Speech by Vodafone CEO Iñaki Berroeta

Australian Chamber of Commerce and Industry luncheon, 22 September 2016

INTRODUCTION

Thank you, Paul.  Good afternoon, everyone. It’s a privilege to be with you today.

I would like to thank the Australian Chamber of Commerce and Industry, in particular Terry Wetherall, James Pearson and Paul for bringing us together.

Thanks also to Gavin Smith from Allens for kindly hosting us.

And it was great to hear from the Minister about the government’s plans for the communications industry.

VODAFONE JOURNEY

Last month marked two and a half years in my job at Vodafone Hutchison Australia.

It’s said a week is a long time in politics, and I’m sure the Minister can attest to that.

But in the telecommunications industry, I can tell you that a year feels like a blink of an eye.

This industry, particularly mobile, is continually evolving.

It seems like every day, there is something new – whether it’s the iPhone7 or an app which has millions of people chasing Pokémon around at three in the morning.

When I arrived in Australia in early 2014, people were using the iPhone 4, Instagram and Snapchat were only just starting to gain traction, and customers were learning first-hand about bill shock… being stung $200 for a gigabyte if they went over their data allowance.

A lot has changed in that time.

A DIFFERENT WAY OF DOING BUSINESS

One of the reasons Vodafone has achieved so much success over recent years is our approach to how we do business.

We have changed the rules.

Our model is based on a fundamental shift to a fair and transparent way to charge for services – a model which has gained the trust of our customers.

One of the examples of what we have done to change the market for the better is international roaming.

In 2013, Vodafone launched $5 Roaming – which allows customers to use their mobile plan overseas for just an extra $5 per day.

We have extended $5 Roaming to more than 50 countries, and even introduced zero dollar roaming to New Zealand.

If you travel to New Zealand and you pay anything to use your mobile, you are with the wrong provider.

In the first six months of this year, our customers used $5 Roaming over one million times.

And between June last year and June this year, we achieved 60 per cent revenue growth from $5 Roaming.

Before Vodafone was a true competitor in the market, customer bills were almost impossible to understand.

You’ll remember the concept of a $70 plan which claimed to have $1,000 of included value.

It’s virtually non-existent in the market now, with unlimited calls and texts now the norm.

And similarly with a standard $10 per gigabyte overage, instead of hundreds of dollars.

Some of these moves have been copied by our competitors…and that’s good.

We are really proud that we have been able to lead the way and shift the market for the benefit of all consumers.

COMPETITION AND CHOICE FOR CUSTOMERS

This way of doing things is serving us well.

We continue to invest heavily. We have a 4G network which reaches more than 22 million Australians, and our customer base is growing.

Vodafone is not only back, we now have a clear role in the market – to offer customers the choice and freedom to connect the way they want.

And just as we have done for consumers, we see a lot of opportunities to make a difference in the Enterprise market.

We know that businesses are often charged twice as much as residential customers for exactly the same service.

Last year, we again started serving Enterprise, and that part of our business is performing strongly.

We’re also looking at whether a fixed proposition would complement our existing consumer and Enterprise mobile business.

If we do enter the Fixed market – just as we have done for mobile – we would do so in a way which provides something different to what customers are currently offered.

ROLE OF MOBILE IN THE AUSTRALIAN ECONOMY

We know that mobile is increasingly important to the Australian economy.

Mobile drives productivity and opens up opportunities for businesses to interact with their customers.

But Australian business doesn’t start and end in our capital cities.

This is especially the case in industries which are key drivers of the economy – agriculture, mining and tourism – all of which are inherently regional businesses.

Unfortunately, in this country, we have a telecommunications competition divide.

In the major cities, consumers can choose from three world-class 4G networks at competitive prices.

But in regional Australia many consumers don’t have coverage… or have some coverage, but don’t have a choice.

This is not only due to Australia’s extreme landmass and dispersed population, but worsened by many legacy policy and regulatory dysfunctions.

Vodafone is investing heavily in regional Australia, but the reality is there are many areas outside major regional centres where it simply does not make any economic sense to duplicate infrastructure.

Other countries with similar challenges have dealt with this head-on, driving various forms of infrastructure sharing and public funding as the key to delivering better outcomes for consumers.

VODAFONE LEADING THE CHARGE

One of the unique things that surprised me about this market when I arrived is the way in which government – both state and federal – invests in regional areas.

Billions of dollars have been pumped into regional telecommunications infrastructure over the years, but virtually all of it has been channelled to the incumbent… consolidating even further its legacy monopoly.

It would be reasonable to assume that infrastructure funded by the taxpayer would be available to everyone, and that subsidies would be carefully constructed so as to not harm competition.

In most countries, State Aid rules demand this – but that has not been the case in Australia.

However, I am confident things are starting to change for the better for consumers.

The Productivity Commission is examining the Universal Service Obligation – the arrangement which sees $300 million each year go to Telstra to provide a fixed service in areas where taxpayers have already spent billions building the NBN.

The Federal Government has established the Mobile Black Spot Programme, which requires the winning bidder to share with other operators the infrastructure it builds with public money.

In April, the ACCC ordered a 78 per cent reduction in what Telstra is allowed to charge us and other operators for regional transmission – an essential service required to add new mobile base stations to the network.

This effectively means that Telstra had been allowed to charge five times as much as it should have.

Telstra’s network has been funded not just by taxpayers, but also by the rest of the industry through these cross-subsidies.

The Commission is also conducting a broad-ranging Market Study into competition issues in the communications sector, and we expect a strong focus on regional Australia in that study.

And earlier this month, the ACCC announced an inquiry into a domestic roaming declaration.

DOMESTIC ROAMING

There have been a lot of emotional and frankly misleading statements made about domestic roaming over the past two and half weeks.

And I’ve got three points I’d like to make on this –

Firstly, it is completely reasonable for the ACCC to investigate whether regulated domestic roaming could benefit consumers in regional Australia by providing them increased competition.

Telstra proudly proclaims that its network is over one million square kilometres larger than its nearest competitor.

But again, this is the result of public subsidies and regulation, and it leaves millions of Australians without a choice in mobile.

The interests of consumers need to be front and centre of this inquiry, and it has been very disappointing to see they have been largely forgotten in the discussion to date.

After all – the ACCC stands for the Australian Competition and Consumer Commission.

The test the ACCC will apply in deciding whether to regulate domestic roaming is – what is best for Australians in regional areas.

Secondly – and let me make this very clear – domestic roaming is not a “free ride”.

It is a network sharing arrangement where operators pay a market price for their customers to use another operator’s network, either through a commercial agreement or regulated pricing.

Either way, the roaming provider would earn a fair rate of return. You can only object to this if you believe that the incumbent telco should continue to earn an unreasonable rate of return.

And finally, much of the rhetoric is based on threats of reduced investment in regional areas – a tactic aimed at creating fear and uncertainty.

There is no basis to these threats and there is no evidence internationally that regulated domestic roaming reduces investment.

There is a long track record of data on what happens when you regulate domestic roaming – you only have to look to the US, Canada, France or New Zealand which regulated domestic roaming in the last decade.

The larger operators in those countries all raised similarly predictable threats that regulated roaming would undermine investment, but most saw significantly increased investment following regulated domestic roaming.

By having continuity of coverage, Australian operators would be able to invest in areas where there is the population to support duplicated infrastructure, as they can offer service to customers who travel further afield.

The largest operator would receive significant roaming payments from other carriers, effectively subsidising further investment in network expansion.

Roaming has the potential to make a fundamental step-change in competition in regional Australia, finally offering regional Australia a choice rather than being forced to pay whatever a monopolist decides.

There are many credible groups and individuals speaking out in support of domestic roaming including regional, farming, community and industry bodies, and regional MPs.

Domestic roaming is a serious issue that should be complemented by a rational, factual industry discussion – not driven by threats and a scare campaign.

CONCLUSION

So, as I said at the start, there’s never a dull moment in this industry.

In the next year, the NBN will have a significant presence and we will know the outcomes of the ACCC Market Study, both of which will change the future of telecommunications in Australia.

If the right calls are made by decision makers now, it will set up this country for the future – unlocking enormous economic, social and technological potential.

Thank you.