CEO Iñaki Berroeta's CommsDay Summit speech

OPENING

Good morning everyone.

It is an honour to be delivering the opening speech at the 2017 CommsDay Summit in the company of so many industry leaders.

I would like to acknowledge in particular the Minister for Communications, the Honourable Mitch Fifield.

I would also like to thank CommsDay founder Grahame Lynch for the invitation, and the CommsDay team for all the work that they do every day to keep us all well informed and holding us to account.

 

INTRODUCTION

It’s been a year since I spoke to you here last – at the industry’s premier annual conference.

A lot has happened since then, so we have much to talk about.

I believe, that for telecommunications in this country, 2017 is a year of great relevance.

5G and the Internet of Things revolution are almost upon us.

It is fair to say that Australia could be on the leading edge of one of the most significant step-changes in technological history.

And as leaders in our industry, we have a responsibility to make the most of every opportunity to ensure that we maximise the great benefits that our industry can bring to Australia.

There are many decisions and events this year that will shape the future of the industry. And I will focus on three of them, which I believe are the most obvious to make a real difference for Australia, especially regional Australia: finalising the USO Reform process, spectrum, and I think you would all be disappointed if I didn’t mention something called “domestic roaming”.

I should clarify that while I am going to talk about spectrum, I am absolutely not going to talk about any spectrum auctions.

I believe that we need constructive solutions and collaboration, not criticisms, threats, scare mongering or claims that the current situation is the best that Australia deserves.

We need a vision for innovation and progress, for collaborative approaches to solving the most difficult challenges.

 

CHANGING THE STATUS QUO

Last month, I celebrated my third anniversary as Chief Executive Officer at Vodafone Hutchison Australia.

It has been a great privilege to lead this company, and I am extremely proud of what we have been able to achieve for Australian customers.

One of the keys to our return has been to challenge the status quo, to put the customer at the centre of all that we do, to take the tricks and traps out of international roaming, and becoming the least complained about telco.

One of the things I have observed over the past three years is that in the Australian industry, there can be a strong culture of acceptance of the status quo.

While there is usually a general acknowledgment that there could be a better way to do some things, we often seem cautious when it comes to actually making the bold changes which are needed.

When industry leaders and policy makers accept the status quo, it means customers are forced to accept an environment which we know is not actually delivering the products, services, investment and change which Australia needs and deserves.

Recently, I spent time in parts of regional New South Wales, talking to residents, farmers, business people and local community leaders about their telco experiences.

I visited cities such as Armidale, Tamworth, Dubbo, Orange and Bathurst – and the overwhelming message from locals is that the current telecommunications set up is not working.

While in Orange, I met an award-winning cherry farmer named Fiona.

She has a very short window of time in which she needs to get her cherries picked, packed and over to Asia – about 48 hours – so time is critical.

She told me about the challenges she faces with keeping in touch with her workers on the farm.

While she has decent mobile reception in her home, it’s a different story in the paddocks and on the roads.

That sentiment is echoed by a Federal Member of Parliament in his submission to the ACCC’s domestic roaming inquiry.

He said that his community is – quote – “becoming more and more disenchanted”, and that locals are – in his own words – “sick of paying more, yet receiving less”.

Unfortunately, the industry is not always delivering what the country needs.

Australians who live in regional areas are being left behind, and that’s simply not right. It’s simply not fair.

It is also a huge missed economic opportunity for the country.

The vast majority of those who are saying it is good enough live in the cities.

In the cities, telco services are world class. Thanks to competition, these people haven’t experienced the day-to-day telco pain that too many people in regional Australia have to put up with.

 

THE TELCO COMPETITION DIVIDE

Industry and government must do better for regional Australia. We must work together to provide increased coverage, and also reliable, competitive services.

In December last year, Vodafone was recognised as the top-performing network in cities with a population over 100,000 people in the CommsDay P3 Mobile Benchmark tests.

We have innovated to continually create products which are more transparent and fairer to the customer, simplifying plans, offering real value and eliminating bill shock.

Our recent full year results prove our strategy is working – it is delivering for our business, as well as for our customers.

However, when you step outside the cities, the barriers to investment and competition are dramatically raised.

Given the vast areas and very low population densities in regional Australia, the only way to deliver more reliable, competitive services is for operators and government to collaborate.

We believe that the Mobile Black Spot Program is part of the solution.

The program’s intention and spirit is one of collaboration, and we think it has the potential to be a fundamental ongoing initiative.

We believe and support the program, and we also believe that it needs to be substantially improved.

Less than ten per cent of the current black spot sites are co-located.

We all need to work together to find solutions that maximise the return on this taxpayer investment. After all, the spirit of the program is to deliver coverage and competition, and this cannot be achieved if marginal amounts of co-location happen.

Before the start of the Mobile Black Spot Program, the incumbent had a monopoly in 1.4 million square kilometres of mobile coverage.

Consumers who live and work or think that they might need to travel to or through this monopoly area are effectively forced to pay the premium attached to its services.

Since 2006, the incumbent has received around 2 billion dollars in subsidies. The incumbent continues to receive nearly 1 million dollars a day under the USO regime which the Productivity Commission says is “ineffective and unnecessary” and “effectively stymies competition”.

The incumbent’s dominant position has been built on regulatory intervention and subsidies. For that reason, without better regulation, no operator is ever going to have a fair chance at closing the gap.

The incumbent and the number two player are claiming that the gap between them is closing, but all of the data in fact confirms the opposite.

By its own admission, in its public submission to the ACCC Domestic Roaming Inquiry, the number two player pointed to a marginal amount of regional investment.

To catch up, it would actually need to invest many billions of dollars in the build alone – in areas where, at most, it is only economical for one set of infrastructure to exist. And again, an infrastructure that has been built to a great extent thanks to substantial state aid.

Given its massive advantage, the incumbent inevitably is able to capture a bigger share of new subsides and funding. And so the vicious cycle continues, and the monopoly gets bigger.

By the end of the second round of the Mobile Black Spot Program, the incumbent had captured 75% of the funding. We estimate that it will have increased its regional site advantage by about 30 per cent. This increases the size of the monopoly area by another 350,000 square kilometres so the 1.4 million becomes 1.75 million square kilometres.

Without domestic roaming, it just doesn’t make any sense for any operator other than Telstra to build a remote site outside Telstra’s footprint. By definition, it would be too far from the Vodafone or Optus footprints, and neither would be able to offer continuity of service.

 

SOLUTIONS, NOT JUST CRITICISM

By Vodafone standing up for a level playing field and challenging the status quo, we’ve had a lot of mud slung at us.

We are raising important questions, and we’re also putting forward constructive tried and tested ideas to solve them, and facts, evidence and international experience to back it up.

While Vodafone is offering up solutions to challenges facing our industry, others are just creating fear.

 

Domestic roaming

We raised domestic roaming as the most obvious, tried and tested solution to the competitive failure of the mobile market in regional Australia. We believe it is the most common and best solution to ensuring increased investment and increased competition.

Once roaming is in place, other operators, including Vodafone, will contribute substantial sums of money through roaming payments to Telstra, effectively subsidising its infrastructure. Other operators, including Vodafone, can and will compete on a level playing field for subsidies for new infrastructure, and new coverage.

However, we’ve never said that domestic roaming is the only solution.

We believe it is a proven solution to stimulate new investment in areas where coverage does not currently exist.

We have put forward extensive data, analysis and international experience to support our position including extensive evidence showing an increase in investment following the regulation of roaming in multiple countries which have done so.

 

Infrastructure sharing solutions

I mentioned earlier the cherry farmer who I met in Orange. Fiona not only grows cherries, but has also invested in a state of the art cherry processing and packaging plant.

She said that she couldn’t have justified the investment only to process her own cherries, so has a wholesale deal under which she offers all local producers the opportunity to use her facilities to process their crop and they pay her a fair rate to use her facilities.

Although the farmers all compete in the retail market to sell their produce, they cooperate at a wholesale level to enable an investment which wouldn’t be possible for any one of them alone.

When Fiona told me this story, I couldn’t help but be struck by the extent to which she and her neighbours were cooperating to jointly invest in new infrastructure. Exactly what the telco industry needs – collaboration.

To the opponents of domestic roaming I say this… if you don’t think domestic roaming is the best solution, ok. But I have to ask you, what is your  solution?

In this debate, I have not heard any genuine alternatives.

The threats from the incumbent to withdraw regional investment just don’t make any sense.

Monopolies don’t drive investment, competition does.

As another Federal Member of Parliament put it, and I quote him: “to boast that a hefty chunk of Telstra’s capital expenditure over the last 10 years has gone to regional Australia’s mobile network, is either disingenuous or they just can’t add up, because I can’t see it on the ground here…”

The status quo is just not delivering satisfactory outcomes to people who live outside the major cities.

 

What about Vodafone?

I was recently asked – what will Vodafone do if the ACCC doesn’t make a domestic roaming declaration?

The answer is simple – we will carry on.

We will continue investing in regional areas wherever we can make a business case to do so. We will continue to duplicate existing infrastructure. We will continue to question whether wasting scarce capital on duplication of infrastructure is really the right answer, or whether collaboration and infrastructure sharing to extend coverage is better for regional Australia.

Across the Tasman in New Zealand, the three mobile carriers have just put forward an innovative proposal to co-invest with government to build over 500 new mobile base stations which would extend the land area coverage in New Zealand by twenty five percent.

The only significant form of collaboration in regional Australia uses the least efficient form of infrastructure sharing (co-location) under which the cost of everything except the physical tower is duplicated, greatly reducing the possibilities of new investment in infrastructure.

The New Zealand mobile operators have proposed using public funding to maximise the public benefit, building one regional network, sharing not just the towers, but the Radio Access Network, power and transmission, and providing a signal to all operators.

New Zealand has had regulated roaming for many years. The opponents of roaming in Australia will have trouble explaining what is happening in New Zealand, as roaming – in their eyes – is supposed to undermine further investment. But the carriers in New Zealand have continued to expand coverage and have now jointly proposed yet another substantial increase in regional investment. If you are looking for evidence that regulated roaming undermines investment, I once again question why all the evidence points in the opposite direction.

We will continue to ask for better regulation of monopoly inputs which can only be bought from Telstra – especially co-location and transmission.

We will continue to expose the numerous subsidy systems which have further protected the incumbent from competition, and question new subsidy systems whenever they bring risks of inefficiency and raise barriers to competition.

We will continue to run a successful, sustainable business.

For consumers and businesses in regional areas, it will be a missed opportunity if roaming is not regulated.

Taxpayers will continue to bear the burden for investment which the private sector could have undertaken to a greater extent if the barriers were lowered.

 

USO

Vodafone has been strongly advocating for reform of the three hundred million dollar a year USO for many years.

Many voices have joined us to call for change and it’s now getting to the point where it’s become almost impossible to defend the current set up.

While we expressed serious concerns about the USO model for some time, even I was surprised at just how damning the Productivity Commission’s draft report was.

The report reveals that what makes reform so urgent, is the lack of transparency, accountability and controls.

It is very troubling to think that three hundred million dollars a year, including $100 million in direct taxpayer subsidies, is handed over to the incumbent every year, Six billion dollars over the 20 years of the contract.

The Productivity Commission pointed out that fixed lines and payphones are in fact being shut down. Even they couldn’t get precise numbers, but they think that around 25% of fixed lines and 50% of payphones appear to have been shut down.

When the PC’s final report is released later this month, it is critical that action is taken. Government subsidies in any form must be transparent, and ensure a level playing field.

Before we introduce other schemes like the Regional Broadband Scheme, let’s focus on fixing the current USO.

And in doing so, it’s highly likely that we will free up substantial funds to cover the RBS.

The time for more reports and reviews is over. We need to move forward as quickly as possible.

 

Spectrum

A third key for Australia is a long term spectrum strategy which will ensure that we are always at the forefront of technological advances.

As we move closer to 5G, this becomes even more important. We have the benefit of working closely with our two shareholders who are on the leading edge of 5G development internationally.

5G will leverage new features such as beam-forming and massive MIMO technologies to drive massive increases in the throughput and capacity of mobile networks, and drive latency down to below one millisecond.

This will enable a new generation of solutions, from driverless cars, precision farming, e-health, water and energy monitoring and management and many other applications which have a huge potential for Australia, particularly regional Australia.

Not only will new spectrum need to be made available, but far greater quantities of spectrum will be required and we must make sure that Australia benefits from global ecosystems by designing a spectrum strategy that is compatible with other bigger markets.

We need to learn the lessons of the regional 1800 MHz spectrum. For many years this was severely under-utilised – to support a few fixed point-to-point links which could be provided through other spectrum bands and technologies. Leading edge competitive 4G services couldn’t be rolled out outside the major capitals.

Once this spectrum was re-assigned by the ACMA through an orderly process, it was auctioned, yielding hundreds of millions of dollars for government and enabling rapid deployment of 4G services in regional areas virtually overnight. A great result, but one which took many years too long.

I fear that we might be looking at another such situation. It has only become clear in the last year that the spectrum bands which are by far the biggest opportunity for internationally aligned 5G services are the 3.4 to 3.7 GHz bands.

Other possible spectrum bands do not have sufficient international alignment, and therefore risk leaving Australia unable to leverage the global technology ecosystem.

While we need to take account of the rights of existing users in any spectrum re-allocation exercise, we have an over-riding duty to maximise the public benefit of spectrum allocations. This has to be done by following a similar application for spectrum bands as the large markets that define the availability of equipment. Whether its radio equipment or consumer devices.

Just to show that we don’t disagree on everything, I would note that Telstra made a submission in 2014 pointing out that this was the best 5G candidate band and great caution should be taken in assigning it for other uses.

What I am advocating is simply a discussion to identify the options. The current owners of that spectrum must be able to deliver its services, and at the same time the right spectrum has to be made available to industry to benefit from the economies of scale on international standards.

There are definitely numerous alternative ways to ensure that both of these important objectives can be delivered. We should not assume that they are mutually exclusive without a quick but thorough examination of the options.

 

FUTURE OF TELECOMMUNICATIONS RELIES ON NOW

While we talk about the importance of competition and choice for our telecommunications now, it will only be more crucial in the future as how we work and play continue to evolve.

We need to explore new ideas and break the mould to allow Australians to continue to punch above their weight and compete on a global scale.

This is a great industry, one that creates a fundamental, vital infrastructure for the competitiveness and innovation of the country. The Internet of Things has the potential to increase productivity and capability in ways we’ve never seen before.

One industry in particular where IoT can make the biggest difference is farming.

Vodafone is a world leader in M2M services – as a supplier of global products such as livestock monitoring, remote machinery, vehicle tracking, and remote diagnostics.

These innovative M2M services are already available in many countries, including New Zealand, where they are driving productivity gains and it’s our intention to invest and continue delivering these solutions also in Australia

If we are able to remove the barriers which have been raised to competing on a level playing field in regional Australia we will all benefit from incremental investment,  which means that the industry will be able to bring these and other solutions to more places in Australia.

This will increasingly have a huge impact on productivity in regional Australia and this country’s ability to innovate in the agriculture, mining, transport and energy sectors.

  

CONCLUSION

This year, collectively as an industry, and also as individuals, we have a choice.

We can tell ourselves, and we can tell Australians in regional areas, that the current set up is good enough, or that it’s as good as it gets.

Or we can challenge the status quo, and work collaboratively to ensure Australia doesn’t fall behind the rest of the world.

At Vodafone, we will continue to propose solutions to promote competition, a level playing field, innovation and more and better choice for customers.

Thank you.