Term Paper

A Study of Growth of Telecommunication Sector In Australia

Submitted by: Debabrata Samal 2011SMF6771 MBA, II Sem

............................................................page 13 .............page 3 Historical Overview..........................................................................................................................page11 Politics and USO.......... page 12 Conclusion........page10 Legislative framework for the USO...........................................page 4 Universal access in telecommunications...................................................................................................................................................page 5 Form of the USO ........................................page 11 Economic cost and USO.................................................................................................................page 4 The universal service context..............................................................INDEX: Introduction..........................................................................................................

In essence this struggle to accommodate competing corporate. The transformation of telecommunications over the last decade has encouraged a struggle between investors seeking to maximize profits from an expanding market and the shift to the information economy and key political constituencies in regional and rural areas concerned about access to advanced telecommunications and other infrastructures that are readily available in the cities. History: Consideration of tenders to undertake a trial for delivery of the universal service obligation in telecommunications in two areas of regional Australia signaled an attempt to address a wide range of economic. Tracing the development of universal . This paper uses the Australian universal service obligation in telecommunications to illustrate the unforeseen pitfalls that emerge when the effects of liberalization threaten to undercut the delivery of a long cherished social objective.Introduction: For at least 20 years privatization and liberalization have been championed as forces to lower prices and improve the telecommunication services available to consumers. social and political interests in the form and operation of the universal service obligation (USO) is emblematic of a wider debate being waged over access to the benefits of liberalization and privatization programs. In this environment the policy makers must carefully consider the risks associated with addressing the competing demands of telecommunications companies. political and social forces. Yet three years after Australia completed the radical transformation of its telecommunications market and began the privatization of the former national monopoly carrier. The prime objective of the paper is to draw the analogy with that of the liberalization in India so as to get an assessment of the situation in India and the way forward thus realize the goal of obtaining an universal network access for all without falling prey to the pitfalls of the liberalization. the long cherished egalitarian goal of universal service has become a high-stakes policy contest as industry complains about cost-burdens and people in regional and remote Australia demand improved telecommunications infrastructures. new shareholders and key electoral constituencies.

where distance. 3 per cent of households around the nation. sponsored by the state government. According to Australian Bureau of Statistics figures. 1998. economic and political pressures associated with encouraging access in the transition to the information age and economy faced by all policy makers during market liberalization programs. Milne's five-stage typology (Milne. These demands for a broadening of the universal service concept beyond its present focus on telecommunications infrastructure toward high-bandwidth communications applications are consistent with Melody's argument that access to a working telephone was no longer sufficient to enable . That investigation. It also illustrates the risks associated with failing to balance economic objectives in telecommunications with the aspirations of key political constituencies. Concerns that liberalization had brought no benefit to communities in regional and remote Australia and that existing infrastructures were inadequate to enable access to the emerging information economy were articulated in a major inquiry into telecommunications services. 1998). particularly those in remote and rural areas. connections to the fixed network had dropped by 2. 775-780) for conceptualizing the development stages associated with universal service policies provides the ideal platform for assessing the Australian situation. Australia.4per cent of households between 1996 and 1998. Despite a fiercely competitive industry that had brought lower prices.service in Australia provides a unique insight into the social. argued for expansion of the universal service concept (regulated under Commonwealth government jurisdiction) to include access to broadcasting and emerging new media applications via higher bandwidth telecommunications capacity. falls within Milne's fifth category for universal service development. The universal service context: Claire N. better technologies and choice of carriers to metropolitan areas.3 per cent to total 91. with its largely digital networks combined with household connection rates above 90 per cent. harsh terrain and climate make telecommunications a crucial service. pp. had neither fixed nor mobile services (Australian Bureau of Statistics. in some regions connection to the fixed network actually slipped after liberalization in the sparsely populated Northern Territory.

Moyal noted that the concept was initially raised in debate on the merits of expanding the telegraph network and subsidizing uneconomic services to promote national development soon after the Federation of Australia in 1901 (Moyal. Sorting out these difficulties presents many high-risk decisions for policy makers and raises the question of why universal service policy was not addressed when the initial steps were taken to begin the liberalization and privatization program during the early 1990s. Although it was not explicitly mentioned in any of the legislation governing early telecommunications services.disadvantaged people to participate in an information age characterized by computer terminals providing access to both public and private sectors (Melody. its regulatory framework remains largely tied to ideals of fixed telephony and low-bandwidth access to the Internet. On the other hand. the telecommunications industry and corporate consumers facing higher tariffs to crosssubsidize the loss-making services. While from a user’s perspective Australia's universal service policy remains largely focused on access to telecommunications infrastructure. the Postmaster Generals Department was expected to provide public services to all communities. continue to chafe on the cost of supporting the USO. the national monopoly Telecom was given the power to pursue this development goal . albeit with the possibility of obtaining high-bandwidth services tied to a limit subsidy for terminal equipment. By 1975 it had succeeded in building a telecommunications network that connected 62 per cent of households in Australia. 1996). 1993). As an arm of the Commonwealth Government. 1984). Wilson and Goggin suggested that provision of universal access was implicit in the efforts of the Postmaster Generals Department to build a national telegraph and telephone network that progressively reached new towns and settlements (Wilson & Goggin. debate and policy development over the last century. Crucially. Universal access in telecommunications: egalitarian motivations Universal service in telecommunications has been the subject of considerable research. Yet apart from the limited interest expressed in the pilot tenders there appears to be reluctance from the new carriers to tackle the problems associated with providing reliable services to people in regional and remote Australia.

Telecom continued to expand its network and claimed to have reached about 95 per cent of households . Fearing a backlash from its rural constituents. equipment and standards that would come to plague USO policy two decades later. subsidy. Significantly. 1975). the Coalition Government ignored the recommendations.by offsetting costs of expanding the network and supporting uneconomic services through cross subsidy from profitable services including long-distance and international calls. release of the report Telecom 2000 in 1975 provided a major strategic assessment of how Australia might develop its telecommunications system and achieve universal access to telephone service (Telecom Australia. The mood for reform of telecommunications cooled further with election of a Labor Government backed by a coalition of union and social forces in 1983. In the meantime. about 80 per cent of households had a telephone. By 1981. With such a radical agenda for the time. when the conservative Government initiated a Committee of Inquiry into Telecommunications Services in Australia (the Davidson Inquiry). In essence the Davidson inquiry argued for privatization of profitable telecommunications activities and identification of the subsidy provided to social welfare activities. the Davidson inquiry attracted considerable criticism for its onslaught against the egalitarian principles that had traditionally motivated provision of telecommunications in Australia. According to Reinecke and Schultz some of Australia's largest companies launched vociferous attacks on Telecom over the costs forced on them from higher tariffs to support cross-subsidization inherent in the funding of uneconomic services. and those arguing about the costs to business and taxpayers of cross-subsidy. The legislative reforms to communications spurred a raft of developments in the policy and planning of telecommunications including attempts to quantify and qualify the economic and social costs and benefits of access and services. This early review also unearthed some of the issues related to cost recovery for uneconomic services. The inquiry provided a catalyst for complaints against Telecom over prices and connection and services. While this policy debate raged around it Telecom carried on building its network throughout the country and connected new customers in regional and rural areas. Submissions to Telecom 2000 largely fell into two categories: those emphasizing social welfare goals including universal access and affordability.

The latter legislation began the transformation of the Australian Telecommunications Commission &Telecom' into the corporate entity that came to trade as Telstra in 1991. The review canvassed the public policy underpinning the USO and made 21 recommendations on ways to more usefully meet the needs of disadvantaged Australians in both rural and metropolitan Australia. unions. Although these reforms were primarily aimed at initiating competition in the telecommunications sector.by 1990. the introduction of competition and the technological transformation being generated by roll-out of broadband created new terrains for policy and . By its second term. indigenous communities were poorly served. This achieved the goal set out in Telecom 2000 of connecting 9 out of 10 homes by 1987 (Telecom Australia. The issue of universal service was placed on the reform agenda following a major statement by the then Minister for Transport and Communications in 1988 who noted that costs of delivery had been supported by the revenue streams generated from longdistance tariffs (Evans. there was also renewed emphasis on maintaining social goals including untimed local calls and universal service arrangements. Austel prepared a report that identified discrepancy between the levels of connection in metropolitan areas and those in rural and remote locations. The importance of the reforms prompted a flurry of output from consumer groups and government agencies that attempted to scope the social and economic importance of the USO in Australia. economic and political dimensions of the changing telecommunications environment. connection and repair times were inadequate and new technologies should be used to improve services. 1975). Other findings were that affordability was a problem for some consumers. With political pressure mounting in the telecommunications sector from business. the Australian Parliament's Senate Economics References Committee initiated a review of the reforms and policies. the Government began to investigate possibilities for reform in telecommunications including introduction of competition across a range of services. While these reports canvassed the social. community groups and various coalitions of users. 1988). The potential political ramifications of changes to the telecommunications regime supporting access in rural and remote areas were not lost on the new regulator Austel. This statement was a precursor to the initial round of liberalization including passage of the Telecommunications Act (1989) and the Australian Telecommunications Corporation Act (1989).

the Department of Communications and the Arts released a policy paper that addressed the preparations for the liberalization program scheduled for 1997. It was argued that it was necessary to revisit the rationale for the USO and consider the likely impact of broadband on the way communications services were delivered. although the privatization of Telstra was a significant point of policy disagreement between the various parties. The trajectory of reforms begun in the early 1990s was maintained in the Telecommunications Act 1997 which has been identified as the third stage in the transformation of Australian telecommunications from government monopoly to competitive market featuring multiple carriers. While the reforms were broadly designed to encourage further investment and roll out of infrastructure. The cost of the USO also remained a contentious issue in the telecommunications industry with the political and regulatory debates echoing arguments presented in the Davidson report 15 years earlier. particularly access in rural and remote areas. In September 1994. With the election of the Coalition Government in 1996.research on the USO. they curbed the powers and immunities from local government planning regulations that had been granted under the 1997 legislation in recognition that carriers had not always been sympathetic to community concerns about cabling and location of mobile towers. . These were issues that continued to invoke vocal sections of the Government's constituency. untimed local calls and price cap arrangements within the debate on the competition agenda in telecommunications. particularly business. the pathway to wider reform and liberalization in telecommunications was generally agreed by all political parties. over the compensation demanded from carriers for delivery of the USO and from rural communities concerned that competition and privatization would place pressure on loss-making services. The reforms swept away remaining impediments to allow open competition across all categories of service whilst placing the telecommunications sector under the general ambit of trade practices regulation. It also placed the concept of universal service.

the USO's role has been to ensure widespread access to basic telephony services. In essence. A second fundamental difference between the Australian USO and the conceptual framework in comparable countries is that consumer affordability is treated separately. health facilities and low-income customers services at concessional rates with the former also receiving digital data capability under the obligation. This scenario differs from that in the United States where the universal service regime provides libraries. the USO is one of the two planks in social policy related to telecommunications. educational organizations. Equally. While there are many similarities in the motivations behind universal service in Australia and comparable countries. universal service policies have generally been pursued for a variety of social goals. reach people in rural and remote locations and are delivered in a way that improves accessibility for individuals with a disability or those that need to use a public telephone. These include ensuring that telecommunications services are affordable.The form of the USO: In Australia. there are some significant differences related to geographic and demographic conditions. The second plank relates to improving the affordability of basic telecommunications services through the maintenance of retail price-controls including price caps and a requirement for untimed local calls. According to the Australian Government's Productivity Commission. state authorities largely regulate local telecommunications although there are significant differences of detail. distance plays an important role in the nature of the USO in Australia whilst similar policies in the United Kingdom address barriers to telecommunications access associated with urban poverty. . For instance. in countries like the United States and Canada where distance and isolation are also factors addressed through service obligations on carriers.

unions. wherever they reside or carry on business: 1. Similarly. The Australian USO arrangements require that the following services must be reasonably available to all people in Australia on an equitable basis. Payphones 3. Separate legislation allowed the Government to champion its particular efforts to deliver services and maintain standards while introducing competition and completing the privatization of Telstra. telecommunications unions often cited the importance of community and universal service in campaigns to thwart organizational reforms . business and politicians. It could be argued that the presentation of the Telecommunications Act 1999 which came into effect on 1 July 1999 provided a tactical tool for the government as it strove to complete its reform agenda within telecommunications.The legislative framework for the USO: In 1999. It has been shaped by many forces and used as a Trojan horse over the years for various agendas pursued by community groups. Reinecke and Schultz cite examples of politicians representing rural electorates pressuring bureaucrats in the Postmaster Generals Department and later Telecom to reschedule connection timetables to get a telephone service for favored constituents because it meant another vote at election time. Digital data services Politics and the USO: The political nature of the USO is readily apparent. It re-enacted and expanded on the USO regime that had been presented in the reforms contained in the Telecommunications Act 1997. Standard telephone services 2. the government revised the legislative framework for telecommunications it had established with the reforms of 1997 and created separate regulation for consumer issues including the universal service regime. While it was under public service management. Prescribed carriage services 4.

To address this dispute.that threatened jobs in Telecom. While these shortcomings were addressed. The level of contributions required from other carriers to compensate Telstra created fears that it would destabilize the fledgling market. the full privatization of Telstra and the perceived threat to universal services from liberalization has made telecommunications a particular friction point for communities that have lost key services through wider reforms in the Australian economy. consumers and children.32m. Telstra's claim that delivery of the USO cost it $800m caused consternation amongst competitors and regulators. Ernst and Young subsequently recommended development of a new model that used methodology that gave forward-looking projections on replacing network infrastructure. But cost and methodology became particularly inflammatory issues once the market was opened to competition in 1991. This spending helped counteract growing political dissent over the Government's economic reform and liberalization agendas. raising the standard of the USO has become a political catch-cry for telecommunications users in regional and rural Australia. AUSTEL and the carriers (Telstra. the Government assuaged the former through upgrades of the technological standards in the USO and promised expenditure of more than $671m from the partial privatization of Telstra on communications infrastructure in rural areas and regional towns. the BTCE developed a model to quantify the cost of the USO prior to the initial phase of market liberalization. the Government passed legislation to cap the figure at $253. As noted. In essence. Community lobby groups have sought extension of the USO to cover particular access needs in telecommunications and broadcasting including those of older women and island communities. Optus and Vodafone) commissioned Ernst and Young (US) to review the BTCE model in 1995.8b for the financial year 1997}98. the Government was forced to provide legislative remedies to the cost claims. farmers. These concerns became more important in policy debate as electorates in regional and rural areas are also key constituencies of the junior party in the coalition that has held Government since 1996. . Most recently. The Government has sought to bolster electoral fortunes through increased spending in regional areas and promised that it will not continue with the privatization if service standards are not maintained. To alleviate the oppressive effect of Telstra's claim of $1. However. Economic cost and the USO: The cost of delivering the USO has long been a subject of debate and research. Telecommunications carriers have sought redress from Government over the cost of delivering the USO and highlighted a link to investment intentions.

while market liberalization and admiration of competition have become fashionable occupations for policy makers. Conclusion: Achieving universal service in telecommunications must remain an important policy objective for countries that value egalitarian social principles and seek to enter the information age. 1999b). AAPT and C&W Optus and regional broadcaster Austar as well as consumer and industry groups. . The Department of Communications. While the reforms had the goal of replacing public investment in telecommunications with private enterprise. Addressing these shortcomings is a true challenge for policy makers and industry alike.The option of tendering the USO was also canvassed by the Government in 1999 as a means to encourage carriers to develop solutions to the cost claims. In this environment government faces a challenge in proving that liberalization has benefits to its constituents in rural and remote areas or it will face condemnation for failing to maintain the egalitarian ethos that has long underpinned telecommunications policy in Australia. Experts. Vodafone. geographic isolation and other barriers to participation must be addressed to make a comprehensive leap into the information age. While this liberalization program had clear benefits for many consumers through service choice. The discussion paper attracted comments on new delivery models and future funding options from Telstra. Although remarkable steps have been made in providing universal service in Australia over the last century. the task remains incomplete and could benefit from the same level of vigor that was applied to the recent program of liberalization and privatization processes in telecommunications. commitment to addressing the inequalities associated with income. government officials and representatives from carriers proposed a variety of solutions to resolve the thorny question of how the USO might be better delivered. Information Technology and the Arts released a discussion paper on tendering the USO that sought expressions of interest and comments from interested parties (DCITA. these are not universally available as competition was largely confined to the cities. Hutchison. However. a combination of factors has delayed separation. lower prices and improved technologies.

Siva Ram Vemuri . www.net.References: 1. Information Technology 5. Australian Communications Authority 4. Statement by the Minister for Transport and Communications 7. Customer service guarantee. Telecommunications infrastructure facilitating sustainable development of rural and remote communities in Northern Australia by Susan Bandias.abc. Minister for Communications. Fact Sheet. Australian telecommunications services: A new framework.au/news 2. Telecommunications performance report 1998-99. Bureau of Transport and Communications Economics 6. Digital data service obligation. Australian Communications Authority 3.

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