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© 2005, Monash University, Australia Lecture 1 - 2 Development of Telecommunication Policy in Australia CSE5806 Telecommunications Management Lecturer:

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Presentation on theme: "© 2005, Monash University, Australia Lecture 1 - 2 Development of Telecommunication Policy in Australia CSE5806 Telecommunications Management Lecturer:"— Presentation transcript:

1 © 2005, Monash University, Australia Lecture Development of Telecommunication Policy in Australia CSE5806 Telecommunications Management Lecturer: Dr Carlo Kopp, MIEEE, MAIAA, PEng

2 © 2005, Monash University, Australia References DCITA web site (Department of Communications, Information /Technology and the Arts) Especially review their pages on:  Telecommunications  Telecommunications Legislation DCITA Publications :  General publications page  Specific items: “Liberalisation of the telecommunications sector - Australia's experience” “Australia’s Strategy for Telecommunications” (2002) Australian Communications Authority Australian Broadcasting Authority

3 © 2005, Monash University, Australia Roles of Telecommunications Manager The Telecommunications Manager has two roles:  Staff Role - Provide Advice and Guidance to Corporate Mgt eg Technology: Opportunities, Threats; Regulatory Situation, Policies; etc  Line Role - Plans, Organises, Leads and Controls (POLC) all aspects of Corporate Telecommunications Facilities, including: Telecommunications Strategic Plan Contingency Planning/Business Continuity Planning Disaster/Disruption Recovery Planning Specification & Selection of facilities, equipment, software Installation and Implementation of equipment, systems, networks Operations and day to day support of users Maintenance and Modification Other areas may be included - eg Security

4 © 2005, Monash University, Australia Introduction ‘Telecommunications’ is much more than simply technology.  Must consider social, political, and business environment The ‘Need’ issues  Why is it wanted? Is it really needed?  Who needs it, and what for? The ‘Implementation’ issues  Is it affordable? Are there alternatives? How long will it take to implement? What are the ongoing costs?  Is it cost-effective? Political Decisions  What laws, regulations, policies etc. are required?  What can be deferred to enable implementation?  These points apply at national level, as well as commercial activity

5 © 2005, Monash University, Australia Telecommmunications – Natural Monopolies The context in which we must view all providers of basic infrastructure services is that they hold what are termed ‘natural monopolies’ A natural monopoly arises because specific basic services such as electrical power, water, communications, rail transport, ports, airports, roads are unique in a given geographical area. The difficulty with natural monopolies is that providers are not compelled to perform in either provision of services or pricing. Much of telecommunications policy development in Australia reflects an effort to break up the natural monopolies which developed during the twentieth century. The task of introducing competitive mechanisms into services which are natural monopolies is not easy due to the nature of natural monopolies. Unwanted byproducts include excessive multiplication of facilities and excessive growth in marketing arms of organisations vs their productive components, impairing many benefits of competition.

6 © 2005, Monash University, Australia Political Influences Political influences in Australia telecommunications include: Total government ownership of national internal telecommunications (and overseas links from 1946 onwards) until 1990s. Subsidies to ‘the bush’ - rural, remote and outback areas  metropolitan services subsidise costs of providing telecommunications services to remote and rural areas. Emphasis on local manufacture and skills  especially in the early days Influence over locations  eg. locations of service hubs (exchanges, switching centres) and major support centres to ensure ‘job creation’ in areas of higher unemployment etc Parallels and differences with other countries are clear and important

7 © 2005, Monash University, Australia CoA Legislative Powers Australian Constitution (adopted 1901):  Sect 51: “The Parliament shall have power to make laws …regarding … (v) postal, telegraphic, telephonic and other like services” Contrast with other federal countries:  USA: central power only for posts, canals, etc.  Canada: federal power over communications between Provinces (emphasis added) Authority for regulating international telecommunications into Australia?  Constitution sect 51 (v) ‘posts and telecommunications’ and (xxix) ‘external affairs’

8 © 2005, Monash University, Australia External Telecommunications Originally international communications were very limited, being only Morse code telegraphic services via submarine cables installed initially in the period ‘Cable & Wireless’ - a British company with a monopoly on telegraphic services for the British Empire - ran the Australian overseas cable links. Morse relay centres operated at Jakarta, Christmas Island, Mauritius etc By 1946 the services had extended to include limited voice circuits, using submarine and HF radio bearers. In 1946 the Australian government nationalized the local part of Cables & Wireless and formed the Overseas Telecommunications Commission (OTC) Most Western nations on the global stage were nationalising many infrastructure services during this period.

9 © 2005, Monash University, Australia Internal Aust. Telecommunications Initially telecommunications (and post) was a state (colony) matter until federation in 1901: different systems in each state telegraph stations on the borders Post-Master General's Department (PMG) was quickly created following federation Established to develop and control national systems of postal and telecommunications services. Took over 20 years to bring telecommunications under unified control. PMG (later Telecom) still had state-by-state differences until the 1980s. In telecommunications matters, PMG was ‘the authority’ & the ‘service provider’ - effectively “judge, jury & executioner” This meant that it was a monopoly provider to consumers, and a monopsony client to providers.

10 © 2005, Monash University, Australia PMG’s Department Politically, for many years the PMG was seen primarily as a delivery system for rural support: usually a Country Party minister (Country Party was very strong rural based party) lower rental costs in the country (although installations cost more) major rural employer. Rural network became much better than equivalent networks in the US or Canada. Telecommunications in metro areas were not ignored - just not seen as important politically - but still better than many parts of USA for most of the time eg late 1950s film ‘Pillowtalk’ based on a story about telephone “party lines” (multi-drop lines) in NY City was not fully credible in Australia - party lines had not been used in major cities for years. The USA was dominated by AT&T which was a monopoly national service provider.

11 © 2005, Monash University, Australia 1960s By the 1960s there was discontent with the structure/operations of the PMG:  largest employer in Australia (approx. 100,000) - about half the federal public service workforce about 80,000 telecommunications, 18,000 postal, 2,000 other  tensions between the postal and telecommunications operations over investment, staffing levels, profitability, shared premises etc.  concern over the inappropriateness of PMG funding: no capacity to retain profits for investment (all was returned to "consolidated revenue”) large proportion of capital investment had to come from government borrowings all purchases above a very low value needed ministerial approval

12 © 2005, Monash University, Australia 1970s Early 1970s Increasing use of computers for data communications led to severe tensions between Telco’s and customers worldwide Government enquiry into operation of posts and telecommunications (“Vernon Committee”.) Vernon committee recommended split of postal and telecommunications operations into separate "statutory authorities”, with: Boards of Directors with a certain degree of independence More financial independence from public service style Re-evaluation of assets to establish proper financial base Tighter cost accounting  Also recommended incorporation of the OTC into the telecommunications authority

13 © 2005, Monash University, Australia Telecom Established July Statutory authorities established : “Australian Postal Commission” (APC) trading as "Australia Post" “Australian Telecommunications Commission” (ATC), trading as "Telecom Australia"  (Legislation was amended in the Senate to keep OTC apart). Considerable freedom of financial & investment decision-making:  Profits were retained for investment  At least 50% of investment had to be generated internally, i.e. profits, depreciation, reduction of working capital, etc.  Ministerial approval only needed for contracts over $0.5M. Still subject to most government bureaucratic rules, staffing practices, etc. From 1976 the statutory authorities had to raise their own loans (within the Loan Council).

14 © 2005, Monash University, Australia saw growing tension between the government and Telecom: Disagreements over industrial policies and disputes Levels of ministerial involvement  (eg contracts, PABX market, etc.) Complaints from business about monopolistic practices and cross- subsidies between services and locations enquiry established with specific role investigating potential for greater privatisation and competition in the industry.  Report (late 1982) recommended greater use of resale and competition in cabling, etc.  The report was largely ignored by government

15 © 2005, Monash University, Australia Two major communications activities went on outside Telecom:  Beginning of satellite services leading to the setting up of AUSSAT.  Moves to set up a cable TV industry. Few other changes until 1987, when a general new policy on micro- economic reform focussed attention on the Government Business Enterprises (GBE).

16 © 2005, Monash University, Australia 1987 Statements of Reform for GBEs GBE = Government Business Enterprises Minister for Communications (Evans) announced major changes would be legislated for Aust. Post, Telecom, Aussat and OTC. These had all had difficulties in working as ‘statutory authorities’ under the traditional public service management styles. As part of a package for micro-economic reform, the government set new management styles and directions.

17 © 2005, Monash University, Australia 1987 GBEs Reform - Longer Term: The reforms included:  More Industrial Relations independence  More freedom regarding executive remuneration  GBE’s to run their own superannuation schemes  GBE’s to own their capital base (25% loan to equity conversion)  Paying dividends  Paying payroll & state, local taxes from 88/89  Paying income tax from 90/91 Summary - To put GBEs on a commercial basis

18 © 2005, Monash University, Australia 1987 GBEs Reform - Shorter Term:  No Ministerial approvals needed for normal business activity  No Treasury scrutiny of loans (but still via Loan Council)  GBEs to run their own bank accounts  GBEs free to establish subsidiaries  Authority to buy & sell land & property  Authority to carry out own works & building  Exemption from government administrative policies

19 © 2005, Monash University, Australia 1987 Telecommunications Framework The 1987 reform package also changed the framework within which telecommunications GBEs operated  Three Carriers: Telecom, OTC, Aussat  Basic Network defined; still the role of the three carriers  Community Service Obligations (CSOs) detailed  Value-Added Services - to be fully opened to competition  ‘Customer Premises Equipment’ policy changes

20 © 2005, Monash University, Australia Customer Premises Equipment Cables & equipment on customer premises, regardless of ownership  Before mid 1970s, Telecom maintained extremely tight control over what equipment could be used (Telecom supplied equipment only) and who could install cables or equipment (Telecom).  From mid 1970s to late 1980s, control was relaxed a little, but not enough to satisfy the community. Pre-1987 policies stifled competition and innovation 1987 Policy changes: Telecom’s "first phone" monopoly to phase out in 3 years PABX maintenance to be opened to private industry No restriction on use of second & subsequent phones Deregulation of customer cabling (Telecom’s boundary defined as the connection point of the exchange line)

21 © 2005, Monash University, Australia Regulatory Role to Austel: Regulatory changes introduced in 1987 included Telecom losing its traditional regulatory role it had become inappropriate with Telecom as a GBE and one of three entities in the communications arena, Austel was to be established as the new regulatory body, covering:  technical regulation  monitoring of the monopolies' boundaries  protection of competitors (from the carriers)  protection of consumers (from the carriers)  promotion of efficiency

22 © 2005, Monash University, Australia 1987 Reforms led to 1989 Act The Statements of Reform made in 1987 were generally finally encompassed in legislation in 1989 Many thought the radical changes of the 1989 Act would be enough. Reform continued in 1990 with a report on Microeconomic reform progress in telecommunications, followed by further major legislative changes in 1991.

23 © 2005, Monash University, Australia The 1990/1991 Changes Creation of a carrier "duopoly” for fixed telecommunications:  Telecom plus OTC as one carrier (known as AOTC), and a second carrier (who would absorb a debt-free Aussat)  Both carriers able to offer a full range of services;  Each carrier awarded a cellular mobile licence A third mobile-only licence to be offered (ie no ‘fixed’ lines) Full resale of local and international services permitted Service provider licences for private networks and value-added services A "Universal Service Obligation" element to be paid by all carriers to provide USOs in non-economic areas. Limit of the duopoly to July 1997, then full deregulation. Increased powers to Austel

24 © 2005, Monash University, Australia 1990s - Competition These changes set the pattern of Telecommunications administration for the rest of the 1990s. The Optus consortium won the 2nd carrier licence, and Vodaphone the 3rd (mobile) licence. Both had guaranteed interconnect with Telecom facilities. Optus initially operated using Telecom (now Telstra) facilities provided in bulk at a discount. In the mid 1990s, political attention returned to Pay TV, which had been banned in  Debates over satellite vs microwave vs cable delivery.  Government refused to require cable-sharing, which led to the dual roll-out of HFC systems by Telstra and Optus.

25 © 2005, Monash University, Australia Late 1990s General continuation with policy directions set in 1991 and 1996 (see “1995 policy statement” in the ‘Resources’ web page).1995 policy statement The 1997 Telecommunications Act:  opens up the Telecommunication market to more carriers and service providers;  attempts to make the industry more self-regulating via the Australian Communications Industry Forum, and the Telecommunications Access Forum, etc.)  combined the regulatory aspects of Austel and the Spectrum Management Authority (SMA) to form the Australian Communications Authority (ACA)  placed the market surveillance activity with the Australian competition watchdog - the ACCC. The 49% sale of Telstra (approx 1998) to the public really did not change any policies. Government retains 51% control.

26 © 2005, Monash University, Australia Results What are the results of all this?

27 © 2005, Monash University, Australia Basic Services (2002) Australian law requires that a standard telephone service:  be readily available everywhere;  is subject to price controls;  meets set standards of reliability;  be connected and repaired within reasonable timeframes; and  caters for those with special needs and who need access to emergency services.  (Source “Users Guide to Australian Telecommunications 2002” Available from DCITA website) Mobile phone coverage (GSM and CDMA) now cover 98% of population (but only about 4% of land area) Satellite mobile phone systems cover 100% of the land area Cable television is available only in capitals and only in areas of higher population density. ADSL was being introduced in urban areas at this stage.

28 © 2005, Monash University, Australia Internet and Data Million use the Internet All Australians now can dial up at least one ISP at untimed local call rates Digital Data Service Obligation guarantees availability of at least 64 Kbps ISDN or equivalent to all Australians (for a price) Broadband is provided over a variety of platforms, including:  cable;  satellite;  wireless systems; and  copper wires

29 © 2005, Monash University, Australia Cost and Price Reductions Dramatic reduction in costs incurred by the carriers  cheaper, more reliable equipment etc – effect of ‘bandwidth law’ and higher density digital electronics  significantly reduced staffing levels (“Lean and Mean” approach) eg Telstra only about 50% previous staff numbers (Consider how this impacts longer term service and support levels) Significant price reductions to the end consumer due to competition, lower costs and more flexible pricing packages  Since 1997 prices have reduced as follows: Local calls by 8.27% per year National long distance calls 8.4% per year International calls 21% per year  (reference: ACA website - “User’s Guide to Australian Telecommunications 2002”)

30 © 2005, Monash University, Australia Unexpected Results “A unique feature of competition in the telecommunications industry is that competitors have no option but to use each other's networks. Telephone, facsimile, internet and other services require 'any-to-any connectivity’”  From “Liberalisation of the Telecommunications Sector - Australia's experience” ( August available on DCITA website) Technological advances and unbridled competition has produced massive oversupply of bandwidth in some areas - eg between capital cities on east coast. This reflects the pattern observed globally. Bandwidth becomes a ‘commodity product’ where operators compete on price. Investment in key infrastructure with slow returns is often impaired, favouring investment where near term returns are anticipated.

31 © 2005, Monash University, Australia World Wide Scene The Australian scene generally parallels world wide developments  Worldwide, there is progressively less involvement by governments in technological service provision although recent days have seen some attempts to return to this  Telecommunications industry and marketplace much larger & more complex than foreseen as recently as 10 years ago, and rapidly becoming even more so  A myriad of lawyers now working in telecommunications


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