecommunications analyst with CSFB, said the potential impact could mean a Telstra share price of $4, compared with a $5 closing price on Friday. He said this would arise if Telstra's wholesale and retail divisions were forced to treat each other on an arm's-length basis. This would affect the returns the company can win through the elimination of what are basically internal cross-subsidies.18

In other words an anti-competitive premium of $1 a share attaches to Telstra as is. In summary, this dollar per share reflects the premium assigned by the capital markets to Telstra’s dominance of the telecommunications market, and reform threatens to move that value to consumers, which in our view is where it would belong better.

It is interesting to note the conclusion reached about the state of the US telecommunications market by consumer advocates in the report “The Digital Divide Confronts The Telecommunications Act Of 1996 - The First Triennial Review February 1999” by the Consumer Federation of America and Consumers Union, interestingly before the telco bust:

THE FAILURE OF COMPETITION UNDER THE ACTThe Telecom Act’s fundamental premise that breaking down legal barriers to market entry would unleash a barrage of facilities-based competition in which cable companies used their infrastructure to attack the local phone market, and local phone companies used their networks to attack cable, has proven wrong. ...One of the other great disappointments of the Telecom Act has been the failure of competition from alternative technologies to break down the market power of the incumbents. ... Head-to-head competition across industries with wireline technology has failed. Cable companies have failed to successfully move into local telephony and telephone companies have all but abandoned entry into cable.

Wireless technologies have also failed to break the local monopoly. Cellular telephony and satellite video delivery are two to four times as expensive as the

16 The Economist July 20th 2002 P5917 http://bulletin.ninemsn.com.au/bulletin/EdDesk.nsf/printing/11C9DFED7BCDE4BBCA256BB60002FB9C18 Political moves rock Telstra Geoff Elliott APRIL 29, 2002 http://australianit.news.com.au/articles/0,7204,4219309%5e15320%5e%5enbv%5e15306,00.html


incumbent, wireline service. They fill premier, niche markets but do not represent effective competition for basic service that can exercise price disciplining power over the incumbents.19

In the US telecommunications market (although very different to, arguably more mature than, the Australian) the Digital Divide Report notes prices for key groups of consumers in the US have in fact gone up. It makes the observation:

It is time for policymakers to stop pretending that competition is right around the corner. It is unrealistic and possibly duplicitous to pooh-pooh today’s price hikes as nothing more than a short-term setback or to blame the failure of competition and the absence of promised price reductions on regulators standing in the way. Policies must be adjusted to reflect the reality that the core telecommunications and TV services that are consumed in modest quantities by average consumers are and will be provided under monopolistic conditions for the foreseeable future.20

The case is made that for a considerable number of consumers telecommunications market failure will always be just around the corner. Things are unlikely to have improved in the last couple of years in the post-bust environment. This perspective should be borne in mind when considering the evolution of the Australian market and its regulation. In the local call market place, it seems extremely unlikely that multiple entrants, let alone vigorous competition will emerge in other than premium markets, markets that can support bundling and CBD-like business markets. This is reflected in persistent pressure to rebalance local call network access and line rental fees with call charges to the detriment of low use, low value contributing consumers.

Street level consumer experienceWhere we did not concur with the Productivity Commission in their review of Telecommunications Competition Regulation was their view that the Long Term Interests of End users test (LTIE) should be abolished and substituted with a plain public interest test. Consumer protection in the contesting market has been inadequate – we are concerned that it will be more severely tested in the immediate future as the budgetary strings are pulled tight and companies concentrate on reaping real commercial value from each consumer. Established telecommunications players are examining their businesses for opportunities to extract cash from consumers sooner rather than later. In Australia this is combined with an apparent ebbing of competition as high profile and lesser players exit the telecommunications market and others undertake substantial retrenchment. One would hope that in a competitive market this would revolve round a strategy to service customers so well they would happily stay around and perhaps part with a small premium. However, in a market suffering from stunted competitive pressures, the approach may well be more from the “stand-and-deliver style” marketing handbook. Sophisticated telecommunications have become a basic necessity of everyday life. But the adequate provision of such services to large areas of the population may not consistent with the corporate bottom line.

19 http://www.consumer.org/other/telecom4-0299.htm Pvi20 http://www.consumer.org/other/telecom4-0299.htm Pviii


http://www.consumer.org/other/telecom4-0299.htm

http://www.consumer.org/other/telecom4-0299.htm

An important question is just how much benefit consumers derive from telecommunications competition. There have been price drops in Australia. It is important to bear in mind that there has been an unsung hero in the story of lower prices – the Government mandated price cap regime on Telstra that has mandated reductions in prices for services baskets with minus CPI plus an x-factor. Therefore a critical market driver has been Government intervention. One area where the LTIE test is failing in our view is in the administration of price caps on Telstra. The changing price structure for local calls, which rebalanced the trade-off between line rental fees and call charges involves increases to fixed monthly payment, offset by some reductions in call costs. This creates winners and loser. Telstra is increasing the fixed price component, extracting a very valuable, predictable dollar from the consumer. Consistently, to the extent that this has been handed back to the consumer it has been hedged about with qualifications. The basic one is the insistence that the consumer remain preselected with Telstra for many if not all services. Then the benefits are qualified as time-limited offers or are packaged into a set of complex plans that involve trade-offs and cement higher usage customer benefits. Ongoing rebalancing will challenge the value equation of telephone connection for low volume users, they may not be disadvantaged, but they remain consumers. Where they are both, special vigilance is needed. As will be argued in the context of reforming Telstra, in our view wholesale price controls and caps (in the context of controlling a natural monopoly) should be substituted for the retail regime. This presupposes an environment where Telstra retail, separate from the network provider, would be subject to more genuine competitive market pressure.

A further area of potential consumer detriment is the limitations of the co-regulatory system in telecommunications to deliver consumer protection. This is discussed later in the submission under regulatory reform.

Complexity is itself a problem for consumers. Even were Australia to have a superbly self-regulated, competitive telecommunications market, if the average consumer finds it impossible to understand or navigate the offerings, then the market cannot be said to meeting their needs. Complexity is a key consumer trust warning and it has been a feature of the telecommunications marketplace in Australia since the inception of competition. It is worth noting that according to Australian Communications Authority Special Report No.10—Consumer Awareness and Information Needs Survey 2001, only 55 percent of consumers surveyed agree with the statement that “ I am confident that my interests as a consumer are being protected in today’s competitive telecommunications environment.”21 The persistence of this complexity can be tracked through the commentary in CHOICE Magazine (published by the Australian Consumers' Association) virtually every time it has advised consumers on the changing industry.

February 1993 “Restructuring of the telecommunications industry ... is taking place in stages, the first of which included restructuring Telstra and dismantling its monopoly on some telephone services. It means more choice for consumers and. initially at least, some confusion.”22

21 http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf Table 10, Q2I22 CHOICE February 1993 P7


http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf

September 1996 “OUR VERDICT – The pricing differences are small, and neither carrier is cheaper in all situations. You may think it’s confusing – that’s because it is! One of the things we’d like to see as competition grows in the telecommunications industry is simpler charging structures to make price comparison easier.”23

September 1998 “The telecommunications industry was opened up to competition in July lat year with high expectations of better service and cheaper prices. It’s not an automatic improvement, though: competition means that if you really want to save money on phone bills, you need to shop around and take advantage of price changes and special deals. At the moment there are plenty of good deals available, with prices going down across the board.”24

August 2000 Mobile phones: don’t get caught in a trap “Confused by the ins and outs of mobile call plans? Want to know what it’ll cost? How can you find out where you’ll get coverage? Our guide looks at this and more.” What follows is a 5-page guide to navigating the purchase of a mobile phone call plan, including the observation that “One reason buying a mobile phone plan is so complicated is that there can be several different companies involved ... or the same one could provide the network, service and billing.”25

July 2001 “Some service providers seem to be making their plans as complicated as possible. If you consider all the features, specials, contract conditions and restrictions, it’s very difficult and extremely time-consuming to compare deals. This lack of clarity contradicts everything consumers are told about competition giving them choice and better value for money.”26

Ongoing research efforts by the CHOICE team consistently confront difficulties in pinning down the industry and service providers on details of what is on offer. It is driving a conclusion that perhaps the industry participants are not completely conversant with what they are putting into the marketplace – if so, what hope does an individual consumer have?

It is probably not a coincidence that the most positive sounding comments are at the time the telco boom was at its most rampant 1998 – 2000, and the telecommunications market seemed to be going somewhere. The ACA has been, and is, supportive of competition and consumer choice in telecommunications, hence the anticipatory tone about resolution of the difficulties in price comparison – unfortunately, the complexity appears to have become a permanent and negative feature of the marketplace. This is reflected in surveys by the industry regulator. In the Consumer Awareness and Information Needs Survey cited above, 66% of consumers agreed with the proposition that “I find it difficult to compare the prices and service features of different telephone companies” and 71% agreed with “ It is hard to know where to go to get objective, unbiased information on different telecommunications costs and services”27 This also well understood by industry. In the Deloitte’s industry survey, it was reported that:23 CHOICE September 1996 P1724 CHOICE September 198 P2225 CHOICE August 2000 P1426 CHOICE July 2001 P2027 http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf Table 10, Q2F and 2G


The respondents perceive that the general public does not really understand the products/services, technologies and choices available to them. When compared to the prior year, marginal improvements in the public understanding of technologies and choices were evident.28

The details can be seen in the ‘No’ response to the following questions about respondents assessment of whether the general public:

Understands the products/services? No 68%Understands the technologies? No 88%Understands the choices? No 80%

This is a fairly damning assessment of the success of industry communication to consumers, by industry itself.

Without the ability to effectively compare prices and assess value, consumers cannot be said to be driving the market. The suspicion that is emerging is that this is because there is not a deeply competitive market that can make persuasive price offers to consumers. Instead we are left with a confusing confection of plans, bundles and options, which ultimately do not add up to a terribly significant saving the life of the average consumer, and may well not recompense them for the information seeking and transactional costs they incur in navigating the market. In this context it is useful to recall the relatively small proportion of household expenditure that communications accounts for – consumers are reluctant to over-invest in making decisions about products and services in this market. It is little surprise that inertia is the incumbents’ friend. As 80% of respondents agreed when the Australian Communications Authority asked “ I feel it is easier and less hassle to keep all my telecommunications services with one provider”29

Suggested recommendation 1: That the Committee recognise the lack of competition in the Australian telecommunications industry, particularly in local access area, the dominance of Telstra in that market and the potential for consumer detriment flowing from these.Suggested recommendation 2: That the Long Term Interests of End users test (LTIE) should not be abolished from Australian telecommunications regulation.Suggested recommendation 3: That price caps and controls be continued, at a Telstra retail level but preferably at a network wholesale level, with particular reference to network access fees (line rentals) and key consumer services.Suggested recommendation 4: That the complexity and confusing nature of the current telecommunications marketplace be recognised, and consumers be protected by regulation of unfair contract terms and poor selling practices.

Regional AustraliaAs the tide of digital change washes across the communications landscape, the notion of universal service is periodically challenged. Critics note that the notion of universal voice telephone access has been extended to data. “Where will it end?” they ask despairingly, “Will it get ratcheted up with each technological innovation?” And of course, the answer is ‘Yes’. And so it should be. Universal service is needed not just because it is about equity and something the people at the margins of our society need (although that is true). It is critical because it mirrors at a social level the digital need for interconnection and access at the technical level. It matters to all the users of 28 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P2129 http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf Table 10, Q2D



the system that other people can access and use the various networks. The more people there are on the networks, the greater the potential utility of the network to all. Excluding people from the networks on bases like poverty or geographic location reduces the value of the network, not only to those who cannot get on, but also to those who are on but cannot access their absent friends (or potential customers, partners, relatives, or community members). The important question is how fast the USO should be lifted.

Services have improved in rural and regional Australia, but this has been the result of massive Government intervention. Networking The Nation, the regional telecommunications infrastructure fund charged with the responsibility for distributing surplus funds from the partial sale of Telstra has specific terms of reference to meet rural and regional needs provided $421 million funding for 616 Networking the Nation projects in 2001.30 Government action has strengthening the Customer Service Guarantee and the Universal Service Obligation, funded more mobile towers and improved dial-up internet access, provided untimed local calls in extended zones was awarded to Telstra. The CDMA network has provided better mobile services in much of rural Australia, and recently a one-off government grant of up to $1,100 to purchase mobile satellite phone handsets for people living in rural and remote Australia, beyond terrestrial mobile phone coverage was announced.31 Telstra launched Country Wide in June 2000 to provide better services to regional Australians as a result of government pressure to address problem areas. Australian Communications Authority reports show that reveals rural telephones are being fixed far quicker, the Telecommunications Performance Monitoring Bulletin shows service restoration in rural areas on a national basis increased from 86 per cent to 95 per cent in the 12 months ending June 2001.32

Without ongoing Government involvement, it seems to the ACA unlikely that these improvements, and the rate of innovation, will be sustained. It seems obvious that if used as a privatisation sign-off these services levels are likely to become a high-water mark rather than a sustainable benchmark. It is a brave assumption that services will be maintained at their current level in the face of the exposure to regional markets to competitive pressures with their inevitable focus on cost control and revenue maximisation from profitable customers. Even if services can be kept to the current bar, the telecommunications industry will not be as conveniently ruled off. Technological options keep unfolding, starting in the CBDs and rolling with increasing sluggishness out to more decentralised locations.

It is an accepted wisdom of the telecommunications technological revolution that communications shrink distance, that access to the telephone and its cousin, the Internet based on data communications are bringing city and country into some sort of parity. Geography is supposed to become unimportant. This has been a seductive vision during the last decade. Billions of dollars have been spent on infrastructure (laying optical fibre, buying spectrum right for digital usage) and business experiments to prepare the ground for migration to this electronic future. The corollary of the end of the city is the end of the country. So policy has been bent to raise the infrastructure of regional areas, and deliver services at a quality similar to

30 http://server.waia.asn.au/pipermail/nap/2001-December/000116.html31 http://www.dcita.gov.au/nsapi-graphics/?MIval=dca_dispdoc&ID=647532 http://www.nff.org.au/nr01/120.htm


urban areas. No doubt a worthy endeavour, but it is contemplated to have an end point, that at which parity will be achieved. The thinking seems to be, once geography has been abolished, intervention to redress regional imbalance can cease. This thinking is reflected in the notion of privatising Telstra when service levels in the bush are sufficient.

An alternative view is that the accepted wisdom is wrong. The observation can be made that communications technology has evolved over the last century, and has been overwhelmingly associated with the process of urbanisation. The suggestion from students of economic geography and telecommunications is that communication is a complement rather than a substitute for personal communication. Evidence for this can surface in surprising places – recent research by Nokia into the future of what is hoped to be the next-big-thing for wireless, multi-media messaging services (MMS) was reported to suggest that 70% of person-to-person MMS messages generate a voice call in response33.

Simple messages generate interaction. Interaction drives a need for face-to-face meetings to communicate complex information. This can be inferred from indicators such as the growth of business air travel in the same decade as the dot-com driven technological explosion took place. It can also be judged from various studies of the concentration of information servers and developers. These are shown as usually developing around certain established urban centres (but not all urban centres). When a new centre develops, it remains the case that while new, it is a concentration, and that information production and hosting are not evenly distributed, as the decay of geography argument would suggest it ought. An important impact of telecommunications development has been the increased inter-concentration information flow – city to city.

There is no doubt that telecommunications brings important benefits to remote and not-so-remote communities, improving contact with each other and the outside world. However, it seems to be the case that we overstate the ‘tele’ bit. While marvelling at the distance effects, we overlook the local effects of communication technology, probably because they are indeed under our noses and easy to take for granted. Consider for example the role of the mobile in the lives of young people. It allows them to flexibly arrange and rearrange schedules especially en route (micro-coordination), to give real-time updates of social events, to know where their peers are and to be accessible to them. But these are local effects. The central dynamics of local effects are that they often facilitate face-to-face meetings. These are important because people value them for intrinsic social reasons, but also because they communicate complex information more successfully and resolve ambiguity more speedily. They play a key role in developing trust (something organisations such as banks that eliminate face-to-face opportunities for their customers should note).

The more communication there is and the greater the potential for personal interaction, the greater the ‘information density’ of an environment can become in terms of the amount of information stored and communicated, and the number of interaction points available. This information density is intimately associated with geography because the most valuable communication tool remains in-person, and bandwidth remains expensive when consumed in large amounts, amounts that 33 The Economist April 27 2002 P66


increase with distance. That means people favour an environment where there is the potential for the most local interactions. Communications technology helps build this density, and in that way builds further the advantages and necessity of concentration.

Therefore, policy that drives telecommunications as the solution to the problems of urban concentration and regional disadvantage misses a crucial point. Connectedness is essential, and it is indeed important to ensure there is active intervention to redress the effects of urban concentration and assist regional people and communities to participate in the developing network economy. However, the fallacy lies in the notion that this intervention is a once-off effort. Indeed it seems a constant game of catch-up is afoot as communications technology continues and consolidates the concentration at network centres.

So rural and regional telecommunications policy must find a horizon beyond the next privatisation and the next bucket of money to be thrown at the problem. It will be an enduring necessity of increasing urgency to ensure that consumers in regional areas can plug in to the communications advantages of today and the network necessities of tomorrow and the days that follow. Privatising Telstra and hoping for the best the market will deliver is a path fraught with hazard for rural and regional Australia. It would be better policy to recognise the constant risk, perhaps certainty, of market failure in this domain, and to engage the necessity of Government stewardship, to ensure supply of services in the last resort, and to make sure regional Australia stays connected as the telecommunications revolution continues.

Suggested recommendation 5: That Australia requires a statutory body to oversee and in the final analysis supply telecommunications services to regional and rural consumers appropriately comparable to urban services on a sustainable basis.

BandwidthThe creation, transmission, and storage of information using digital rather than analogue methods are obviously important to the changes consumers see around them. Rather than being coded as a waveform directly reflecting the source material, content is being reduced to a string of zeroes and ones. These changes emerge at the level of the humble information devices consumers have in their homes, in the information content which they receive, display, store or process, and in the enterprises which make these devices and create the content. It is only recently that we have come to view some types of content as information as such. In the predictable lounge room of the analogue era, the form of the information dictated how it was used. The postal system delivered written and printed material. The telephone provided voice communications. The newspaper delivered textual information with some illustration. Magazines and books provided a more durable (and expensive) form of such text. Radio, vinyl record players and cassette tape machines provided sound and music. Everything was in its place and there was a place for everything.

The initial home invasion of digital processing was by CD players, the personal computer (which came home from work) and the computer games machine (that came in from the amusement arcade). As they originally appeared, each did a discrete task in an orderly analogue kind of a way. PCs did words and numbers; CDs played music; games machines did primitive graphics in no way comparable to the TV. Over time, the digital potential became apparent. PCs morphed into multi-media


machines. CDs betrayed their digital heritage by carrying lots of information besides music – pictures, software, and documents. These appeared on the PC, and images started to gain quality the TV could not match. The PC started to use the telephone line to communicate digital data with the Internet, and the multi-media material began to arrive, albeit slowly, by that route.

Now people have started to think about the ways in which we get digital content to these digital devices. Perhaps the TV and the PC will combine to become a single digital display device, dispensing information and entertainment. Maybe the digital TV will become interactive, and maybe the PC as such will disappear. Or the reverse might apply, and people will stop watching their TVs and become glued to their PC night after night. Perhaps the telephone and the PC will merge – videophones may become a reality, and the TV will become one with the phone. Maybe the morning newspaper will arrive on the computer and newsprint will become a thing of the past. However, it is important not to get too carried away with this consumer level convergence thinking. Important social, architectural and ergonomic consumer realities will continue to apply even though the fundamental technologies may be changing. Households will come together for some content, other content is better suited to single person viewing, and still other works better on the move. An important differentiator is between content which creates a ‘lean forward’ engaged response, and that which creates a ‘lean back’ entertainment response. Function will dictate how content is consumed. In many ways it is an extension of analogue thinking to insist that devices will converge and become one. Digital technology is more likely to mean that devices can more exactly fit a given purpose.

To create the situation where rich and compelling digital content can be delivered online (software, music, movies, interactive game entertainment, concerts) to the several information devices in the house (multiple PCs, digital displays for TV, audio, data, internet, pay video), these devices will need to be seamlessly networked somehow - within the home and thence to the outside world giving Net access that is fast and always on. Analogue and ‘traditional’ digital have used a means specific to the each machine to deliver content. Record players got content on big, black vinyl discs, CD players on small, shiny polycarbonate ones. Radios use designated radio frequencies, TVs use television-broadcasting spectrum. Telephones use copper wires, while mobiles use mobile-phone spectrum. As the PC started to dial-up the network and bring networked digital transmission into the lives of consumers, and CDs have crammed on multi-media content to the extent that DVDs are taking over, our vision has changed. It is apparent that digital media is indifferent to content. It is all just bits, coming in a more or less random succession of packets. So the emphasis has shifted from how to supply content containers to how much content a given channel can deliver, how quickly. Hence our current obsession with bandwidth.

Why is bandwidth desirable? Simply put, bandwidth refers to the size of the pipe over which information is delivered. This is the number of bits, the ‘ons’ and ‘offs’ that can be squeezed across whatever medium is chosen to do the delivery – be it a copper wire, a glass fibre, a polycarbonate disc, or a given range of radio frequency. Generally the more information you transfer in a given space of time the better the consumer experience – the more realistic the simulation, the faster the game response, the better definition the images. For most consumers the question “How much


bandwidth do you want?” will be met with the question “How much have you got?” - enough is never sufficient.

We take a lot of bandwidth in our analogue lives for granted – take TV for instance. There was a lot of political squabbling over the last couple of years over the question of making broadcast television digital. The high definition signals championed by the TV stations to replace our current system run at data rates that are huge by comparison with any consumer net connection. It is important to realise that this signal itself is a highly compressed version of the original digital images captured by high definition cameras. We will probably always be able to capture more information than we can transmit. Bandwidth will always be a limiting condition, although the scale may vary hugely. On the other hand despite all the hype and hysteria that surrounded the Web as the Internet bubble reached its maximum circumference, many consumers with PCs do not connect to the Internet – it has been called the ‘yawn factor’. The Internet does not do anything for them. They do not find the technology itself exciting, and they are not attracted to the services offered, let alone feel inclined to pay for them. For the proponents of broadband who promote the notion that bigger, faster Internet is better, the yawn factor is a huge issue. The fact is that for most consumers, the things they actually use the Web for will be hugely improved by quite modest increases in speed.

Exactly what constitutes high speed and how much capacity is large are highly relative. Often the expectations of the consumer are not aligned with the reality of what the carrier is going to supply - this has caused problems in the interpretation of so-called unlimited contracts, which turn out to have provisions that do effectively limit the downloads the customer can obtain. Many Internet ads have promised unlimited access, no download restrictions or no time limits - endless bandwidth. These "all you can eat" promises are almost always qualified with clauses such as reasonable usage policies. If they are not, the service providers find themselves wishing they had done so, and the service quickly gets revised with such policies or limits are imposed. While this may be allowable under the contract the customer signed, such revisions create enormous ill will for the business. So the notion of unlimited bandwidth or download capacity is a myth for commercial, technological and economic reasons. It is a pretty big commitment to offer anyone an unlimited supply of anything desirable on a fixed price basis. At the basic consumer level, marketers should never utter the word "unlimited" unless they really, really mean it and understand that "unlimited" is essentially the same as infinite - given the option people will want to go there.

While bandwidth may be desirable, a rather more critical question is whether it is valuable. Technological advances (and massive over investment during the tech bubble) means there is an over abundance of bandwidth in the core telecommunications infrastructure — the backbone networks which carry the aggregated traffic of consumers and business. The physical capacity and data carrying capacity of these fibres have grown enormously over the last decade. Telcos were hit hard in the second wave of the tech wreck of the late nineteen nineties. First the dot Com bubble burst and then the infrastructure suppliers who had banked on the open purses of the net entrepreneurs staying that way indefinitely started to feel the pain. Miles of fibre-optic cable, huge investment in high capacity backbones and


ruinous acquisition of third generation mobile phone spectrum were high price, long payback investments were made by telcos right around the globe. Various forays into the dot Com arena also went disastrously wrong. These now unrequited investments form a monetary embolism circulating in the financial arteries of the world communications industry. Where it will lodge, and what functions will be starved of fiscal oxygen is a high stakes guessing game by all industry observers. What is sure is that ultimately stakeholders like shareholders and consumers will carry the can. The backbone bandwidth bonanza does not seem to have brought, or be likely to bring, commensurate capacity and speed benefit to the consumer.

During the run up to the tech bubble, commentators eulogised about the capacity of the communication revolution to bring ‘free’ bandwidth. But the essential point missed in the analysis was if it were free, why would anyone bother to provide it? Consumer costs are held up in data network access bottlenecks. These bottlenecks are what offer opportunities to make money in the data carriage business. Indeed, the conclusion of The National Bandwidth Inquiry Discussion Paper that “the customer access network is in general likely to be a more important potential choke point in servicing bandwidth needs than the trunk network”34 was prescient.

Burnt telecommunications firms confronted with peaking revenues from the heady growth of the previous decade and are casting around for the next big earner. They are not alone in searching for the next tech growth kicker. Government, the bruised IT industry, media and content companies are all surveying the tech wreckage and wondering “What next?” Among some of the faithful, the hope is that a new technology will emerge and will blow them out of the financial doldrums. But it is imperative to balance technology fascination with a little consumer realism. There is a finite household budget to devote to communications spending – and it is not large to start with, let alone to easily allow for the kind of growth the industry aspires to. Key questions are: What do consumers want to use broadband for and what are they prepared to pay to do so? Will they be able to afford what they want to do? The assertion that broadband will be a conduit for a large array of services begs the questions of in what time frame and at what cost?

In theory a whole new range of services will emerge using the broadband platform, such as messaging to mobile phones, games played between multiple subscribers, television shopping and direct response advertising. However, the World Wide Web illustrates the enormous gap between a technology that allows many interactive services to be offered and the evolution of business models to deliver these on a sustainable basis. Broadcast quality and style video material is a known quantity, and consumers like it. Other forms of content are far less certain prospects for consumer acceptance, and hence commercial success. Video-on-demand is often touted as a key consumer draw for fixed-line broadband. The technology, suitably configured, can deliver it, although there are serious technological issue outstanding if using the Internet as the delivery platform, such as service level guarantees to ensure that a video stream can be maintained uninterrupted for the duration of a movie. The service offering is relatively simple and well understood – video when you want it. But the economics of the proposition are unclear, and serve as a useful analytical device to assess the commercial case for broadband.

34 National Bandwidth Inquiry Discussion Paper September 1999 P109


Using analogue technology Pay TV has been offered to Australian consumers over the last few years. It seems to be evolving into a mature market offering well short of universal acceptance. Consumers have not flocked in overwhelming droves to pay for TV. The industry is struggling for profitability and the market is not vigorously competitive. The movement of the competition bottleneck in Pay TV from carriage to content illustrates the way in which the existence of a technology does not automatically lead to the development of a sustainable marketplace offering. Facilities competition was robustly and visibly engaged in the form of the twin cables on power poles, which blight so many suburbs. However the cable plant of both players is substantially under-utilised, particularly if the failure to digitise is taken into account.

However, with all this spare capacity, the current industry beef is over access to content with which to build audiences. So technology and facilities are not enough in themselves. Services with content consumers want to pay for are necessary to build viable businesses. How fixed-line broadband video-on-demand would fit into this equation is unclear. In the current environment, downloading a CDs worth of movie (650 megabyte) at a typical charge of 13 cents per megabyte would cost around $85. Importantly, this would be a low quality, highly compressed version of any feature length movie. This would also be approximately the cost of downloading a music CD at CD quality. These are sizeable mismatches with prices for traditional physically delivered media like CDs, videotapes and DVDs. Currently the best consumers bandwidth proposition is arguably to hop in the their car, drive to the video shop and rent a couple of DVDs – six gigabytes in about 30 minutes. Current ‘broadband’ users would kill for a download like that. Bandwidth pricing has a long way to fall before a business model can be sustained that can fight the fact that it is cheaper to go to a shop and buy or rent a higher quality item.

In the light of the huge financial realignments that have followed the web bubble burst and the telco tech wreck, it is tempting to ask, “What went wrong?” The answer is probably that nothing went wrong as such – systems are all normal, that is what happens when a huge speculative bubble builds, whether it is based on technology, land value, share prices or tulip bulbs. The Web is still there, a genuine technological marvel that is finding genuinely useful niches in the lives of consumers; sometimes so useful they are prepared to pay. Home shopping for the time-poor, easy and speedy access to news and information, software downloads and updates. It just hasn’t become all things to all people – it never was going to be, despite the enthusiasm of the proponents boosting new economy notions. Many services and business models have been tried on the Internet, coming at the promise of interactivity in various ways. Not many have succeeded in establishing a sustainable enterprise. That doesn’t make it a bad technology, but it does mean that business has been exploring a novel market in terms of what works and what doesn’t. This exploration has taken place in a space refreshingly free of many of the competition constraints of traditional markets, although this has also made it a potentially hazardous place for consumers.

Forms of deliveryIt is useful to examine the currently available and generally feasible options for how the consumer data connection from the home to the backbone is managed. To assess the prospects of consumers getting the higher bandwidth connections they may need,


particularly if industry is to realise the dreams of rich content delivery, we need to delve into depths of digital technology.

POTS Currently most consumers are trapped in the delivery system fondly know by the acronym POTS – Plain Old Telephone System. This delivers dial-up access via modems that promise (but do not always deliver) up to 56kbps. Many see this is as a critical bottleneck, both the aspirations of consumers, who want to go faster, and for industry, which wishes to sell them higher cost connections, and because of the inefficiencies of the dial-up system. The telephone companies are worried about the impact of changes to the mix of voice and data traffic travelling across their networks. They fret about the impact of long held calls and the data overhead imposed by circuit switched calls. POTS dial-up holds a 64kbps circuit connection to transfer a substantially slower data stream. There is a low level rumble which suggests that consumers might be selfish and hogging the network capacity. But the answer is NOT timed local calls. Networks are moving to carrying voice as data traffic on packet-switched networks, a technology known as voice-over-IP (VOIP). The answer is to shift consumer traffic to this data network, but by offering consumers positive reasons to move to higher speed digital connection technologies, such as significant price savings on basic services, trivial change over costs and simple, low-maintenance, foolproof entry-level equipment.

ISDNIt is important to bear in mind that we are not at the beginning of Australia’s first broadband challenge, but rather the second. The first brave experiment with higher speed digital access was ISDN, or the Integrated Subscriber Digital Network ISDN offers a 64 kbit/s digital service to the consumer. It has been available for over 10 years and consumer level take-up has been lamentable. Price has been a huge barrier to the adoption of the technology. Basically there seems to have been little interest in selling ISDN to the general public of Australia We failed as a nation to make the best of this perfectly adequate method of computer connection for reasons that had far more to do with supporting existing market segments and profit centres than true economics or consumer benefits.

Now, before it has been so much as sniffed by the run of the mill customer, despite Telstra’s brave promise to have 1 million Australian customers accessing ISDN by 200035, ISDN is a technology is under threat. There is competition from technologies such as cable and DSL technologies, which can support higher bandwidth into the consumers’ premises. It will be effectively obsolete in terms of achievable data rates before it has been deployed to a significant number of consumers.

DSLDSL or Digital Subscriber Line works by sending digital traffic over the same copper cable as used by voice, but at higher frequencies and can run at very high speeds. Many in industry see it as the future of fast, full time high(ish) bit rate services – for instance the Deloitte Telecommunication Competition and Outlook Survey - Fourth Edition (2001) survey of industry opinion observed “aDSL is the technology considered most advanced in its readiness to be supplied to customers on a reasonable

35 Telstra press release 441/99 2 Dec 1999


scale with 64% indicating it will be broadly available within 12 months.”36 and “aDSL continues to be recognised as a key area for growth over the next five years”37. The technology sounds great, and there was considerable excitement at the ACCC decisions to declare access for Unconditioned Local Loop Service. On the other hand we have seen a relatively slow rollout to large number of consumers, one that has been bedevilled by technical problems and a dawning realisation that installation limitations related to network deployment of fibre optic cable, installation of pair gain equipment in consumers premises, vagaries of line quality and just plain distance from exchanges mean that this is not a technology for every consumer by any means.

The speeds at which DSL is currently offered to individual consumers are at the low end of the capacity of the technology, and are determined by commercial rather than technical parameters. Telcos have also been cautious with pricing. As communication consultants Ovum put it, “However, telcos have been cautious about deploying ADSL. They perceive a danger that it will cannibalise revenue from their existing (and lucrative) data services.”38 We have seen pricing for DSL and its current rival HFC cable shaded to a kind of dialup-plus option. Consumers can buy a bit more bandwidth and get a taste of higher speed and greater capacity, always on – but only a taste. In our view, it remains an open question whether the consumer-level ISDN failure could be replicated with DSL.

CableMany of the same commercial questions apply to the other great hope of consumer ‘broadband’ connection, cable data services. Cable modems are quite a mature technology in Australia – although there have been significant teething problems. Pricing has evolved to the same dialup-plus flavour as DSL and this seems to have ensured that not too many consumers take up the service. Indeed Optus in the current Pay-TV debacle is signalling that it is having difficulty generating profitable revenue from its cable plant.

LMDS LMDS or Local Multipoint Distribution System, otherwise known as microwave, has high capacity, and was dubbed by some as ‘fibre in the sky’ It is typically regarded as a backbone component, and is limited by a line of sight reception requirement although it did have a brief moment in the sun as a Pay-TV delivery mechanism.

SatelliteSatellite is potentially very useful for regional and remote areas without access to other broadband technologies. It is currently expensive, particularly to establish 2-way data links. It is difficult to see it as a serious contender for mass consumer data access.

DTVDigital terrestrial television (DTV) broadcast has the potential to shift large amounts of data down to consumers over wide geographic areas. It has potential reach into virtually every home, and could be very useful for non-cabled regional areas where

36 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P2337 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P2538 Ovum in What’s New in Communications April 1999 P30




DSL may also strike problems. However, Australia is pursuing a model of DTV that favours orthodox broadcasting, and ignores the data implications of the medium. We are throwing away spectrum on compulsory high definition (HDTV) and the Government has drafted regulations to dramatically limit service offerings by datacast. Datacasting (as a species of digital television) is a technology that has the theoretical capacity to deliver a lot of bits to the homes of consumers cheaply and quickly. It has been unclear to the ACA what business models might survive using the model as defined in legislation to bring bandwidth benefit to consumers. The only surprise for us is that this lack of viability became apparent quite so quickly in the failure of the spectrum auction last year.

3G MobileAs mobile phone data rates climb with the introduction of third generation mobile and beyond, the not so humble mobile phone becomes a serious contender to supply bandwidth for consumers. Rates are relatively low compared with other ‘broadband’ technologies, but can do better than people achieve on POTS using dialup modems. Mobile phone data builds on popularity of current mobile technology, and a business model that works. The pricing model will be critical for consumer uptake and obviously long downloads at current mobile phone airtime charges would ruinous. The question of what services to deliver in a sustainable way is even more vexed in the case of wireless broadband. Here data rates are slower, charges even higher and equipment form factors extremely limiting. But this does not stop the industry dreaming on. The European telcos shelled out shocking amounts for spectrum to use for third generation data based mobile services. Thankfully Australia was spared the worst of spectrum auction madness when our 3G spectrum was sold at a price that seems more realistic. It is instructive to look at what has actually happened in the mobile data market as opposed to following the pronouncements of pundits. Short Message Service or SMS has been a runaway success since the telcos allowed messaging across networks. This was a critical step in turning what had been a curiosity into a widely used communications medium. It works not because of huge data rates (only 160 characters are allowed per message), or fancy equipment (a standard phone is all that is needed), or because it is easy to use (using the phone keypad to key messages is a pain). It works because technology has been turned into a service that consumers have been willing to pay for. And this success was not predicted –SMS is essentially an accidental hero. This can be contrasted with the market flop by the much-hyped WAP – this technology failed to deliver usable services and consumers have stayed away in droves.

Sustainable offerings to consumersCertainly, no one bandwidth technology will triumph - it is a moot point as to whether the market options as it is currently developing will in fact deliver much in the way of enhanced data access to ordinary Australians at all. Delivering a consumer service requires a reliable technology, not a possibility or a prototype, but a real-world, industrial strength offering that can dependably be deployed in the field. The limitations of bandwidth provision, which as discussed above are more commercial than technical, will compound the emerging environment of confusion and complexity. We confront a potential market failure in the provision of bandwidth access to Australian consumers, as industry players seek to preserve their business-to -business markets, pricing structures and preferred delivery platform, but fail to deliver the bandwidth required to grow the rich media consumer markets of the


advanced information economy. Consumers certainly cannot just relax and expect the broadband future to simply wash over them.

In the end how it’s done doesn’t matter. The issue for consumers is connection, getting a service, not a technology. What we have seen above is that there are significant barriers to the realisation of the bandwidth vision and they are largely market and price related, rather than technological. History suggests that where the technology intrudes most on existing commercial and regulatory interests, it will spread slowly (ISDN, DTV). Where there are fresh fields, Australians can show their natural inclination to go for new technology (fax, internet, mobile phones). But this may not be the optimal mix – it is just where our legacy regulatory and commercial structures will let markets develop freely. Sustainable offerings to consumers in the context of technological innovation consist of three layers:

(1) The technology itself(2) Services that may be offered using the technology(3) Business models that packages and deliver the services.

It is important to note that the technology itself is rarely of direct interest to the consumer. It is a platform that makes possible the delivery of certain services – sometimes those services are not those anticipated by the technology builders. SMS in mobile phone technology is a classic example. The World Wide Web built on the Internet infrastructure is another example. Thus the technology is an enabler, which allows services to be conceived and offered. But the services must find acceptance in the marketplace. This means building a business model that makes the service (and therefore the technology) relevant to the consumer, positions it as a value proposition to them (that delivers benefits they are prepared to trade for), and meets consumer expectations of reliability, convenience and quality. Critically this must be done a way that delivers sustainable value to the business. It is important since consumers expect continuity of service delivery.

Technology may work in the lab and the spreadsheets for service offerings may work in the boardroom, but in the final analysis, technology has to work in the marketplace. In the final analysis, that would appear to be the end of the matter – if technologies find a place in the lives of consumers, so be it, and if they do not, who cares? However, life is never as simple as that. Technology can and will change the communications landscape – the essential questions relate to what happens meanwhile and what factors other than true market forces and innovation diffusion are at play. Current policy debates rage about access regimes to digitised cable networks, access to content by pay-TV operators, the introduction of DTV, the need for broadband roll-out to consumers, copy protection of digital material. All of these public policy debates presuppose technology that will make it to market – importantly the debates themselves set significant parameters for the market place. Possible technological developments are often referred to as possible ‘get-out-of-jail’ cards. Policy makers must be careful to avoid the temptation to ‘game the future’, relying on the promises of technological developments yet to make their way in the marketplace. It is important to focus on what is happening now, and how powerful incumbents can use various processes to capture and subvert promising developments.


Broadband will always be a moving target, as technology moves up the speed ladder (see Attachment 1 Network Communication Speed Comparison Table)in terms of what can be deployed to the mass market, probably using devices and techniques not currently in common discussion. However, this will always embody geographic and social relativities, such that what is narrow in the city may well be seen as broad in the bush, and what is an affordable necessity to some will be an expensive luxury to others. The issue of so-called ‘unlimited access’ accounts for consumers mirrors the vagueness that surrounds much of the discussion and development of policy with regard to broadband. Bandwidth carries a necessary connotation of capacity and speed. It is measurable, but assessing the ‘broadness’ of the band is essentially subjective. Even a 28.8 kbps POTS dialup line is broad compared with the telex rates. What is currently touted as mass consumer ‘broadband’ falls well below the current technical limits of even the technology used to deliver the service, realistically about 1 mbps In the workplace, people routinely use Ethernet based LANS running at 10 mbps and USB ports on PCs for trivial peripheral linkage tasks (cameras, scanner and printers). Firewire, running at 400 mbps is arriving on the desktop as digital video becomes more commonplace. Of course, 10 mbps Ethernet is passé for LANs and 100 mbps Ethernet has been in use for more than a decade – Gigabit Ethernet (1000mbps) is the current leading edge for commercial deployment.

The relevance of these points of relativity is not techno gee-whizzery, but rather to point out that how broad ‘broadband’ is judged to be relates very much to what one experiences as narrow. It is obvious that managing the expectations of consumers is critical, in advertising, in contracts, in selling practices and importantly in policy. While the ACA supports the notion of keeping the whole of the community connected and in touch with contemporary technological opportunities, we wonder about the practical and technological implications and sustainability of policy notions such as “broad banding the nation”. Deliver broadband to what standard, within what business model, for what price to consumers? Without answers to these questions, in our view, such policy risks operating in a vacuum.

In our estimation, much of the broadband debate misses an essential point, that the key opportunity is not in the absolute number of bits that can be crammed over the wires, but the extension of digitalisation to the last mile of the telephone network, to the retail consumer. The width of the band essentially and of itself does not matter. What matters is having sufficient to achieve any given desired outcome, while not paying for more than is needed – that is the bandwidth should fit the purpose. Were this to be the case, voice services, which consume a trivial amount of bandwidth, could be much cheaper. Multimedia conversations with self-sizing data channels might be feasible. An important policy challenge is how to encourage and develop such a vision as an infrastructure investment, and an opportunity for consumers and the nation as a whole, given the fractured commercial imperatives of the marketplace, where broadband is seen as a revenue raising add-on to the household telecomm bill.


What the future of any of these technologies is does not really matter except to the extent that they meet the needs of consumers in their everyday lives. Rather than treating broadband as a finance generating saviour for the devastated telecommunications industry, or a face saving policy instrument for government, the ACA believes public policy development should be about maximising the influence of the consumer in the market, giving them the final say about what technology will succeed in delivering which services at what price. Those planning the future of more advanced data products and services would be wise to reference the SMS model – affordable, simple in concept, meeting a basic need using easily available standard equipment. It is instructive to see what the Economist presents as “the lesson of the past few years ... that the industry is notoriously bad at gauging demand for its services. The two most successful new telecommunications technologies of the past decade – Internet access on fixed networks, and text messaging on mobile networks – were both unexpected breakthroughs that emerged in spite of, rather than because of, the industry’s best efforts.”39

Suggested recommendation 6: That the broadband enterprise be conceived as an infrastructure investment to extend digitalisation to the last mile of the telephone network, to provide the retail consumer with bandwidth should fit various purposes, particularly low cost voice telephony.

Regulatory intervention

Telecommunications needs regulation and it is a permanent need.There is perhaps a view that telecommunications specific regulation is unnecessary, and maybe untidy. The purist may ask what differentiates telecommunications sufficiently to merit special treatment. The question is whether general competition law as it stands can deal with market places that:

Have significant (residual) incumbent market power. Are technically complex. Are based on networks.

Technical complexityStandards take on a particularly pivotal position in the digitally convergent world. Interconnection is essential. How things interconnect and continue to provide a seamless consumer experience (interoperate) is defined at a technical level by agreed standards. In the digital world, control of technical standards is one of the key choke points, the place at which to levy the road tolls of the digital data highway, as Microsoft has comprehensively demonstrated. For the consumer however, the options available can be diminished or made more expensive. Standards processes are typically voluntary, consensus oriented and co-operative. As they come to represent the competitive commercial high ground in the digital world, it is likely that regulators, probably on a worldwide basis, are going to have to take a specific interest and stake in the development of digital, network and communication standards to preserve the interests of consumers.

39 The Economist July 20th 2002 P59


Network based Connectedness is critical to networks. In the non-connected world each device is effectively in isolation, except for the service provider. Thus a user of a power point doesn’t care who is plugged in to some other power point. They could be the only power user in the world, and it would make no difference. But the same does not apply to telephones (even analogue ones). The effect is magnified in the digital networks. Emailing yourself is tedious and pointless. The more people there are on the networks, the greater the potential utility of the network to all. Excluding people from the networks on bases like poverty or geographic location reduces the value of the network, not only to those who cannot get on, but also to those who are on but cannot access their absent friends (or potential customers, partners, relatives, or community members).

Incumbent market powerACA has a low opinion of the extent to which the power of the previous monopoly incumbent has been diminished. It is also a characteristic of network industries that either standards, or connectedness, or a combination of both can rapidly lead to market domination from percentage of market share which are lower than traditionally felt to be indicative of market power. This effect could lead to the market share of the combined entity rapidly coming to dominate the market as the advantages of being connected to the major player became increasingly apparent to consumers connected to the remnant providers. This is one of our key concerns in the current consolidation of the Pay TV market in Australia.

Pay TV an exampleThe current Pay TV situation illustrates the limitations of general competition regulation. It is complex, network based and risks falling into the control of the dominant incumbent. Pay TV has been struggling to win the hearts and minds of Australian consumers since it was finally introduced about a decade ago. Now the marketplace has seen a rationalisation many see as inevitable. At first blush this will provide consumers with greater choice and there is a possibility of lower prices. However we have concerns as to whether this consumer benefit will be sustainable. Medium term, it is possible that industry will recapture consumer benefit to rebuild their balance sheet after the adventures of the last 8 years, and to underwrite proposed digitisation of cable networks. Long-term even greater peril lies in the bundling of local telephone and broadband from the dominant telco, Telstra, with Pay TV from its part owned subsidiary Foxtel. This could reinforce market dominance in all directions. One way of achieving this is via bundling; that is forcing or enticing consumers to buy a suite of services rather than just the one they might want. So pay TV may be cheaper if you take the local call services of the cable company. Cable modems may only be available if you are connected for voice. At best these deals mean consumers have to assess the total bundle value, at worst it means they have to buy extra services they don’t want or need, or are locked out because they can’t afford the bundle.

Our fear is that if the deal is blocked, Optus Pay-TV at least, and possibly local call and broadband operations may cease. In this case we get the same inimical outcome, without the benefit of any regulatory traction on the process. We have advocated that the ACCC examine this deal carefully and obtain access and other undertakings to guard the market rather than simply refuse to allow it to proceed. Suggested


interventions with which we agree are the notion of effective separation of the wholesale and retail parts of the Foxtel operation – internal control such as ring-fencing may suffice in the context to the following intervention viz. separation of the infrastructure component from the content business, and the ending of Telstra involvement in the latter.

Therefore, in our view the need for such specific rules is in the nature of network industries such as telecommunications and that as a consequence the need for competition rules to be tailored to their characteristics is a permanent feature of the modern economy rather than a temporary transitional requirement of traditional government monopoly busting.

Reform of TelstraThere have undoubtedly been issues with the speed, certainty and efficiency of the access regime that has been at the core of the push to break Telstra dominance of the access networks and to encourage competition. However, far from the program of competition development in telecommunications being sufficiently advanced for such regulation to be wound back, it would seem that the experiment has been advanced sufficiently only to diagnose what would make the idea work better. The chief evil in the operation of the system is delay, coupled with failure of access seekers to gain commercially viable inter-connect rates. Delay in settling interconnect and access pricing, delay in settling arbitrations and disputes, protracted self regulatory processes and slow resolution of competition issues have bedevilled the regime generally. Overall the impression is that delay favours the incumbent. Therefore measures that improve the processes and increase the incentives for timely settlement of issues, in a framework that does not discriminate against the usually smaller and weaker access seekers and preserves the interests of consumers would provide greater certainty for business and contribute to the more speedy generation of competition inspired benefits for consumers. Some steps have been taken by Government (to the chagrin of financial markets as mentioned above) but if policy is to persist with this approach, more could and should be done.

For example providing the ACCC with powers to require parties to cease and desist from anti-competitive conduct while a resolution is sought would increase incentives to resolve competition issues, while improving the sensitivity of the system to market entrants. There should be greater scope and requirement for regulators to step in and move the market processes along where it is evident that delay is threatening desirable outcomes from the point of view of competition or the public interest. The ACCC should be able to set industry wide reference prices rather than get bogged down in incessant arbitrations, which consume resources resolving essentially private disputes between parties that could perhaps be more usefully deployed directly pursuing public interest goals. This theme of necessary improvement and extension of the regulation was touched on by the CEO of Optus, who was reported as saying:

If Telstra is going to be privatised, it couldn’t be privatised in the preset regulatory regime, and so there must be much much tighter controls and regulatory controls if Telstra is going to be fully privatised. Seeing what [Telstra] could do at the moment it is frightening to think what it could do in private hands if there wasn’t very strong regulatory safeguards.40

40 The Sydney Morning Herald August 16 P3


While the ACA share these fears, and the reason for them, we feel Australia may have reached the end of what can be accomplished by extending and enlarging the regulatory apparatus in telecommunications. The Productivity Commission report highlighted regulatory risk and information overload. There are concerns about a possible failure by industry to invest. There is the problem of actually thinking up workable regulatory imitative that might make a difference. These difficulties primarily arise as a consequence of trying to manage access to the infrastructure of a huge, vertically integrated incumbent supplier that retains near monopoly control over essential and pivotal infrastructure. We argue the essential solution is structural separation of Telstra Wholesale from Telstra Retail operations. However this is precisely the topic that was proscribed to the Commission by the Terms of Reference for the Inquiry. If the normal logic of wholesale competition were allowed to operate, access would become less of a foreground issue. Therefore we urge an equity separation in the run-up to any further attempts to privatise Telstra.

In the opinion of the ACA, what is needed is to split Telstra into separately owned portions, one of which has custody of the critical core network. This network is a natural monopoly, and should remain in Government hands for the foreseeable future. However, we would not endorse a policy that might purport to stop the development of competitors to this network. Were competitive pressures to emerge to confront the Government owned network, in our view these should be encouraged and the consequences played out. However, we don’t see signs of this scenario being imminent – alternative networks to date have been essentially complementary to the existing core network rather than substituting for it. Most of the investment in telecommunications over the last decade has been CBD-centric, with little or no viable competition in the suburbs, let alone in the regions. When the retail components of Telstra compete on equal terms for access to the core network with other companies, we might see real, sustainable competition deliver telecommunications benefits to Australian consumers. In our view, fully and finally privatising the vertically integrated and horizontally sprawling behemoth that is Telstra unreformed would not assist build genuine competitive pressures in the market, but would appreciably diminish the capacity of Government to bring the corporation to heel.Suggested recommendation 7: That the powers of the ACCC be extended to improve the ability of the regulator to intervene in market processes in a transparent, independent, timely and efficient way.Suggested recommendation 8: That Government undertake the work to split Telstra into separately owned portions, one of which has custody of the critical core network and will remain in public ownership.

National Champion?There has been a persistent theme of commentary alluding to the idea that Telstra, rather than being broken up, should be encouraged to be a ‘national champion’.For example:

Telstra ... is confronting a maelstrom in the global telecommunications market? Cost cutting is required as evidenced by the merger between WorldCom and MCI which creates a telecom business more than four times the market capitalisation of Telstra. Part of WorldCom's success in assuming a position of industry leadership has been its low cost structures. Australia may


stunt the performance of its national champion in this dynamic market if it continues to impose handicaps like the cross subsidies.41

And more recently:Telstra remains silent on the changes, although Mr Mansfield is know to have told associates he is furious at the political moves against the company at a time when Telstra was winning investor approval internationally as one of the best rated communications companies. However, Telstra sources have pointed to the potential for missed opportunities on the world stage for a company that has come through the turmoil in the global telecommunications industry relatively unscathed. One executive cited Telstra's ability to be a national champion, an argument redolent of Don Argus's push for the National Australia Bank to be allowed to take over one of its big competitors to give it the size to launch itself internationally.42

Unfortunately when it has tried, it has sometime been found wanting, most notably in the instance of plunging into PCCW (Hong Kong-based Pacific Century CyberWorks) during the heady days of the tech boom, and adventure that has been estimated to lose at least 1 billion dollars. The issue is ongoing:

PCCW recently restated last year's result to a loss of $US16.6 billion after booking asset writedowns. Telstra, for example, will book more writedowns on its Asian excursion with PCCW but its balance sheet is strong compared with most overseas telecoms and expansion, including the possible acquisition of Australian media assets, is again being contemplated. But it remains to be seen whether Telstra could quickly revisit the possible acquisition of the Packer-owned Nine-ecorp-ninemsn franchise, as speculated, or bid for other big media operations. The politics of a move of that size are highly complex, at least until the telecom is privatised.43

Recently, as suggested above, Telstra has focussed more in the direction of being a domestic champion as indicated by persistent rumours that Telstra is contemplating buying Channel Nine. Placing a Free To Air (FTA) TV network linked to their telephony, Pay and Internet services in a content / delivery matrix would mean that Telstra would be a huge and dominant player. Such developments would severely test competition law as it stands. General competition law would have virtually no traction and such a deal would squeeze through a crack between media and telco regulation that must be fixed by creating a regulatory regime spanning the convergent network industries (as ACA has argued consistently for some time). Meanwhile, only a truly cosseted domestic player could contemplate such moves in the face of ongoing statistics about the fate of media / communications conglomerates, with outcomes such as:

In the US, AOL Time Warner has said it would cut no less than $US54 billion off the value of acquired assets, the vast bulk of which relate to AOL's $US124 billion share-swap acquisition of Time Warner.44

41 Instead of a Selloff, Why not Give Telstra Away? Alan Moran, The Australian, 16 October 1998 http://www.ipa.org.au/Media/amoz161098.html42 Political moves rock Telstra Geoff Elliott APRIL 29, 2002 http://australianit.news.com.au/articles/0,7204,4219309%5e15320%5e%5enbv%5e15306,00.html43 Tech-boom players still paying for high-priced acquisitions April 8 2002 http://www.smh.com.au/articles/2002/04/07/1017206288056.html44 Tech-boom players still paying for high-priced acquisitions April 8 2002 http://www.smh.com.au/articles/2002/04/07/1017206288056.html


Industry Self Regulation and consumer protectionModern society is too complex, traditional black-letter law too slow, classic regulation too inflexible for self-reg to be ignored. The ACA does not do so. In our view, good policy analysis is not about choosing between the free market and government regulation, but the interplay between them. Consumers are essential to the successful operation of self-regulation. Self-regulation is useful to the extent that it delivers outcomes. Consumers may benefit from a regulatory regime more responsive to technology and marketplace changes, consumer representation during development of regulations and potentially greater compliance with reality-checked rules. However there can also be consumer costs. Involvement in self-regulatory processes can consume inordinate resources in terms of time, money, and information processing, and may not lead to improvements in outcomes over and above common law or Trade Practices protection for consumers. This perverse outcome is illustrated in the case of Australian Communications Industry Forum (ACIF) and the consumer movement, with particular reference to consumer protection from contractual and selling practice abuse.

In the view of the ACA the slowness of the telecommunications self-regulatory system when grappling with competition and consumer issues has come perilously close to vitiating its usefulness. It has been apparent for a long time that there is a need better control of unacceptable selling practices and poor contractual terms in the telecommunications marketplace. The TIO has been reporting problems since 1996. In 1999 in conjunction with the ACCC, the TIO asked the ACIF to formulate a Selling Practices code. Various research projects undertaken by the Communications Law Centre during this period have scoped the problem, and poor selling practices have contributed heavily to the workload of consumer casework agencies.

However, the Australian Communications Authority has failed to include agents and dealers as part of the industry, the ACIF codes have been sidetracked into narrow definitions and guideline development. The ACCC has gained some high profile wins in the courts, but without much apparent impact on the streets. There is ongoing evidence from the marketplace confirming the need for intervention to address unacceptable selling practices and a manifest failure by the Federal telecommunications co-regulatory system to gain any traction on the problem.

In 2001 ACIF convened a Consumer Contracts Working Committee to examine the issue in the co-regulatory framework. At the time we regarded the capacity of this Committee to make a difference to the position of consumers in the market place as a critical test of self-regulation in telecommunications, since for some time the ACA had been reviewing the effectiveness of industry self-regulation in telecommunications. Our particular concerns have been: issues of delay; code compliance; the trend to non-enforceable guidelines; relations with regulators; consumer participation outcomes; industry dominance; and the structure of consumer representation in the governance of ACIF. This culminated in a decision to disengage forthwith from participation in ACIF processes, indefinitely.

To maintain the momentum for consumer outcomes, and to construct a benchmark we joined with other consumer groups to progress work on unfair terms and conditions.


This work has been grounded in casework by agencies like the Consumer Law Centre of Victoria (CLCV), research and analysis undertaken by the Communications Law Centre (CLC) with the policy and advocacy involvement of the Australian Consumers' Association (ACA) and Consumers’ Telecommunications Network (CTN). The group has published a Telecommunications Contracts Check List of Fair & Unfair Contract Terms (available from the CHOICE web site http://www.choice.com.au). This outlines contract clauses that would in our view serve to make a telecommunications contract unacceptable and quite possibly unsound in the hands of consumers, together with a list of best practice terms and clauses.45 This document is organised around six core principles to ensure the needs of consumers are met rather than abused:

Principle 1: Comprehensive and accurate information should be provided to consumersPrinciple 2: Clarity and IntelligibilityPrinciple 3: Fairness - including symmetry of rights and obligations as between the consumer and the companyPrinciple 4: Entry and exit terms are fair and reasonablePrinciple 5: Terms relating to variation and transfer give equal or equivalent rights to consumers and providersPrinciple 6: The contract can be fairly enforced

Attachment 2 details examples of actual clauses found in telecommunications contracts form the marketplace, with several case studies of the detriment these can cause. The Checklist will become a tool to organise a core model contract, to analyse existing telco contracts, and to analyse how the self-regulatory regime maps to on the street consumer concerns. We want industry and regulators to take a good look, and move to adopt the best practice examples and root out the bad ones.

However ACIF work continued on the Consumer Contract work in absence of consumer representation and defiance of consumer organisations concerns about this course of action, and is close to delivering a publication. The ACIF committee immediately moved the discussion away from development of a Code, and onto an unenforceable ‘Guideline’. Without consumer representation, involvement and oversight, we regard any outcome of such work as lacking consumer legitimacy or credibility. Consumer groups made direct representations to the Australian Communications Authority and received some encouragement in a series of roundtable meetings that the Authority would address the concerns ignored by ACIF. A letter was indeed despatched from the Authority to ACIF, however, the response by ACIF to the Australian Communications Authority request for a Contracts Code has been disappointing, and in turn, the Authority has allowed ACIF to persist with Guideline development, albeit with a timeline. This weak approach given the market conditions conveyed to the Authority by a united front of many consumer advocacy organisations is unwelcome and unacceptable.

We have been sufficiently moved by the failure of the Federal regulatory system to suggest that there is scope for the States to create a Uniform Telecommunications Selling and Contract Practices Code, enforceable through their Departments of Fair Trading. This would govern the activities of agents and dealers (retailers) as well as the offerings of the carriers and network providers. It would require improved point of sale information for phone customers, disclosure of the total cost of owning the 45 http://www.choice.com.au/files/f111404.pdf


phone, over the lifetime of the contract, and create an extended cooling off period. It would require telephone companies should allow consumers to nominate a credit limit to mobile, and indeed all, phone charges. The Code could mandate better training and information to the sales side of the industry. The States should use this as an opportunity to harmonise their door-to-door sales consumer protection, and clarify the inclusion of telephone and Internet sales, being interactive selling inside, rather than just at, the door.

In our view, the contracts issue is a core one for this regime, since it demonstrates the failure of the system to come to grips with a significant issue of consumer detriment over a period of years, and it functions as a litmus test of any proposed changes – what difference would they make to this as a structural issue of long standing. The work of ACIF has not advanced consumer protection appreciably and the enterprise of co-regulation has serious structural flaws. The broader question that has emerged is: “Why is there an ACIF at all?” We are unpersuaded that the interests of consumers are being advanced in any significant way by the continued operation of ACIF. Effective, balanced representation of the consumer interest in telecommunications is vital. In our view the current co-regulatory system, administered by the Australian Communications Authority and ACIF does not achieve this. Indeed in the results from the surveys cited in the body of the submission, consumers and industry would seem to agree. Only 44% of respondents in the Deloitte’s industry survey indicated that the Act has been successful or highly successful in response to the question “Do you believe the Telecommunications Act 1997, as amended, ("the Act"), is successful in achieving its stated aims of providing a regulatory framework for the efficiency of the Australian Telecommunications industry?”46 As for consumers, only 55 percent of consumers in the Australian Communications Authority survey were confident their interests as a consumer are being protected.47 We think it is time to seriously inquire into the success of this model and to reform the process of generating consumer protection outcomes into a less industry dominated regulatory framework, better focussed on consumer outcomes.

Suggested recommendation 9: The Australian Communication Authority is directed to include Dealers and Agents into the telecommunications industry and create Telecommunications Selling and Contract Practices Code.Suggested recommendation 10: The co-regulatory framework for telecommunications in Australia should be reformed into one that is less industry dominated and more focussed on consumer outcomes.

46 http://www.deloitte.com.au/downloads/telcosurvey_jan02.pdf P447 http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf Table 10, Q2I


http://www.aca.gov.au/publications/reports/awareness/cons_aware_report2001.rtf


Attachment 1Network Communication Speed Comparison Table48

Theoretical Throughput Type of Service28.8 kbps Plain Old Telephone System (POTS)56 kbps Switched 5656 kbps - 34 Mbps Switched Multimegabit Data Service (SMDS)64 kbps Integrated Services Digital Network (ISDN)64 kbps DS0128 kbps ISDN Dual Channel230.4 kbps LocalTalk640 kbps / 6 Mbps(upstream/downstream) Asymmetric Digital Subscriber Line (ADSL)

720 kbps Bluetooth (wireless)1 and 2 Mbps IEEE 802.11 wireless (2.4 GHz band)1 Mbps Cable Modem1.544 Mbps DS1/T12 Mbps PCS Wireless2.048 Mbps E16.312 Mbps DS-2/T28.448 Mbps E210 Mbps 10Base-T Ethernet11 Mbps IEEE 802.11b wireless (2.4 GHz band)12 Mbps Universal Serial Bus (USB)20-24 Mbps U-NII Wireless25.6-155.52 Mbps Asynchronous Transfer Mode (ATM)34.368 Mbps E340 Mbps (5 MBps) SCSI-140 Mbps IEEE 802.11a wireless (5.6 GHz band)44.736 Mbps DS3/T351.84 Mbps OC-1/STS-1 Synchronous Optical Network (SONET)80 Mbps (10 MBps) Fast SCSI100 Mbps 100Base-T Ethernet (Fast Ethernet) 155.52 Mbps OC-3/STM-1160 Mbps (20 MBps) Fast Wide SCSI160 Mbps (20 MBps) Ultra SCSI274.176 Mbps DS-4/T4320 Mbps (40 MBps) Wide Ultra SCSI400 Mbps FireWire (IEEE 1394)466.56 Mbps OC-9/STM-3

48 http://www.hawaii.edu/infotech/speeds.html


http://www.hawaii.edu/infotech/speeds.html

480 Mbps USB 2.0622.08 Mbps OC-12/STM-4640 Mbps (80 MBps) Wide Ultra2 SCSI1000 Mbps Gigabit Ethernet 1.244 Gbps OC-24/STM-81.280 Gbps (160 MBps) Ultra160 SCSI1.280 Gbps (160 MBps) Ultra3 SCSI1.866 Gbps OC-36/STM-122.488 Gbps OC-48/STM-162.560 Gbps (320 MBps) Ultra320 SCSI4.976 Gbps OC-96/STM-329.953 Gbps OC-192/STM-6410 Gbps 10G Ethernet (IEEE 802.3ae)13.271 Gbps OC-255

Quick Glossarykbps kilobits per second. (kilo* = thousands)Mbps Megabits per second. (Mega = millions)MBps Megabytes per second. (Mega = millions)Gbps Gigabits per second. (Giga = billions)OC-n [Optical Carrier] A basic unit defined in increments of 51.84 Mbps

(OC-1/STS-1 speed), where n is a multiple of that unit. Uses optical fiber network.

STM-n [Synchronous Transfer Module] A basic unit defined in increments of 155.52 Mbps (OC-3/STM-1 speed), where n is a multiple of that unit.

STS-n [Synchronous Transfer Signal] Similar to OC-n but uses electrical network.SCSI Small Computer System Interface *Note: In the Information Technology field, the lowercase "k" is used to describe decimal kilobits (e.g, 28kbps = 28*10^3 bps = 28,000 bps) usually used in networking, whereas the uppercase "K" describes binary kilobytes (e.g, 1 KB = 1 x 2^10 bytes = 1024 bytes) usually used with memory capacity.Also, note that although 8 bits (b) equals one byte (B), some hard disk manufacturers rate their drives using decimal Megabytes (e.g, 1 MB = 1 x 10^6 bytes = 1,000,000 bytes).


Attachment 2Contract Clauses in the Market

The following clauses are extracted from contracts used by major telecommunications companies. The equivalent term from the Checklist of Unfair Contract terms and the preferred term from the Checklist of Fair Contract Terms appear in italics below the extracted term.

2. Our contract with you includes these terms and conditions, your Application and the Pricing Brochures. See U2.5cf. F1.2

5.3 You agree that we are not liable for any failure to provide all or part of any of the Services to you.See U1.5, U1.6cf. F6.3

5.4 We will provide you with an Access Card. You must keep the Access Card in safe and good condition and return the Access Card to us as soon as we ask you to. See U4.7, U5.5cf. F4.5

6.1 We may suspend our contract immediately and without notice at any time if there is a failure of equipment used to deliver a Service or the equipment used to deliver a Service requires maintenance or modification or you do not comply with the terms and conditions of our contract. See U4.3, U4.6cf F4.4, F4.10, F4.11, F4.12

7.1(d) You will pay us for all calls made on an Services including where you have exceeded your credit limit and we have not temporarily disconnected you under clause 9.1(a). See U3.15cf F3.11, F3.17, F3.18

7.1(e) we may vary the Fees and will use reasonable efforts to notify you of changes as they occur. See U3.1, U3.12 cf F3.6, F3.8, F3.9

7.3 If you in good faith dispute an amount in an invoice, you must notify us in writing within 14 days setting out reasons for the dispute and the amount in dispute. Even if there is a dispute, you must pay the whole amount of each invoice by the Due Date. See U4.3, U4.9cf F1.5

9.2 We can permanently end our contract without notice, if (without our prior written consent):


(a) you do not pay money due to us under our contract by the Due Date;(b) since the start of the Term, there is an adverse change in our credit

assessment of you;(c) you breach any term or condition of our contract not involving payment of

money, including if you breach clause 14.1

See U4.3, U4.4, U4.5, U4.6cf F4.10, F4.11, F4.12

9.3 We have no obligation to advise you that you have exceeded your credit limit. See U6.2 (if a consumer has been told a credit limit will apply). cf F3.11, F3.17, F3.18

10(b) A disconnection fee of $220.00 inclusive of GST. See U3.2cf F3.5

13.1 We are not liable to you for any breach of any express or implied terms, conditions or warranties or our contract including the non-provision of our Pricing Brochure at any time. See U1.5cf F6.3

This summary is designed to give you, our customer, information about what the SFOA covers and some of its important terms. However, it is not possible to cover everything in the SFOA in this summary. If you would like more detail about your rights and obligations you should obtain and read a copy of the SFOA.

Copies of the SFOA are available from the ******* website at http://******.com.au/sfoa and from some ******* shops. This summary does not override or change anything in the SFOA. This is a summary for information purposes only and has no legal effect.

The legislation provides that the SFOA is binding upon you and upon *******. As a customer you are obliged to comply with the terms and conditions of the SFOA even if you do not have a copy and have not read it.

See U2.5, U2.8cf F1.2, F2.1


Ruby's* Story

Ruby, an older woman and grandmother visited a shopfront to sign a mobile phone contract for her 16 year old granddaughter. The granddaughter had previously visited the shop and made all the arrangements. The granddaughter's name was the user name.

Ruby signed the contract on the condition that she would be protected by a credit limit of $100, written on the front page of the contract. The retailer told Ruby that once her granddaughter's bill reached $100, Ruby would be telephoned by the telco. and given the choice whether to block her granddaughter's phone.

The first bill that Ruby received was over the $100 limit. She rang the telco. and they assured her that they would pick up the correct limit in the next bill. The next bill was also over the credit limit.

Ruby sought to make an internal complaint to the telco., and was dealt with by the debt recovery section. Neither the telco. nor the shopfront provided her with a copy of the contract, nor did they advise her of recourse to the TIO.

Ruby then sought legal advice. Her solicitor was told orally by the telco. that there were no written policies available about the "credit limit", and that in fact the "limit" was an internal "guideline" for use by the telco. to determine if a client was over-extending themselves; the telco. may or may not decide to contact the customer once the limit was reached.

A formal letter of complaint was drafted to the TIO and the matter was resolved about 9 weeks after that letter was sent to the TIO.

See Checklist of Fair Contract Terms: F3.11, F3.17, F3.18

It is likely that by representing to Ruby that a credit limit would apply, particularly in view of Ruby’s clear reliance on this point in concluding the sale, the telco. has engaged in misleading and deceptive conduct.

Credit limits are an extremely useful tool for consumers and should be available. Where credit limits are in place, however, they should be imposed. The consumer should not be liable for the cost of calls in excess of the limit.

* Name changed to protect privacy.


Jane's* Story

Jane’s young son wrote his mother's name on a raffle ticket at a local takeaway shop to enter her in the draw for a mobile phone.

Jane was telephoned a few weeks later by a telco. in another state and was told that she'd won a phone handset plus a free set value of calls each month for 24 months. Jane was told that she would be faxed a document at her local post office that she would need to sign so that the phone could be sent to her. The front page of a contract was faxed to Jane (with no second page of terms and conditions as per the reverse of the document); she signed it and faxed it back.

The phone was couriered to Jane, together with other details about the contract and how to operate the handset. Jane’s capacity to understand the instructions about the contract or operation of the phone was very limited. She received a dreadful shock when the first bill arrived, but she figured that she must have spent over her free limit. She continued to get more and more into debt. The telco. did not refer her to a financial counsellor, internal dispute resolution or the TIO.

The telco. issued recovery proceedings. Jane sought legal advice and had her bills explained to her for the first time. Jane was advised that she hadn't won anything and was in fact paying $49.00 per month minimum under a contract. At the pre-trial review the telco. was unable to provide a copy of the contract or its terms and conditions (including termination fee), nor was it able to explain exactly what Jane had "won" (to the incredulity of the Registrar and general hilarity of the client and her solicitor.)

The matter was settled a day before the final hearing, with the telco. paying all of Jane’s legal costs and admitting that she was not liable for any monies under the alleged contract.

See Checklist of Fair Contract Terms: F1.1, F1.2, F3.1

As the result in this case shows, the terms of a contract should be provided to the consumer and should be consistent with representations or the telco. risks the contract failing due to the operation of fair trading law.

* Name changed to protect privacy.


Brian's* Story

Brian, an 18 year old man with an intellectual disability (resulting, among other things, in Brian not being able to read) entered into a mobile phone contract with a telco as "guarantor" for a 16 year old acquaintance.

Despite the sales agent's representations, the contract made no provision for a guarantor. Instead, Brian was signed up as a principal under the contract.

Brian had already purchased his own mobile phone with that same sales agent some months previously. It would have been apparent to the sales agent, given Brian's disability, that he did not understand the nature of the documents he was asked to sign in order to facilitate the purchase of the phone for his younger acquaintance. Brian lost contact with the 16 year old, who fell behind in repayments. The telco sought to recover from Brian.

Brian and his mother contacted the telco and sought to explain that the phone was his acquaintance's and that in their view the telco should be chasing the 16 year old. The telco replied that Brian had signed the contract and was therefore liable.

See Checklist of Fair Contract Terms: F4.7 and F4.8

Had the contract properly described the relationship between Brian and the telco., the telco. would only have been entitled to recover as much from Brian as they could from the 16 year old. Because the 16 year old is a minor the contract is only enforceable at law if it is one for necessities.

*Name changed to protect privacy.


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