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Today’s session raises some important issues relevant to the current economic crisis and the steps some governments are taking to help stimulate the global economy through sustained and targeted policy actions in the ICT sector. Not only does this include fiscal and monetary stimulus, but also includes fostering policy frameworks and regulatory regimes that will enable significant investments to be made in existing
ICT infrastructure as well as innovative and creative investments in new technologies and major infrastructure projects, particularly next generation broadband networks – and not only in fixed. Getting the ‘right’ policy and regulatory frameworks in place nationally and with an eye to the overall international nature of modern communications is essential to meet expected consumer demand and expectations.
This is a time for clear-headed and constructive engagement by all stakeholders – government, regulators, operators, service providers and consumers in an increasingly converging internet world where ubiquity and mobility of enhanced services at affordable prices are a strategic goal that reshapes the old ‘Universal Service
Obligation’, meets the mantras of the Maitland Commission 1
– the Missing Link - and will help Bridge the Digital Divide at long last
2
.
As we all recognise, regulation is both a substitute for and a compliment to competition - it encourages and protects market entry, protects consumers and ensures ever wider access to services. It is a tool that needs to be applied wisely and in a nondistortive way that promotes competition and at the same time facilitates investment.
It is a time for all stakeholders to move away from the ‘them and us’ approach to each other and look to the overall benefits to society – to the citizens to whom government is accountable – and to shareholders to whom corporate stakeholders are also accountable with a greater vision as to what is in the long-term interest of both and not some short-term corporate desire for dividends or management bonuses.
In the current economic situation some operators find it more difficult to obtain the substantial capital needed to build new networks and hence are questioning existing regulatory structures; especially those that may be seen to reduce operator revenues or remove some of the benefits of innovation. It is therefore a time for policy makers to
1 http://www.itu.int/osg/spu/sfo/missinglink/index.html
2
“Fifteen years before the concept of the digital divide was acknowledged, the Independent Commission for World Wide
Telecommunications Development, chaired by Sir Donald Maitland, [was] published … The report of the Maitland
Commission, known by the title 'The Missing Link', is a core document in the founding literature of modern telecommunications development activity…. As the world enters the 21st century, many of the conclusions and recommendations of the Missing Link report remain valid
” http://www.itu.int/ITU-D/fg7/conclusions.html
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take stock of whether the regulatory regimes are ‘fit for purpose’ in the current converging world. It is also a time of potential disruption, as noted by Ofcom:
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“The adoption of next Generation Network (‘NGN’) technology promises to be a positive yet disruptive trend in the telecommunications industry. The technology has the potential to bring significant benefits to citizens and consumers through new and improved services, and lower prices due to the likely greater efficiency of a multi-service network. It also has the potential to alter the prevailing model of competition in the telecoms sector. For these reasons, understanding NGN developments continues to be of vital importance to consumers, industry and Ofcom, and to the design and implementation of effective and sustainable regulation.”
This need to move away from old models of competition was echoed earlier in the year by the OECD:
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“Policies can lower the obstacles to entrepreneurship and industrial renewal
New business opportunities and the reallocation of resources from declining activities towards emerging opportunities are vital to recovery. Governments will need to avoid locking-in old economic structures and business models. Supporting firms and industries that do not have a viable business model will thwart the restructuring required for more sustainable growth.
Facilitating the creation of new firms and ensuring competition can help underpin such restructuring. Governments can prepare for the next phase of innovation-led productivity growth, for example, by encouraging the entry and expansion of new businesses or the exit or reorientation of existing businesses facing difficulties.”
New, models, new paradigms and policies mean that change is inevitable and those operators and service providers that adapt to change will survive, and those that do not, will find life getting increasingly more difficult, particularly as there are many competing demands on their finite capital and resources. There are increasing demands by governments and regulators for the provision of high speed broadband, which is seen as part of the drivers for growth in suffering economies. These in turn raise important policy and regulatory issues that are an overlay to the need for a stable environment in which massive investments can be made and not just in highly profitable urban areas. So the push remains to bridge that digital divide.
There are some dangers in moving towards the new if old practices are allowed to continue or concessions given to incumbents that may thwart fuller realisation of competitive markets in return for cash. As the OECD also opined:
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“Investments in a networked recovery can preserve ICTs as a key engine of growth
The current crisis could also have negative effects on the communication sector which has been investing in high speed broadband networks and next generation switching technology.
Telecommunication incumbents have historically had strong cash flow positions but face increasing difficulties raising sufficient capital. Smaller new entrants, with fewer assets and lower cash flow, may be disproportionately affected by capital shortages. There is also concern that incumbents will use the financial crisis as a means to obtain regulatory concessions from governments in exchange for promises to invest. Such concessions would have negative effects on the development of long term competition in the sector, innovation and lower prices.
3
Ofcom – Next Generation Networks Further Consultation published 31 st July 2009: http://www.ofcom.org.uk/consult/condocs/nxgnfc/
4
Policy responses to the Economic Crisis: investing in Innovation for Long-Term Growth , OECD June 2009 p 12
5 ibid , p. 13
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Investment in high speed broadband communication networks that are part of economic stimulus packages must be accompanied by regulatory frameworks which support open access to networks and competition in the market….
Given the costs involved in fibre deployment it is fairly certain that outside the dense urban areas the market will not be able to support more than one fibre based network. The exception may be in markets which already have well developed and ubiquitous, cable TV infrastructures which may provide an alternative and competing platform. Governments, both central and municipal, can play an important role by facilitating investment, e.g. through public-private partnerships which stimulate development of nationwide high speed broadband networks. However, when the public pays for broadband investment they should expect to benefit from improved service and greater choice in the market place. One means to accomplish this is to ensure that networks built or augmented using any public funding are available via “open access” rules meaning network providers offer access or capacity to all market participants at cost-based, non-discriminatory terms.
Outside the OECD area, there is a risk that the economic crisis will slow the catch-up of developing countries in terms of access and use of ICT infrastructure, thus enhancing the digital divide.”
Recognising the need for stimulation of the global and national economies, the G20, amongst other governments, have adopted significant fiscal stimulation packages, in respect of which the jury is still out. One can only but hope that the debt mountain raised in many countries will be capable of reduction in the lifetimes of our children or theirs.
Within the EU, on 26 th November 2008 the European Commission adopted a
European Economic Recovery Plan 6 as a means driving the EU’s recovery. A cohesive broadband deployment strategy was seen as an important part of that plan.
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The OECD refers to this as ‘networked recovery’, by which the OECD means
‘investing in ICT infrastructure and applications ’. The OCED noted that: 8
“… the notion that ICT infrastructure and its use are a tool to revive the economy through new innovative services and offer solutions to pressing social challenges.”
At the same time the OECD highlights 9 the need to cover underserved areas and to deliver high speed communications so as to bridge the Digital Divide:
“Existing references to communications infrastructure in stimulus plans cover two key areas: extending broadband to areas without connectivity and upgrading existing networks to support very high-speed communications. The focus of many plans is on closing the broadband gap by providing universal broadband coverage throughout the country, but mostly in rural and remote areas. Some plans also devote resources to building out new, very high-speed networks
(next-generation networks). In most cases, the exact meaning of ‘broadband’ and ‘unserved’ or ‘underserved' is mostly not yet defined in terms of geography, speeds or technology. In all cases, the deployment of broadband is to ensure connectivity of most if not all businesses and households. … Other OECD countries have developed new broadband plans in parallel to the development of their stimulus packages (e.g. France, Hungary, Japan, Ireland, Korea, and
Spain).”
6 Communication from the Commission to the European Council , COM (2008) 800.
7 Paragraph (3) EU Community Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks , http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1332&format=HTML&aged=0&language=EN&guiLanguage=e n
8 OECD, ibid p. 27 and also note OECD Council Recommendation on Broadband Development (2004), OECD (2008),
Broadband Growth and Policies in OECD Countries, OECD , Paris, and OECD (2009), The role of communication infrastructure investment in the economic recovery , OECD, Paris
9 ibid p. 27.
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It is well known that there are some significant amounts of money being deployed by government as part of the economic stimulation initiatives that go to the very heart of widespread availability of the networked economy to all citizens irrespective of location and for purposes wider that just communications per se .
These range from:
 the breathtaking and audacious plans of the Australian Government with sums of the order of A$43bn creation of a new National Broadband Network
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;
 the EU
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and within EU Member States such as Finland, France, Germany,
Netherlands, UK amongst others providing various sums of fiscal incentives in various ways;
 not to mention Canada and USA – C$225m and $7.5bn respectively; and

Japan – JPY 3 trillion.
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As summarised by the OECD 13 , these plans have other major benefits:
“Besides direct investment in broadband, stimulus packages often have a more indirect but larger impact on ICT deployment and use, for example investment in education, "intelligent" transport systems, greening the economy, smart buildings and grids, health, the environment, and modernising public services. Investments flowing into these areas can often be much bigger in monetary terms than those for broadband alone (e.g. in the US, USD 19 billion for healthcare ICTs and USD 100 billion for modern infrastructure, compared with USD 7 billion for broadband). The fostering of ICT infrastructure and services in, for example, healthcare or underpinning research networks will also provide the technological basis and platform for further ICT-based innovation in other fields as there are, e.g. natural synergies between broadband deployment and making other investments work, e.g. smart electrical grids and transport systems.”
Government funding – subsidies or incentives to encourage investment - has its own set of competition issues. In an important speech on 11 th
September 2009 to the
International Bar Association’s conference ‘Competition Law in an Economic Crisis’,
EU Competition Commissioner Neelie Kroes
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foreshadowed some of the salient points in the
EU Community Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks
(‘the Guidelines’) published on 17 th September 2009. She said that:
“Given the unprecedented and systemic nature of the problems we face, I think the collective effort of European governments – and others in the G20 - to deliver stability and confidence to financial markets has been impressive.
Our role at the Commission in the field of state aid policy has been two-fold:

To increase financial stability by giving legal certainty to measures taken by EU
Member States
10
Joint media release by the Prime Minister, Treasurer, Minister for Finance and the Minister for Broadband dated 7 April 2009. http://www.minister.dbcde.gov.au/media/media_releases/2009/022
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Investments in broadband networks also form a crucial part of the European Economic Recovery Plan (see IP/08/1771), for which the Commission has provided €1.02 billion through the European Agricultural Fund for Rural Development (EAFRD) for developing broadband internet in rural areas (see IP/09/142 and MEMO/09/35). The Guidelines will help public authorities to invest these and other funds fairly and effectively and thereby contribute to the short-term economic recovery and long term competitiveness of Europe . EU Press release 17 September 2009. http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/396&format=HTML&aged=0&language=EN&guiLanguag e=en
12
OECD, ibid . pages 27 f.
13 ibid page 28
14 http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/385&type=HTML&aged=0&language=EN&guiLanguage
=en
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
Ensuring a level playing field between national measures, so that one Member State does not export its problems to others.
Preserving a competitive environment within the Single Market has therefore been our main objective. The Single Market has delivered Europeans the most prosperity for the longest period in Europe's history. It is our crown jewel and our best bet for recovery.
You will have heard me speak previously about the Commission's role as referee of the Single
Market. This crisis is the ultimate proof of why we need that referee; and need those checks and balances.”
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This sets in place the need to give legal and financial security as well as to preserve the level-playing field within the overarching remit of competition/anti-trust law and that of a European Single Market. She then addressed the not inconsiderable issues relevant to the various bank bail outs that have been taking place in Europe within the framework of the European Single Market. Again, she rightly highlighted the need to avoid market distortions through regulatory interventions per se :
“Turning now to the wider application of competition policy through the crisis...
I believe that in tough times, market distortions caused by state subsidies or anti-competitive practices hurt us even more than in good times. I am therefore determined to continue with our usual enforcement. We would do no favours to the economy by going soft on enforcement.
If anything, anti-competitive activities -such as cartels- hurt consumers and the economy more in the bad times. So you will see us carrying on with our zero tolerance on cartels.”
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In announcing the Guidelines, Commissioner Neelie Kroes stated that the aim of the
Guidelines is "to facilitate a rapid deployment of such networks in Europe by providing to all stakeholders (including local and regional authorities, as well as network operators) a clear, predictable and comprehensive framework for the public financing of such networks "
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for an estimated €300bn of broadband investment within the EU. The press release issued with the Guidelines
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reemphasises the importance of broadband for Europe and also the role of State Aid rules to help extend broadband to areas not served, in other words, by the use of a regulatory tool to foster legitimate public policy objectives:
“Investments to broadband networks are of utmost importance in today's knowledge based society. As emphasized recently again by President Barroso, ‘all Europeans must have access to high speed broadband’. Information and communication technologies are of strategic importance to accelerate growth and innovation in all sectors of the economy as well as to contribute to social and regional cohesion.
The role of the EU state aid rules is to channel public funding to areas where private companies have no commercial incentives to invest – for instance because of the high costs of deploying broadband networks, the low population density or the low levels of economic activities. State aid can have a crucial role to extend adequate broadband services to all
European citizens – no matter whether they are living in large urban areas or in small villages.”
15 ibid p 2
16 ibid p 4
17 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/396&format=HTML&aged=0&language=EN&guiLanguag e=en
18 ibid
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Importantly though it is also clear that propping up or reconditioning old monopolies is not good public policy:
“Avoiding the re-creation of old monopolies with public support is a fundamental concern for the Commission. The Guidelines contain appropriate safeguards to ensure that any broadband infrastructure funded with public money does not favour existing operator. A company that receives public monies need to provide effective open access to its competitors to allow them to compete in an equal, non-discriminatory way. The Guidelines also require that state aid funding projects respect the principle of technological neutrality without favouring a priori any given technological solution.”
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Furthermore:
“First, by providing a clear framework for state aid assessment, the Guidelines will facilitate investments from public funds in order to bring broadband connectivity to underserved areas.
Second, broadband and especially NGA [next generation access] networks will be deployed more rapidly and more widely thanks to the clear rules, thus avoiding the creation of a new digital divide. Third, due to the conditions laid down for the granting of state aid (such as open access, open tenders) the Guidelines will allow the maintenance of competition in this area, which will in turn contribute to ensuring better and more broadband services for European citizens. Millions of European citizens and companies will then benefit from enhanced access to telecommunication infrastructures.”
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Open access, equivalence (price and non-price terms) and non-discrimination remain primary goals for an effective competitive market. The Guidelines make clear that whenever State Aid is given to the private sector that aid must “foster competition” by requiring provision of open access to the publicly funded network for third-party access seekers. This will have a significant impact on those operators that are vertically integrated, an area that has received separate attention from the EU authorities, and presages that if there are on-going issues regarding open access and equivalence such operators may face mandated functional separation.
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This means that all stakeholders need to recognise that policy and regulatory frameworks, both sector specific and also competition/anti-trust, are changing so as to meet the current and future challenges. Overarching policy and regulatory regimes need to be ‘fit for purpose’ in the next generation networked world to ensure that: o there is ubiquity and universal access including in remote and underserved areas and also a necessary updating USO; o they take account of the IP world – interconnection issues and VOIP; o there is an appropriate recognition of the benefits of the Digital
Dividend and therefore a Bridging of the Divide – through the use of new technologies in a technologically neutral way including fibre, mobile and satellite; o there is open access and equivalence of offerings; o consumers are protected and able to derive the benefits new services will bring;
19 ibid
20 ibid
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The EU has not gone down that route and is looking at functional separation in certain circumstances where, in effect, there is persistent market failure and therefore to be used as a ‘last resort’ regulatory tool. – http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P6-TA-2009-0349+0+DOC+XML+V0//EN
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o the historic differences between licensed and unlicensed players – sometimes called the ‘Google effect’ as large ISPs become more and more like traditional telcos – is addressed; o the new and converged competitive environment in which content players as well as network operators are part of the competitive mix alongside traditional broadcasters and Pay TV operators is reflected; and o structural issues including functional and structural separation issues for vertically integrated operators are addressed.
As has been noted, the Australian Government announced its plans for the Australia’s biggest ever infrastructure project back in April. It then consulted all stakeholders on what was the most appropriate regulatory regime that would foster the roll-out of a
A$43bn largely FTTH network to be built by a new corporation, NBN Co, a new, structurally separated and a wholesale-only company. As a result of that consultation,
Minister Conroy released a Bill entitled the Telecommunications Legislation
Amendment (Competition and Consumer Safeguards) Bill on 15 th
September 2009.
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In doing so, the Minister highlighted why the government were proposing a number of wide ranging reforms, including the potential voluntary structural separation of
Telstra, or failing which, its mandatory functional separation. He said:
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“These reforms will drive future growth, productivity and innovation across all sectors of the economy by:
* addressing Telstra’s high level of integration to promote greater competition and consumer benefits;
* streamlining and simplifying the competition regime to provide more certain and quicker outcomes for telecommunications companies;
* strengthening consumer safeguards to ensure services standards are maintained at a high level; and
* removing redundant and inefficient regulatory red-tape.”
Then Minister then identified the need to deal with the vertical integration of Telstra and setting the right competitive structures in place for the NBN:
“Telstra is one of the most highly integrated telecommunications companies in the world across the fixed-line copper, cable and mobile platforms.
“The reforms address the structure of the telecommunications market and provide Telstra with the flexibility to choose its future path.”
“It is the Government’s clear desire for Telstra to structurally separate, on a voluntary and cooperative basis.”
“The Government believes it is possible to achieve a win-win outcome in the interests of
Telstra, its shareholders and, more broadly, all Australians,” Senator Conroy said.
The reforms will also promote competition and strengthen consumer safeguards.”
So the hard work has truly begun in Australia and Telstra has been challenged to rise to that challenge. The task now for the Australian Government and the NBN Co is to raise the capital, invest in the roll-out of the NBN and achieve the policy objectives
22 http://www.minister.dbcde.gov.au/media/media_releases/2009/088 .
23
Ibid .
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set back in April. The proposed Bill is now in the Federal Parliament and the expectation is that the regulatory package will become law by the end of the year.
These are times when all stakeholders need to have constructive engagement between government, regulators, operators, financiers and consumers to ensure that the right policies and regulation are in place to foster competition, protect consumers and ensure widespread and sustained investment in the sector.
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