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Appendix 1: Terms of Reference and Findings
1.1 Membership
The Broadband Advisory Group (BAG) was formed in March 2002 by Senator the Hon Richard Alston, Minister for Communications, Information Technology and the Arts to provide high-level advice on the development of the broadband market in Australia. It was chaired by Senator Alston with secretariat support provided by NOIE.
The members of BAG were: Bronte Adams, Ros Hill, Tom Kennedy, George McLaughlin, Mike Miller, Rosemary Sinclair, Phil Singleton, Ziggy Switkowski, Jeffrey Tobias and Terry Walsh (see Appendix 2 for titles and organisation names). The Group met on four occasions.
The Group has been assisted by a team of eight Global Advisers based in Canada, France, Sweden, the United Kingdom and the United States (see Appendix 2). These individuals have been consulted by the BAG through a series of group video conference sessions, meetings with Senator Alston and through the Members' Website.
1.2 Terms of Reference
The Broadband Advisory Group's Terms of Reference were as follows:
The Broadband Advisory Group is an expert advisory body on broadband issues. Its role is to assist the Government to ensure that the broadband policy framework optimises the economic and social benefits that Australia derives from broadband services. The BAG will provide a vehicle for fostering communication between stakeholders on both the supply-side and demand-side of the broadband issue.
The Broadband Advisory Group will provide advice on:
- Appropriate ways to measure broadband take-up and success;
- Current impediments to, and likely drivers of, broadband take-up, particularly in key productivity sectors such as small business, education, health and community services
- Possible policy solutions to current and emerging challenges on both the supply-side and demand-side of the broadband issue
- Market based strategies for raising broadband awareness, particularly in key productivity sectors
- Strategies to encourage the development of marketable applications that will facilitate broadband take-up in key productivity sectors
- Emerging technologies and new business models for delivering broadband services, as requested
- Issues that are likely to emerge as the Australian broadband market develops.
In providing this advice, the BAG will have regard to current ACCC activities in relation to the development of a competitive broadband market in Australia.
1.3 Consultations
To address these issues, the BAG also held two Consultative Forums in Sydney and Melbourne on 25 July and 26 July 2002, respectively. These meetings provided an opportunity for key stakeholders from across the Australian broadband industry and user community to provide input. A total of 52 stakeholders attended the two meetings and a report of proceedings is available on the NOIE website.
NOIE also invited public submissions to the BAG, receiving 64 written submissions by the 12 August closing date. These came from a wide range of sources across Australia, including telecommunications companies and other broadband service providers; state, territory and local governments; business and consumer advocacy groups; higher education institutions; community groups; networking hardware manufacturers; communications analysts; and individuals. Full copies of submissions and a summary report are available through the NOIE website. state and territory governments were also consulted.
2 Measuring Broadband Take-up and Success
'Broadband is new technology for the whole world - no country has a special advantage. Australia has an opportunity to be a leader - there is no reason that it could not be. Yet, there is evidence that Australia is falling behind the eight ball.' Bob Bishop, Chairman CEO, Silicon Graphics Inc.[1]
The perception outlined by Bob Bishop that Australia is lagging behind other developed nations is pervasive, it was raised frequently during consultations. However, it raises questions about the mechanisms used to measure success and whether they collect the most useful information.
2.1 The OECD 'League Table'
This perception seems to stem primarily from the OECD's report of broadband access in OECD countries which provides a status ranking (or 'league table') based on penetration rates. The OECD table suggests that some countries, most notably South Korea, are forging ahead with broadband connectivity while other countries, including Australia, seem to be making only moderate progress and are ranked around the middle.
It is essential that progress towards achieving our stated vision and goals can be measured. While the OECD 'league table' provides a source of international comparison in terms of overall take-up, it does not help to determine Australia's progress in relation to effective use and availability of broadband services in key sectors.
2.2 NOIE INDEX
In April 2002, the new composite NOIE Index was published measuring Australia's progress against 23 indicators relating to 'Readiness' and 'Intensity'. Indicators in the Index were chosen because they satisfy two criteria:
- They provide a meaningful measure of relative progress in the information economy
- Sufficient data of sufficient quality is available to make comparisons between countries and Australia is ranked third in terms of readiness.
Future NOIE benchmarking work will focus on measuring the impact of increased participation in the Information Economy, particularly the benefits of more intensive use of the Internet in terms of productivity gains, growth in economic output and increased flexibility in how and where Australians undertake key day-to-day activities.
2.3 ACCC
The ACCC compiles quarterly reports on broadband adoption based upon voluntary collection of information from a number of carriers and carriage service providers. The Minister for Communications, Information Technology and the Arts has also signalled an intention to use the powers in Division 12A of the Trade Practices Act 1974 to require the ACCC to provide quarterly reports on take-up and availability of broadband services. Thus carriers would be required to provide this information to the ACCC. A draft Ministerial Determination under Division 12A has been released for consultation. The BAG supports the proposed action as a way of increasing the level of information available about the market and to measure the take-up of broadband in Australia.
2.4 Limitations
The current mechanisms used to measure success have limitations because they focus solely on the number of people connected. The NOIE Index attempts to shift the focus from the simple number of connections to some measure of the type of use.
However, the most useful measure of success would be one that is outcomes-oriented and provides
a measure of outputs in terms of sectoral productivity benefits. In order for progress towards the stated goals (expressed in Recommendation 2) to be measured it is necessary to develop some new measures that might be used to develop a composite indicator of effective use and availability. Given the nature of the goals this involves more sophisticated measurement of the use and different types of usage of services by particular sectors. The proposed Ministerial Determination will certainly increase the amount of available information about particular sectors, but it needs to be supplemented by additional processes to enable measurement of the 'effective use' of services.
In terms of assessing Australia's performance internationally, there is an additional problem because no international benchmarking relates to the type of goals being envisaged in Australia. The Government should encourage the OECD, through appropriate diplomatic channels to address this issue and provide a comparative study of the effective use of broadband.
Additionally, no comprehensive economic modelling exercises have yet been undertaken in Australia which estimate the sectoral economic benefits of an accelerated broadband rollout nor predictions about economy-wide gains. There has been a study that identified lack of affordable broadband Internet access as a barrier to increased participation in the information economy and estimated the cost to the economy of that lack of participation.[2] During the BAG process, NOIE commissioned a study of the economic benefits in key sectors of increased broadband take-up and the results will be available in the second quarter of 2003.
3. Impediments and Drivers
During the consultations much attention was given particularly to the impediments to broadband take-up. The key question facing Government and industry is how to achieve the balance between removing impediments and stimulating demand.
3.1 Drivers
Broadband infrastructure, services and devices are interdependent. Unless services and compelling content are developed, the demand for broadband infrastructure will not grow and the incentives for broadband investment will be undermined. Digital entertainment, particularly music and computer games, has been a key driver of broadband take-up in the consumer market. Once appropriate digital rights management systems are in place, digital entertainment will be a major driver in the future.
Ideally, the development of compelling broadband services will drive the new investment in broadband infrastructure that will bring these services to new groups. This will then trigger a virtuous cycle of investment and innovation in broadband services and infrastructure.
With this in mind, 'leader' markets that are today demonstrating the demand for and the potential benefits of broadband have been identified. In line with the focus of this paper these are in sectors with high levels of public sector involvement - education, government services, health - but it should be noted that there are other key leader groups in the consumer market such as the financial services industry, video post-production and online computer games.
3.1.1 Driver: Education
There are some basic characteristics of education, throughout the different education sectors of schools, vocational training and higher education, that drive a need for broadband and will encourage broadband take up. The desire for richer content in course materials may increase demand for broadband delivery. Broadband communications opens up possibilities for effective research collaboration requiring the transfer and analysis or sharing of large amounts of data. Broadband also provides the possibility for all educational sectors to offer a wider range of courses through aggregation of demand. This should allow smaller schools, and regional and remote schools or universities, to pool student demand to make a wider range of classes viable.
Australian governments have recognised the importance of the development of appropriate on-line content as a key driver in education and have established The Le@rning Federation. This is a $68 million initiative of the state, territory and Commonwealth governments of Australia and the government of New Zealand. Over the period 2001-2006, it aims to create online curriculum content and the infrastructure (The Exchange) for procurement, storage and distributed access of the content specifically for Australian and New Zealand schools.
Lifelong learning will require new and innovative methods of education delivery. People will require flexible access to high quality education materials. In order to provide this, institutions will increasingly rely on online solutions to provide rich content material. The full multimedia capabilities of online presentation will be utilised, driving the demand for broadband take-up.
3.1.2 Driver: Government Services
Electronic government services are a means of improving the quality and efficiency of services and information provided by government. In many ways, e-government services can be seen as a prescription for the transformation of government. An effective vision and strategy will not only focus on government agencies using information and communication technologies, but will also entail maximising the use of the Internet to engage more effectively with members of the community. Electronic government services create the means to put the needs of the citizen foremost, allowing them to shape the delivery of the online services they require.
While the implementation of a large range of government services online has driven the take-up of broadband within government itself, it also encourages the take-up of broadband by businesses and individuals by providing services for online use.
In 1997, the Commonwealth Government made a commitment to have all appropriate government services online by the end of 2001. The Government Online Strategy and the Commonwealth Electronic Procurement Implementation Strategy were released in April 2000. The aim of these strategies was to provide a strategic framework to assist agencies in meeting key online commitments and to encourage government business operations to go online.
Under the framework, four reporting rounds have been held revealing significant whole-of-government progress. There are now in excess of 1600 government services and information sources available online and all agencies report that they met the important target of having all appropriate services online by December 2001. The Prime Minister announced this significant achievement at the World Congress on Information Technology on 27 February 2002.
The Government recently launched its eGovernment strategy Better Services, Better Government that will build on the enormous gains made in the first stage of online service delivery across the Commonwealth sector.
State, territory and local government authorities have also made commitments to delivering services online, with significant progress apparent across the board. Access to government services online is now a significant component of internet use by Australians, and will be one of the drivers for broadband connectivity.
3.1.3 Driver: Health
The push for better methods of service delivery in the health sector is being driven by increasing costs and the demands of an ageing population. Pressure to reduce costs, the need to offer services when and where they are required, and possibilities for innovative new services to improve health outcomes, all support the take-up of broadband by the health sector.
Access to specialists for a second opinion can assist a regional health worker in treating someone within their local community, saving transport costs and additional stress to the individual concerned. Systems that monitor the vital signs and activity of the elderly at home, and report them via broadband to care givers in real time, can keep people out of hospital while offering quality care and support. Electronic health records can provide up to date patient information for any individual wherever and whenever it is needed, improving health outcomes with reliable information. Decision support systems can assist practitioners to make better diagnosis and treatment decisions.
These examples will not only deliver better health outcomes but will also improve the retention of skilled personnel in rural and remote areas and drive the take-up of broadband.
3.1.4 Driver: Supply
The activities of broadband suppliers in promoting the benefits and availability of broadband has a positive impact on take-up. Availability of a greater range of services, and positive marketing of the broadband value proposition, are both factors associated with the significant recent growth in broadband utilisation in Australia.
For example recent advertising campaigns by Telstra have stimulated take-up by focussing on the price comparison and value proposition between narrowband and broadband services. In the ACT the local carrier TransACT has waived connection fees as infrastructure is rolled out into new suburbs and bundled services to demonstrate a business case that is more compelling than a narrowband connection. Carriers are also developing managed services targeted at the SME market.
The broadband xchange project was initiated by the Service Providers Industry Association (SPAN) in 2001 to co-ordinate an industry-led, collaborative program to promote the value and take-up of broadband. Since then the broadband xchange has undertaken significant work in disseminating information on the broadband value proposition to potential users, particularly to the SME market.
Government initiatives to support the development of broadband content have been identified in section 2 and section 6. The Broadband Content Fund administered by the Australian Film Commission provides seed funding for Australian content producers to pursue opportunities in new broadband applications. In 2002 Telstra established a Telstra Broadband Fund to provide grants to stimulate and fast track the development of new and innovative broadband applications, tools or technology with wide appeal for broadband delivery to Australian businesses and consumers.
Aggressive and targeted marketing of value propositions which strike a chord with potential customers will continue to be one of the significant drivers of broadband uptake.
3.2 Impediments
Two key impediments to broadband adoption are the affordability and availability of broadband services. The Estens Regional Telecommunications Inquiry report identified cost as the major impediment to take-up in some regional areas[3] and recommended incentives for certain rural and regional customers.
These impediments are complex and interrelated and therefore it is difficult to determine how best to deal with them. The characteristics of technologies coupled with Australia's geographical conditions mean that availability of infrastructure in different areas can vary greatly. A range of technical and economic factors can inhibit accessibility even when infrastructure is available.
3.2.1 Availability
There are both longer term and short term issues associated with availability. The short term issue is that not all current generation services are available in all areas, largely due to geographic considerations. This is compounded by significant differences in the capability and reliability of current technologies. For example, the types of applications and uses that can be delivered over an ADSL service cannot necessarily be provided over a one-way satellite service.
In the longer term access to next generation services will be a major issue and relates to where and when investment in new networks will occur. New innovative technologies with lower rollout costs, especially emerging wireless technologies, may mean that next generation services can be made widely available. However, providing consumers with the full range of service types requires a choice of technologies, including fibre optic technologies for particular needs but these next generation fibre based networks may not be ubiquitously deployed.
There is a range of technologies offering potential broadband access in Australia. For example cable modem services are available to around 35 per cent of homes, ADSL is available to over 70 per cent of the population, ISDN services are available to over 96 per cent and satellite services are available nationally. Of these, both ISDN and satellite services have been around for some time while ADSL and cable modem services are more recent and are still being deployed.
There is sufficient, high quality, backbone capacity in Australia - this was supported both in the BAG consultations and by the conclusions of the Estens Inquiry.[4] However availability of 'last mile' or CAN infrastructure is a more critical issue. The lack of infrastructure competition in CAN networks has the potential to limit the competitive pressure on providers to continue to deploy new broadband services. Therefore, regulatory intervention has been necessary to provide access to existing telecommunications infrastructure through the unbundling of the local loop and more recently through line sharing. In addition, access regulation has been required to ensure that competitors can access backbone capacity in areas where it makes little economic sense to duplicate infrastructure, primarily in rural and regional areas.
As a full range of services is not available in all areas, there are cases where customers with specific bandwidth needs or specific service quality requirements may not have any choice of provider, or any access to the type of service they require. In particular health and education institutions that require high bandwidths and greater reliability than residential consumers can have difficulty accessing these services in some areas.
There may be a case for public sector involvement to encourage the widespread and more equitable availability of broadband services across Australia. However this needs to be balanced against the fact that the market is still developing and new services and technologies continue to be developed and deployed, and interventions will need to be targeted to specific instances of market failure.
3.2.2 Pricing
While there remains debate about exactly what impact price - as opposed to other factors such as awareness and availability of worthwhile content and applications - has on adoption of broadband services, it is clear that if services are not affordable, customers will not use them.
The Estens Regional Telecommunications Inquiry Report concluded in chapter 6 that 'price rather than availability is the major impediment[5] to the take-up of higher bandwidth services in regional, rural and remote areas'. These geographic differences in pricing reflect the different costs associated with various technologies, and the fact that not all technologies are available in all areas. The primary concern in these areas is that where lower priced higher bandwidth services such as ISDN and ADSL are not available, users can only access comparable services at a significant price premium using satellite technology.
Current price levels and current broadband pricing strategies (notably per megabit usage charges) are often raised as potential barriers to greater take-up of broadband services.
The inclusion of download limits in most broadband service plans is seen to be dampening demand for bandwidth intensive applications such as audio/video streaming and participation in online computing environments. It also impacts on take-up of SMEs with large bandwidth demands, such as those with a requirement to exchange architectural drawings, images or 3D mining data and maps.
Within the education sector, excess downland charges are often seen as much of a challenge as securing broadband connectivity. Downland limits are also considered to be potentially retarding the online games market in Australia compared to markets such as the US where there are currently no download limits on residential broadband plans.
Megabit usage charges can work against consumers, particularly SO/HOs and SMEs who want a high level of pricing certainty for the services that they contract. The size of the penalty imposed for exceeding the usage limit combined with a lack of awareness of what type of usage patterns constitute reaching a usage limit, contribute to uncertainty about the size of the monthly broadband bill. This may mean that consumers might prefer to remain with dial up access until such time as there is a compelling requirement to move to broadband.
However, there are valid reasons for usage based charging. For a service with a significant variable cost component from high international internet charging arrangements, properly tailored usage based charging may be the most economically efficient pricing option for both providers and consumers. It is interesting that in the current environment almost all providers have some mechanism for rationing excess demand. If usage based charging is justifiable on efficient pricing grounds, a competitive broadband market should contribute to ensuring that the size of charges or penalties reflects the costs of delivering the service. The potential that a lack of competition may contribute to the introduction and maintenance of inefficient usage based charging is of concern.
Whilst there are significant risks associated with any pricing intervention, the Government should continue to monitor closely the range and evolution of broadband pricing structures in Australia. Work to achieve reform in international internet charging arrangements should be continued. The Government should ensure there is a robust regulatory framework that can address concerns if it becomes apparent that usage based charges are resulting in anti-competitive behaviour.
Sustainable competition plays a major role in encouraging the development of efficient pricing structures. Therefore strategies to further encourage the development of competition are supported, in particular removal of potential barriers to entry for new wireless technologies. In this respect, Australia is already leading the world in terms of technological neutrality in regulation of spectrum allocation and use.
3.2.3 Lack of understanding of key benefits of broadband-related innovation
Another impediment to broadband take-up, particularly in the SME sector, is the lack of knowledge on the part of key decision makers about the potential benefits of new activities and business innovation using broadband services. This report noted earlier in section 5.5 that an SME that is broadband-enabled has twice the revenue per employee compared with an SME that has narrowband. Yet this is not widely understood. Key decision-makers have not been convinced about the business case for broadband - they do not have a value proposition that they will buy. The lack of independent 'vendor neutral' information is a major barrier to take-up.
This is beginning to be addressed through industry associations, such as SPAN and professional groups such as the Independent Chartered Accountants of Australia.
4. Strategies to promote broadband awareness and applications
4.1 Consultations
One of the recurring themes during the consultations was the lack of awareness among Australian consumers, SMEs and even larger organisations about the capabilities and benefits of broadband connectivity and associated applications.
Initiatives are already in place to promote understanding of broadband and to encourage the development of innovative content. However, initiatives to disseminate best practice models are needed to build on existing programs, including NOIE's e-business initiatives. There are fundamental differences between the way businesses with a broadband connection access the internet, for example. They are much more likely than businesses with a narrowband connection to use it for both purchasing and sales. Live trials and demonstrations would allow people to experience (touch and feel) broadband applications, helping to establish a clear business case for broadband-powered e-business tools in SMEs and new business models such as the application service provider (ASP) model.
4.2 Technology Diffusion
Physical infrastructure is not the only requirement for the availability and effective use of broadband connectivity in Australia. Innovative services and applications for the emerging broadband communications environment are the fundamental drivers, but these are also inherently risky and need to be encouraged by public and private sectors coordinated action to establish the basis for broadband market take-off.
Government initiatives might be directed towards developing the broadband market in key sectors, where potential demand has been demonstrated and there are clear productivity benefits from accelerated broadband take-up. This might involve initiatives to remove impediments and to promote take-up, in order to ensure that Australian industries and key sectors such as SMEs can access global markets and supply chains.
In particular the Government could promote the use of Australian-produced digital content. This would build on the work undertaken in the Creative Industries Cluster Study, the $2.1 million Broadband Content Fund and the ongoing work in digital rights management.
5. Possible policy solutions
The BAG's findings about possible policy solutions are reflected in its recommendations.
[1] Bob Bishop, Chairman and CEO of Silicon Graphics speaking as a Global Adviser to the BAG on 21 June 2002.
[2] Allen Consulting Group Australia's Information Economy: The Big Picture April 2002.
[3] Op cit p 221.
[4] Op cit p208.
[5] Op cit p 221.