CommsDay Turns 30: Tim Marshall in conversation with David Kennedy

Well, hello and welcome back to Comms Day Live. I'm Tim Marshall, a former Comms Day editor and host of this short series celebrating the first 30 years of Communications Day, the newsletter of record in Australian telecommunications. Previously in this series, we've spoken to Graham Lynch, Comms Day founder and publisher, and in these upcoming conversations, we'll be speaking to a number of industry players from different viewpoints about their reflections of the last 30 years.

Joining me now is David Kennedy, currently Managing Director with Respected Research and Analysis Outfit Venture Insights, and with a background spanning research, policy, strategy, and consulting. David, welcome, and thanks for joining us. Thanks very much, Tim. David, you've had a unique position as an observer and analyst of the sector for many of the last 30 years, the first 30 years of Communications Day.

But if I get this right, back in 1994, it seems a long time ago, and for a number of years after that, you were very close to the action, particularly with respect to policy. What were you doing around that time? And can you remember what it was that first interested you or drew you towards telecommunications? Well, my degree was in science, physics specifically.

So I had an interest in the tech sector from the beginning. and I had landed a job after I graduated in a little outfit in Parliament House called the Parliamentary Library and I was doing some research work there for various members of Parliament, mostly backbenchers who didn't have departmental resources and in that period I got to of course cover the telco sector but I also got to know the staff in the office of the then opposition spokesman for communications, Richard Alston.

And at one point, they invited me to join the staff, which I did in 1993, and stayed in Alston's office until late 1997. So we went through the 1997 telecommunications reform process. I was the lead advisor in the office on that. And since then, I've done consulting work for the Malaysian government as well. That was in 97, 98, and in fact, joined the Department of Communications.

Later and did the convergence review in 1999 for the department so it was a busy decade, and gave me a great opportunity to see how policy was being formed in the sector and an exciting time of course because we were moving to full infrastructure competition then lots of change and lots of new investment gsm technology coming in it was a period of great change i think a great period for the industry as a whole because there was a lot of new revenue of course being generated by mobile.

And those were really, I think, the salad days of the industry. Indeed. There's been a bit of reflection in this series about the last 30 years being more or less the history of the public internet in Australia, switching, I guess, in a gradual sense from an analog calling environment to an online digital information ecosystem that we're still moving through today. Do you remember when you first came across the internet?

Net what did you what did you make of it at the time and did you have any sense do you think and those around you have any sense of the impact that would have over the years to come well the first time i encountered the internet was as a student i was doing some part-time study at the defense force academy uh and got my first email account there and from there downloaded this dodgy software called Winsock from somewhere. I don't know where the heck I got it and put it on my computer and was able

to get Netscape working on my computer. That was around, I would have been 93, I think. And you could tell even then that this was going to be very big. And I think what really brought it home to me was that. Was the graphical user interface. Once you saw that, you could see the potential for what this could do for media and what the implications of that might be down the track. Up to that point, it had mainly been about bulletin boards. Anyone remember those?

But once we got graphical user interfaces and the ability to do pictures and even video, I think at that point it became very clear that this was going to be a very disruptive technology. Yeah, I think that's true. I guess further to that, in a sense, you could say that everything that's been done in the telecommunications sector since that time has more or less been a reaction to accommodate or manage the internet and the changes it's brought, whether that's the technology evolution,

equitable access or consumer protections and the like. Do you agree with that? Do you think we've really understood that context through the years? Yeah, I think that is true. In terms of whether we've understood it, I don't think we've ever fully understood the implications, and we probably still don't. There's more to come, I'm sure. But the internet has been, I think, the driver of disruption and policy change in the industry over the last 30 years, and in several ways.

I mean, you mentioned, and we mentioned, of course, media and the ability to deliver new kinds of services over the telecommunications network. But on a technology level, of course, it's also about the IP protocol and how that's changed the way we manage networks. The networks we have today are completely different to the ones that we had 30 years ago. I can remember that it was a big deal when we got digital exchanges in Australia

in the 1990s. Nowadays, of course, the whole network is a programmable tool. And that has opened up all sorts of opportunities and disruption in areas like, say, SD-WAN, the ability for managed service providers to create new kinds of services on the top of wholesale inputs. I think the IP protocol is what's really made all that possible. So yes, internet has been the major enabler of disruption in the industry over the last 30 years.

And there's still plenty to come because we're going to be having AI services running over that protocol in the next few years, which are in turn going to disrupt other industries. Yeah. I think that's very true. Let me put this to you as someone who's worked in government and watched things closely from a policy perspective.

If we accept that technology is the primary driver of innovation and change, what's the role of government in telecommunications? I guess I'm asking that in the context of all your years of observation, you're a participant as well, but observation over the years. What do you think is the right balance in how governments manage so many competing interests? I think that the principal role of government is about the management and the encouragement of investment.

And there are lots of ways to do that. In terms of the scale of the government's role, I mean, we can see with the NBN being a publicly owned corporation that, in fact, the government's role in the industry right now is big. It's not Not as big as it's ever been, but it is big. I contrast that to the view in the 1990s when the focus is really on private investment and encouraging private competitive investment in the industry.

There's been quite a change over the 30-year period we're talking about. But the common thread with everything is government's role in promoting investment in telecommunications.

And where the private sector has not stepped up as as as happened in the in the early parts of this century the government has stepped in as an alternative source of investment capital now now that's that's got its own issues and i think we shouldn't assume that the current arrangements with nbn acting as a quasi monopoly in the fixed market are necessarily locked in stone either these things do tend to go in cycles and some of you might recall that the vertigo review in 2014 which

i had some involvement in actually looked at that question about the potential privatization possibly even the geographical breakup of nbn and the reintroduction of infrastructure-based competition and i suspect that will come on the agenda in the next decade or so. If you look at what's going on in Europe, lots of fiber investment. There's a very strong emphasis on infrastructure competition in those markets. And that's delivering good results in areas like price and rollout and so on.

So I think at some point that's going to filter through to our policy debate here. And I think that we're going to see another phase in the cycle of government. Of government reform and policy change that could, I think, lead us back towards more competition in the long run.

Yeah, that's really interesting. I think that's a really valid reflection when you are looking over a time span of 20 or 30 or maybe even 40 years in an industry like this, that there is, you know, if there's a lesson to be learned is that there is no particular constant. Any major change we put in place is only there for a period of time. There will be other factors or perhaps unintended consequences that flow down the path over time that cause things to move in that cyclic nature.

And I guess in reality, when it comes to public policy, there is no perfect path. There's an educated gamble that's got to be taken at some point.

Is that fair? And therefore, if that's the case, what should be the guide rails for those decisions that are made? Well, I think that the guardrails that constrain the government policy are actually pretty wide. We've seen a lot of change in the priorities that the government has set for itself over the last 30 years. As I say, in the 1990s, very much a focus on competition and private investment.

And 10 or 15 years later, the focus had shifted to structural separation, to government investment in the wholesale layer. So what you don't really see, I think, is so much guardrails as a new set of problems arising in different times and different contexts. So once we got to the 21st century, the question became, how do we actually mobilize capital to guarantee a nationally accessible and uniformly priced telecommunications infrastructure across the country?

Now, I think that's actually a tough problem in a country like Australia, where you've got a continental landmass, relatively low population. We shouldn't assume that the solutions we're going to find will be the same as the solutions others will. I think that we need to keep an open mind about that. We need to learn from other markets, but shouldn't assume that we're going to be going down the same track as them all the time.

We look at some of those big changes in structure and the way to stimulate investment from time to time and different moments that we've had through those 30 years.

Certainly at times it's felt like in this sector there's been a bit of, I guess I might call it a theatre of guerrilla advocacy war for the national interest at times with no one party really being pure in that sense. How do you reflect on those dynamics of conflict in the industry over the years? And how do you remember some of the big events and characters and their impact? I guess it's an obvious example here. There was a long-running war around the structure of the market.

And we've got a large incumbent player there and the impetus to change the market in various ways. It was pretty robust from time to time. Yes, that's right. I think probably in that regard, we peaked in the Sol Trujillo period.

And that was, I think, a pretty decisive turning point for the industry because that conflict is actually what led, I think, the then government to say that the 1997 model needed to be revised and that they wanted to move instead in a direction of a publicly owned infrastructure company. And that was a pretty, I'd say, what's the word, a courageous decision. New Zealand went down a similar, though different track.

And I think in some ways, I think the New Zealanders came up with a model, which I think I would argue is a bit better than ours, in that they've left themselves a bit more optionality for the future in having a privately owned sector, having some geographical separations. So you actually do have independent companies operating in the industry. They probably have a bit more optionality in terms of moving towards competition in the future than we do. But hindsight's a wonderful thing.

Things might seem simple in one regard at the time, but they turn out to be... How should I put this? Probably need to edit this one a little bit. What was I trying to say? Yeah, it's actually impossible to anticipate, I think, all of the potential outcomes. You have to make a choice and you end up living with the consequences of those choices. So I think one choice we made at the time, back in 2009, was that NBN should deliver a commercial return.

And I think with hindsight, that probably was a mistake. In fact, if a commercial return were possible, it wouldn't have been necessary for the government to intervene in the first place. So I think that we should have left ourselves more flexibility at that time, and that may have resulted in perhaps some write-down of taxpayer capital, but I think it would have given us a better outcome on things like price.

Some may argue on the counter that the reform may have not got through unless it was structured in such a way and in such a blunt fashion. Quite possibly. Yes, that's right. I mean, decisions have to be made within the constraints, political and policy of the time. And as I say, we live with the consequences and we, of course, just do our best to mitigate those as we go along.

I think that's right. And keeping an open mind that things do change over time was one of the points you're making, which I think it's a strong one. Tell me, how has the need for government engagement in the sector changed over the years?

I guess for a long time, it was all about market structure and that's what we've just has been talking about, now we're looking at different issues like national security, data and privacy, AI, sustainability, even misinformation and even threats to civil society. Are the fundamentals still there or has the dynamic changed? Look, I think the fundamentals for the telecommunications industry are still there.

I think we're moving obviously away from the old co-regulatory model that we put together in the 1990s towards a more directive approach by the regulators in areas like, say, data and privacy, national security, consumer protection. In all of these areas, we're seeing more direction from government in the telecommunications industry. That is understandable as the risks, I think, have become clearer and have come into focus.

I think it's become more imperative for the government to intervene and achieve certain outcomes. The harms have become clearer. But at the same time, of course, none of this can be delivered without the industry's cooperation. operation. And I think there needs to be a balance struck between the outcomes the government is trying to achieve and finding the most efficient ways to deliver those outcomes. And the industry is in the best position to determine which are the most efficient outcomes.

So I think there is a certain now a level of regulatory risk as a consequence in the industry. And that's not coming at a great time because what we're seeing in the industry is a real struggle, I think, to achieve return on invested capital. I mean, Telstra makes its cost of capital, but nobody else in the industry does so at the moment. They're making operational profits, but probably not capital profits.

And that, I think, has implications for sustainability of competition, the sustainability of delivering the kinds of social objectives the government's trying to achieve at the moment and, in my view, is probably going to require some rethinking of the industry and how its capital structure works because, at the moment, it's clearly not delivering across the board. And the solution up to now has been to try to get into adjacent markets.

I think telecommunications operators have had some successes there, but I don't think it's been an outrageous success. And there's no substitute for actually making money on connectivity in the long run. Connectivity has to be profitable. And if it isn't, then we need to look again at the industry and regulatory framework to make sure that it is. Yeah, that's certainly a fundamental, isn't it there?

Isn't it? And I thought that looking at some of the recent work you've done with Venture Insights might be a good parameter of sorts on the the state of the industry.

That must be therefore the primary concern, return on the investment to have a sustainable sector and therefore deliver the services that we all need. Are there other factors that you're seeing perhaps influence decisions or raise concerns across the sector in recent years? I think the exposure of the industry to things like cyber attacks is clearly Clearly top of the agenda at the moment. I'd put that right at the top, along with return on invested capital.

We've obviously had some spectacular examples in Australia in recent years. So we're talking here both about resilience of the network and also the more specific issue of cyber security protection of information. I think this is just going to be a central issue for the industry over the next decade and probably beyond that. I don't see the level of threat reducing, quite the contrary. I think that criminals have figured out that there's good money to be made in areas like cyber fraud.

Our geopolitical situation is not probably going to settle down in the next 10 years. I think that, again, that may well get worse. So this, I think, has created a whole new set of threats for the industry, which I think are going to be top of mind for the next decade. What can we learn from the experiences of the last 20 or 30 years to address that? Can we learn, can we take anything from that process or is it a matter of just always looking forward in the here and now to what's coming?

I do think we're in a new situation here in terms of things like threat and cyber security. I think that what we've seen happen over the last five years, let alone 10, has really changed the game as far as network security is concerned. And I don't think that we actually have a whole lot of great models from the past to tell us exactly what to do in this situation. And even if we did, the technology of networks 10 years ago is so different

to the technology we have now. that those lessons probably wouldn't be relevant. So what that means is I think that as we progress the network, as we introduce new technology, I mean, of course, there's a rush to put it into the market and start getting revenue from that investment as quickly as possible. But what we need to do more in the future is, build in the security concerns as part of the network development in the first place.

Now, we don't want to be caught again with our pants down, so to speak, with an open API or some other problem in the network that exposes consumers to risks around data protection, for example. Yeah. Security by design, I think, is a bit of a catchphrase, right? Correct. Yeah. I think that's a great Great way of summing it up. And unfortunately, that doesn't, security by design, obviously, is established as a concept, but in any particular context, you've got to,

there's no simply borrowing a template from somewhere else. You just have to do the work. There's no alternative. There's, you know, there's been plenty of grim projections and there is a level of concern, I think, in the general community and at the policy level about what's being created. You can see that in some of the big technology market decisions over the last five or ten years at a global level.

What are your hopes for the industry in the future? Assuming we have what we've got now and we've got what we've got now and there's the imperative to make it the best possible environment in the future. I suppose my hope for the industry would be that we move to a more sustainable commercial model. The industry is clearly under pressure at the moment. We can see that in the level of cost cutting that's going on at the moment.

But also in the product markets, we're seeing a lot of established companies that are struggling to achieve revenue growth in a lot of areas. is enterprise. Consumer is quite flat at the moment. The level of competition is good and this is great for consumers, but the industry also needs to achieve a surplus on its own investments and activities as well. And I think we need to move towards a more balanced situation.

Now, anyone can go to the ABS website and pull the consumer price index data for the sector, so telecommunications services and equipment. And if you go and look at that, what you'll see is that…, The index for the telco industry has been flat to declining for the last 10 years. The general CPI has been going up at a pretty steady 3%.

So, and this is something I think the industry should be talking about more, the industry has delivered great value for the Australian public over the last decade, in fact, the last 30 years. But what we need in this industry, and it's a dirty word, I know, at the moment, but what this industry needs is some price inflation to achieve that kind of return on investment. Investment doesn't flow automatically. It flows because there is a return.

And I think there's been a lot of pressure on the industry, both from the market and I think from policymakers over the last 20 years or so, to keep prices at the same level and just keep delivering more and more. And the industry has It has complied. It has delivered more and more at a pretty flat price level. But I think we're reaching the limits of that model.

And I think we're probably going to head towards a situation where we need to head towards a situation where prices actually do start tracking underlying costs more. Well, I guess there's a strategic imperative there if the network and the security of that network, if we summarize it that way, is that critical, that's potentially not achievable at the lowest common denominator,

right? Correct. Correct. And we have this kind of mismatch at the moment where we talk a lot about world-class networks, world-class security, critical infrastructure protection, and so on. But we still have this rather 1990s view of the market where what counts as success is more for less. There's more data for less spending. That's what still counts as success in the public mind and I think to some extent the policymakers' minds.

There's a mismatch here. There's an incoherence that I think needs to be resolved.

Interesting. Finally, David, given this is a kind of a celebration of comms day, you've been quoted in the newsletter many times, and I'm sure written the odd piece. And I know given presentations at plenty of comms day events, what are your recollections of comms day over the years? And further to that, how do you see the role of media in business more broadly?

Look, in terms of recollection, I can actually remember when Graham launched comms day, and I was working in Richard Olsen's office at the time and I went to meet Graeme. He'd contacted us and given us a complimentary subscription, which was very kind of him. And because we were both a lot skinnier in those days, but we got to know each other a bit at the time and we've kept in touch ever since.

So my recollection of Comms Day, you know, is something that really got going in that heady period of the introduction of competition in the industry. And it's been a, I guess I'd call it a bit of a lighthouse for the industry ever since. If you want to know what's going on in the industry, you consult Comms Day. And I think that media presence has been very important for the industry.

Because what these kinds of publications do is they create a forum in the industry for the airing of views, which otherwise wouldn't really be possible. I mean, of course, we all catch up with one another. We all network. We go to our conferences and so on. But I think that daily input of what's going on in the industry, the daily commentary from industry figures, I think it adds a level of sophistication to the industry debate, which is just not otherwise achievable.

Well, thanks for that. I'm sure Graeme will take those kind words to heart, but I think it is an extraordinary publishing story in itself, Communications Day on 30 years. David Kennedy, that's about all we have time for today. It's been terrific to look back with you and get some of your insights and reflections on the last 30 years of telecommunications, the first 30 years of Commerce Day.

Thanks so much for joining me. thanks very much Tim and thanks for listening I'm Tim Marshall former Commerce Day editor and now consulting in communications and reputation management I look forward to speaking to you again on Commerce Day Live.