Rudd Launches Broadband Policy; Abandons Opposition To Telstra Sale

The Opposition Leader, Kevin Rudd, has announced an election policy which commits the ALP to investing up to $4.7 billion in partnership with the private sector to build a broadband service which will cover 98 per cent of the population and deliver speeds forty times faster than currently available.

Describing the policy as a contribution to “nation building for the future”, Rudd said a commitment to broadband infrastructure was on a par with the commitment to railway construction in the nineteenth century.

Rudd said the policy would be funded with $2 billion from the existing communications fund with the remainder to be taken from the Future Fund’s 17 per cent share of Telstra. This proposal led to a savage response from the Treasurer, Peter Costello, in Question Time.

The Shadow Minister for Finance, Lindsay Tanner, said the ALP now accepted that it had lost the fight to retain Telstra in public ownership and is now “absolutely committed to building the broadband network of the future”.

Ditching the ALP’s long-time support of a government-owned Telstra appears to be part of a strategy by Rudd to rid himself of awkward policy positions adopted in recent elections. It follows an announcement earlier this week that the ALP was abandoning its policy of cutting funding to private schools.

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This is the transcript of the press conference held by Kevin Rudd, Lindsay Tanner and Senator Stephen Conroy.

Rudd:

Today, Federal Labor has taken an historic decision to build a world class national broadband network. We believe this is a critical step when it comes to Australia’s long-term economic future. We’re proposing to invest up to $4.7 billion in this proposal in a partnership with the private sector for it to be constructed over a five year period which will deliver for 98 per cent of Australians, a broadband service which is up to 40 times faster than they currently enjoy.

We regard this as an important part of nation building for the future. Nation building in the 19th century was about building a new national railway network for Australia. Nation building for the 21st century lies in building a new national broadband network. It’s part of our pathway to the future. Why is this necessary? When you look at Australia in the international comparative data – we have a problem on our hands. We currently have the 17th broadband take-up rate when measured across the OECD, that’s the 17th fastest. We also, when it come to the measurement of world broadband bandwidth, we are currently lying something like 25th in the world. Against those measures we have a problem in terms of our international economic competitiveness and any analysis who has looked at this over a period of time will look at that data and say that unless it’s fixed, we’re going to face a real problem in term of long-term productivity growth.

Our overall critique of the Government’s performance of the economy has been this: that we’ve seen productivity growth fall when we’re going to build long-term economic prosperity beyond the mining boom, we’ve got to do something about turning around productivity growth. One arm of that is Labor’s Education Revolution, how do we actually boost the level of investment and the quality of investment in education, skills and training. The other arm of our strategy is infrastructure and a critical part of that infrastructure strategy is what we do with broadband. If we get these two things right, we believe that we can equip the Australian economy for the needs of the future.

It’s also critical for the needs of the small business community, the small business sector. When you speak to home-based small businesses right across Australia, what they’re saying to us at a local level is that they can’t actually get their home-based businesses up and functioning properly because they’ve got problems with broadband access and broadband speed. Also, when it comes to the Education Revolution itself, when it comes to effectively communicating modern curriculum right across the country, curriculum support materials, we need an effective broadband network in order to do that as well.

And then regional and rural Australia. You can’t travel anywhere in the regions in rural Australia today without running into this as a very large problem. Therefore, against all those measures, productivity growth, the small business sector, education needs right across the school communities of this country, in addition to regional and rural Australia, we think this is a correct step forward.

On the question of the shape of the national broadband network, I’ll turn to that in a minute to my two colleagues here, other than the remarks I’ve just made before. On the funding, $2 billion of this funding will be drawn from the existing communications fund. The remainder will be taken from the Future Fund’s 17 per cent share of Telstra. We believe this is an important step forward for Australia. There’s been inaction, inaction big time when it comes to the development of an effective national broadband national network to meet the future demands of the Australian economy. This is a gaping hole in the Government’s economic performance to date. It is retarding the development of Australian business, in particular small business into the future and we look forward to taking this proposal forward to the Australian community. And of course, we will be taking it forward to the National Conference of the Australian Labor Party, where I would hope and expect to obtain the conference’s support for this course.

Conroy:

Thanks so much Kevin. As Kevin said Labor 12 months ago proposed a national private network that would add six megabits per second and it was what we termed an open access network and that was the key to stimulating productivity, stimulating economic growth, stimulating provision of services to school kids, to small businesses, to macro economic settings. This proposal remains an open access network, it remains a joint venture. It’s a proposal that takes the equity that we have currently in the communications fund, take the equity we currently have through the Telstra shareholding and moves it into a joint venture.

There will be a competitive process. The really pleasing part about how the debate has shifted in the last 12 months is that not only have Telstra changed there proposals that they’ve been talking to the ACCC about, not only has G9 formed in a basic copy of Labor’s model, both of them now talk about an open access network. Both of those and any other potential providers will be involved in a competitive process bidding for access to the joint venture with Labor’s $4.7 billion. So, this is designed to stimulate private investment, to bring the best out of the competing proposals that are on the table at the moment and bring them together with Labor’s proposal on a joint venture. And in terms of the details of the Telstra shareholding I might pass over to Lindsay.

Tanner:

Thanks Steve. Labor has fought long and hard in support of public ownership of Telstra, today we are acknowledging that we have lost that fight. Telstra, a share ownership on the Government’s part, is now (inaudible) 17 per cent and there is every prospect because of a specific provision in the Future Fund legislation, that it could well be much smaller than that by the time of the election. That is now a passive shareholding, and we accept that we can no longer defend the idea of 17 per cent shareholding in Telstra being in the public interest. We therefore believe that we have to redirect this investment into another telecommunications investment which will be the broadband network that sets Australia up for the 21st century. That is crucial to growing our economy, to lifting productivity and ultimately, lifting Government revenues.

In making this decision we are very cognisant of the fact that there have been two key issues at the heart of our case for keeping Telsta in public ownership and building this network will mean that most of those issues will in effect migrate to being involved with the new network. The two key issues are competition and ensuring that we don’t have a giant private monopoly effectively dominating telecommunications in this country and in particular, the core infrastructure, that’s been a crucial argument in favour of keeping Telstra in public ownership. And secondly services in regional and rural Australia, ensuring that there is a substantial Government involvement in capacity to guarantee that all Australians have access to decent telecommunication services.

We accept that we have lost the fight to keep Telstra in public ownership. We also are absolutely committed to building the broadband network of the future. The shambles that the Government has created with respect to the intersection between Telstra ownership and market dominance on the one hand and the regulatory regime on the other have made it impossible for them to resolve this issue. We are going to invest to build that network and as that network is built, more and more the question of whether there is decent competition and whether there is the capacity to unduly use monopoly power, those issues will migrate to the new broadband network so there won’t be Telstra ownership issues anymore. And secondly the question of the standard of services in regional Australia will largely shift to being a question of the capacity and the quality of that network.

So, we are looking to the future. We have fought a long, hard battle, myself more than most to keep Telstra in public ownership. We accept we’ve lost that battle. We think that rather than a passive investment which will ultimately be transferred into investments in other shares, other passive shareholdings so the Government will sell down and Telstra shares will be traded for Coles Myer shares or BHP shares. We intend to invest some of those proceeds in building the future broadband network that will set Australia up for the 21st century.

Journalist:

Mr Tanner, how often do you envisage raiding the Future Fund to pay for election promises?

Tanner:

This is a specific commitment that relates to something we said shouldn’t have happened, should never have been in the Future Fund in the first place. And secondly I’d point out that the Government’s own legislation has a clause in it, Section 8 of the first schedule from memory, that specifies that the Government itself can interfere in the way the Future Fund handles the Telstra shareholdings. So, the general arrangements with respect to the Future Fund, the Government’s arrangements is a hold at arms length arrangement, the Government not intervening, they don’t apply with respect to the Telstra shareholding. There is a clause in the legislation the Government put there themselves to enable them to interfere with respect to the management of the Telstra shares.

Journalist:

So this might not be a one off?

Tanner:

I can’t comment on other specific propositions, they’re still obviously in consideration a whole range of policy areas, so I’m not going to be drawn on the question of what further approaches we will take in this regard. But the big thing here is that this is equity for equity, so it’s one financial asset that is being transformed into another financial asset and secondly, it’s telecommunications for telecommunications.

Journalist:

Mr Rudd, how much of a battle do you think you’ll have at the ALP Conference (inaudible) platform from public ownership to what is essential private ownership (inaudible)

Rudd:

Well I’m always up for a fight and if there’s resistance to that, my intention would be to prevail. The reason for that is that I think this is part of our best tradition of nation building. As I look out into the future and I look to the needs of the 21st century economy, it lies very much with the development of a national broadband network. Therefore, we being the Party of the future will grasp that vision and will go forward. Will there be resistance on the way through? Of course, it’s the nature of any democratic political Party. We had a robust debate today in the last couple of hours in the Caucus, but we believe this is the right course of action for the country. We believe the Government has failed to act in this area for some years now and small business and business in general and the community more broadly in regional and rural Australia has suffered as a result.

Journalist:

What will you do for cash if the Government raids the Future Fund (inaudible)

Tanner:

Obviously I’ve got not idea of what the Government’s intentions may well be, but the important thing to understand here is that this is capital, this is a Government investment that is in a company, it’s a shareholding. What we are proposing to do is to change some of that into shareholding in another company. What the Government intends to do is also to change it into shareholdings in a whole lot of other companies that will be passive shareholdings that will be dribbles, BHP shares here and Coles share there and Woolworth’s share there and whatever. So, in effect all we’re doing is changing one investment, which we think no longer serves a public policy purpose because we lost the battle about public ownership with Telstra into another investment that we believe will both do the job, ensure that Australia does get the broadband network that we all need and also give the Government a very substantial say in both the development and operation of the network and enable us to guarantee that there’ll be genuine, open access, genuine competition and genuine services for people in the bush.

Journalist:

Can this succeed if Telstra doesn’t come on board? And if they don’t, are you going to create a new monopoly?

Tanner:

Look, ultimately, it’s in Telstra’s hands as to whether or not they choose to bid or to seek to be a participant in the negotiations. Equally, it’s in the hands of the so-called G9 and the various other telecommunications companies that have come together with an alternative proposal. It’s important to note that a year or two ago Telstra put to the Government a not totally dissimilar proposition so I believe that it’s very much in Telstra’s interests for them to seek to be a part of this. But ultimately, they’ll have to make their own decisions.

Journalist:

Just to be absolutely clear, is there going to be any draw down on the assets within the Future Fund or is it simply a transfer of assets into another (inaudible) ?

Tanner:

It’s effectively transferring an asset into another asset. So, in other words, it’s still an investment, you are still generating a revenue stream in the case of people paying for access to the network. Access to the network won’t be free. It’s not free in the current network. That would generate a revenue stream that generates returns to the investors. The question of the detail of that, of course, is a matter for negotiation with prospective private partners, be they Telstra or any of the others.

Journalist:

And on a linked question, Mr Rudd, on the future of the Future Fund, would there be any future draw downs on the assets and the money that’s in it (inaudible) ?

Rudd:

Look, our intention at present purely relates to what monies have been delivered to the Future Fund by the Telstra holding of 17 per cent and, therefore, the importance, as Lindsay’s just indicated, of reinvesting that asset in a new telecommunication, or new communications technology for the country – that’s the national broadband network. We think this is the right way to go. We also think it makes a lot of sense. This has not spontaneously combusted so far out there in the community. It just hasn’t happened. Go across the country, it’s not working, we’re falling behind, businesses are suffering, families are suffering, regional and rural Australia is suffering. We think this is a smart way to go. But we want to do it in clear cut partnership with the private sector and as Lindsay’s just indicated, we’re not in the business also of simply putting up a bunch of money for no return. This is an equity investment and, therefore, it is one from which we expect to derive a revenue stream in the future as well.

Journalist:

(inaudible) …increasing the speed from six megabits to 12 per second. What’s the difference between this policy and what Kim Beazley announced in his Budget Reply last year?

Rudd:

Well, we have put together a very clear cut timetable for this. We want it to be done within five years. Secondly, in terms of the speed and capacity of the system, that’s critical. If you look at what the Internet Association of Australia is saying in terms of the future needs of the economy in this area, it’s much more in the direction of 12 and six and, therefore, we believe we need it to adjust. And accordingly, I’ve got to say, that pumps up the price some considerable extent. That’s why we’ve had to resort to other funding models of the type we’ve been describing here today. We think, again, this requires a bold decision. It’s an historic decision for us. But in terms of the economy’s future needs, we are absolutely confident it’s the right decision.

Journalist:

Mr Rudd, (inaudible) …to raid the Future Fund at all, why can’t this be accomplished with the correct regulatory framework for Telstra and other providers?

Rudd:

Well, the question of the future regulatory framework, as Lindsay has indicated, we intend to be in discussion with any set of private interests which may wish to participate in this proposal with us, Telstra and non-Telstra, or whoever else. Part and parcel of that, and will be canvassed, I think, in the statement we’re putting out today, is a discussion with them about the appropriate regulatory framework which would accompany that. Our policy objective is clear: it’s to get this system out to people who need it within the quickest timeframe possible because businesses and competitiveness and productivity is suffering as a result. The regulatory regime is part of the answer there. The other part of the answer lies in the quantum of the investment.

Journalist:

Would this require a dollar for dollar from the private sector (inaudible) ?

Tanner:

We haven’t set a specific amount and the $4.7 billion is essentially a ceiling on what Labor would intend to invest on behalf of the government. There is every prospect that we would not need to invest to that level. The intention is to hold a commercial negotiation with the aim of (inaudible) quality between private and public partners. But I don’t think we’ll be hung up about absolute precision in that. The key thing is that both parties are coming to the table with serious investment to ensure the network is built.

Journalist:

(inaudible) …broadband for the whole nation.

Tanner:

No, it doesn’t. There are significant limitations on any wireless technology, a range of limitations which mean that, although in some instances it does compete with fixed line broadband, it can’t compete universally with fixed line broadband. Obviously, it’s an evolving market, evolving technologies and one of the reasons why it’s important for the private sector to be involved and to have serious investment dollars here is as a market discipline with respect to the wider investment. So, the partnership is crucial. It is important that you’ve got both public and private sectors in here, in part because you want that market discipline, people taking the risk because of those technology issues.

Journalist:

(inaudible) …the G9 Group and what was their initial response?

Tanner:

Look, I’m afraid I can’t respond to that, I’m sorry, Lenore, because I know Steve Conroy is in regular communication with both of them and if you’re going to the Press Club ask him at the Press Club.

Journalist:

Are you confident it’s big enough. (inaudible) sort of an evolving thing when you’re talking about a 40 per cent increase in speed, which is supposed to be a nation building thing for the 21st century. I mean, where are they going to go?

Tanner:

Look, again, Steve will be able to give you a more detailed answer than I can but certainly the key thing here is that the technologies that matters most are the boxes at the ends and once you’ve actually got the fibre in the ground with the given amount of capacity, ultimately the key things are the boxes at the ends. And what that means is that as long as you’ve got the capacity and the scope for upgrading into the future, which I think we will have, then that particular concern is covered. It’s also important to point out that we are identifying 12 megs as the minimum guaranteed standard. In practice, we would expect that substantially faster speeds would be delivered to a very large proportion of the Australian population.

Journalist:

Mr Tanner, just to clarify, does this take all the government shareholding in the Future Fund?

Tanner:

No, nothing like that.

Journalist:

What happens to the rest?

Tanner:

Our view would be, at the moment you’ve got 17 per cent, we don’t know what that will be – and keep in mind, this is only a minority of the total Future Fund, it’s one component of it, it’s governed by a separate piece of the legislation, roughly 17 per cent at the moment. The general view is that for a balanced portfolio you would expect the Future Fund to maintain about five per cent after the ban on it selling down on the 17 per cent is removed in November next year. What we are proposing to do is in effect accept the Government’s position on that and to say that in the process of that sell down, as well as drawing on the $2 billion that’s in their communications fund, the capital in the communications fund, in the process of that sell down we would draw on some of those proceeds and the rest would remain in the Future Fund governed by the same arrangements.

Journalist:

So, this won’t have any budgetary impact?

Tanner:

No, that’s correct. This is a capital transaction. It’s changing one investment to another that is broadly equivalent to what the Government’s proposing to do, which is to sell Telstra shares and buy BHP or Coles.

Journalist:

(inaudible) …eventually sell down public sector holdings or would the government run the national broadband network forever?

Rudd:

Our intention would be to build the network rather than, at this stage, having any to plan to sell it down. Our challenge here is to actually make sure that the network is established because, frankly, there’s not one at the moment.

Journalist:

So, the Government would remain a shareholder in this in perpetuity.

Rudd:

Our intention would be to build the network. I’ve got to say, we’ve got a five year period ahead of us to build that network. We are confident that the partnership model we’ve put forward with the private sector is the right way to go. We are confident that we’re doing this in an economically and financially responsible fashion. It will be revenue generating as well and, therefore, we have as our objective to have this up and done over that five year period. Beyond that, let’s talk about that in due season. But I’ve just got to say, our intention is to build the network.

Journalist:

You said there was a discussion in Caucus this morning. Why was it so hard to convince your colleagues that this is a good idea?

Rudd:

Well, far be it from me to go to the details of Caucus discussions. I’m sure you’ll find out about those in about 15 minutes. But, no, it’s just a normal part of internal party democracy; a range of views expressed, these are deeply held views one way or another, but everyone in the Parliamentary Party wants to get on with the business of laying out the infrastructure for the 21st century. This is a big decision for us. This is an historic decision for us but we’re prepared to take it. We think it’s the right way to go. There’ll be debate between here and Conference, and at Conference I accept that. But you know, in life there aren’t many easy solutions to difficult problems. This is a difficult problem. We think we’ve come up with the best fix for it.

Journalist:

(inaudible) …inherently mean, though, that the subsidy (inaudible) protecting the people in the bush (inaudible) ?

Rudd:

When it comes to, say, two per cent of Australians who will not be able to be beneficiaries of this particular proposal, we want to make sure that they get the best services possible through other technologies and other systems. We had a spirited discussion about that this morning as well. They are near and dear to our hearts, particularly those people who live in remote Australia, and we want to make sure that they have the best services possible, the absolute best services possible. And coming from a State like Queensland myself, and I see people here from Western Australia, this is particularly important when you get outside the capital cities.

Journalist:

Have you (inaudible) basics, in five years time under this plan, does it effectively mean that taxpayers would own half of a multibillion dollar broadband network.

Rudd:

Well, in terms of the architecture of it, we are looking at a joint venture with whichever private sector participant comes forward and that’s going to be the subject to a detailed commercial negotiation between ourselves, as the alternative government, and would-be private sector providers. In terms of the shape of the joint venture, our broad approach, at this stage, is that we’ll be looking at 50 per cent public equity.

Journalist:

And what happens to the government plan at the moment? I think (inaudible) has got a (inaudible). What happens to that? Is that going to be complemented or does your plan replace it?

Tanner:

None of the money that we’re drawing on is involved with that and obviously we would honour any commitments that are in train with the respect to – you’re referring to the broadband connect fund, there are already people who have been short changed with respect to that fund who are complaining vociferously about the problems they’re now encountering as a result of that. So, none of this really trespasses on how we would deal with those issues and obviously if you’ve got a situation where, for example, a contract is already signed, we have no intention of overturning any of those.

Journalist:

Kevin Rudd, public-private partnerships have copped a bit of a rough time in recent times, particularly with some of the States, particularly New South Wales, and some of the (inaudible). Does this model suggest that if Federal Labor is elected, you will pursue other sorts of public-private arrangements? And does that mean that you will soften your long-held opposition to private hospitals, private beds?

Rudd:

PPPs – the ultimate question lies in how they’re constructed and what their financial architecture is. And I make no comment on individual PPPs (inaudible) around the country at the moment, they’re all different and different sets of financial arrangements. What we’re concerned about here, though, what we’re absolutely concerned about here, is getting the policy objective delivered because what we’re talking about is a great enabling technology for the future economy.

As I said before, it’s in the business of nation building in the 19th century, you created a national railway network. In the business of building the economy in the 21st century, you need a national broadband network. What we’ve put forward is we think is the most market-sensitive way of doing it. But we also think it’s one which properly honours the responsibility of national government to deliver the end point, to make sure it actually happens and we’ve got to zip.

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