The world is undergoing a digital revolution. $12 billion opportunity.Is Australia ready?Bill MorrowCEO Vodafone Hutchison Australia

The world is mobile

Source: ITU (2012/13 are projections) Source: ITU&UN (2012/13 are projections)

Worldwide subscriptions Worldwide mobile penetration

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Mobile$

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Popula.on$

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Mobiles are the new essential device.As the world reaches 100% market penetration, the developed world is already over 120%.

2:46pm. After Earthquake.2:30pm. Before Earthquake.

Yellow lines indicate tweets coming out of Japan. Pink lines indicate tweets coming into Japan.

Source: KPCB and http://blog.twitter.com/2011/06/global-pulse.html

Global implicationsJapan Earthquake 2011: Twitter interaction

Transforming everything - Broadcom video

• Mobile broadband is now the most common way for consumers to access the internet.

• Australian smartphone users: • Average of 27 apps • 78% access social media• 65% access video content• 28% have bought a product via their

mobile phone (2012 Google)• From 2011-2025 Mobile technologies will

deliver a productivity benefit of $11.8 billion (2012 AMTA /Access Economics).

• Game changing opportunities occurring:• Machine to Machine • M-Commerce via NFC• NBN

Vodafone company confidential

Australia has the chance to lead the mobile data revolution

Source: Google Our

Mobile Planet 2012

Australia leads the world in smartphone take-up

Source: Stat

Counter Global

Stats

Mobile share of Australia’s internet traffic has doubled each of the last four years

0%15%30%45%60%

Australia UK USA Germany Japan

20%29%

44%51%52%

6%18%

31%30%37%

0%4%8%

11%15%

2009 2010 2011 2012 2013

13%

8%4%

2%1%

20112012

Does our current ecosystem enable us to capitalise on the $12 billion productivity opportunity?

Can we generate enough demand to attract innovation? Can the entire nation participate in the digital revolution?

Do we have adequate adequate infrastructure to provide nation-wide competitive access?

Do we have the right market structure?

Is there enough industry collaboration?

Do we have adequate policies?

Leadership. Competition. Collaboration. Policy reform.

Industry leadership in times of changeTelco’s need to meet a broader range of consumer

... build converged networks to more places.

...deliver a wider range of converged devices...

Common core network

Cloud & Internet

Access: Fixed & wireless

Access: Fixed &

Cloud & InternetCommon core network

Integrated fixed and wireless

Communication &

Commerce & Advertising

News & Sport

Information & Education

During the digital revolution, the telco industry must anticipate consumer needs and technology change.

Vodafone is embracing change

• One third the dropped call rates

• 3G+ delivering double the speed

• Vodafone 4G will deliver the fastest 4G speeds yet experienced in Australia

• Adding approximately 2000 additional coverage sites

• Simplified plans• Per KB Data charging• My Vodafone• Usage alerts• Network Guarantee

• Consistent service at all touch points - store, online, call centre

• First-call resolution• Australian call centre

Network Worry Free Local Service

Competition is importantEffective competition delivers the best results for consumers and the Australian economy.

Effective

competition

Lower prices

and lower

costs

Increased quality

More choice Innovation &

productivity

Greater

economic

dynamism

The problems of market dominance continue to hold Australia back.

Quality Speed Innovation Cost to the

customer

Australia lacks competition

Source: OECD Communications Outlook 2011. Source: VHA estimates based on industry 2012 financial reports.

Lack of competition has resulted in the highest fixed line prices in the OECD. Medium residential fixed-line user

0

18

35

53

70

Germany USA FranceOCED av. UK NZ JapanAustralia

65.0857.91

51.93

41.6337.4837.0035.7735.40

0

25

50

75

100

Fixed Mobile

41%

15%

59%

85%

Profit concentration undermines investment and consumer choice.Profit share

TelstraIndustry

Protection from competition Government subsidies have distorted competitionSince 1998 the incumbent has received:

• Over $450 million in direct taxpayer subsidies for infrastructure build with ineffective open access measures.

• Over $880 million in industry subsidies via Universal Service Obligation (USO). Other players are unable to receive this funding.

Example: WA’s ‘Regional Mobiles Communications’ Project• State Govt. subsidy will increase Telstra’s

coverage by 525,000km2• No ‘open access’ obligation so many

consumers cannot access the network.

Future funding should focus of promoting coverage and choice.

Build economics make duplicate infrastructure Consumers want both coverage and choice. But the economics of duplicating infrastructure is getting increasingly difficult. In many areas of Australia it does not make economic sense to build multiple telecommunications networks.

Impediments to duplicating mobile coverage in regional Australia

Build economics of incumbent Build economics of new entrantBuild base station where already have fixed line dominance (+Govt funding)

Build base station in a new market, low brand recognition

Use own backhaul at (depreciated) incremental cost Pay high prices for incumbent backhaul

100% market share and high prices = monopoly profits

Limited market share, slow payback = uneconomic rate of return

Vodafone and Optus have established a joint venture to improve the economics of regional coverage expansion.

Call to action: An ongoing pro-competition policy 1. Telco industry review Strategic review of the state-of-competition as we move to a NBN world. Examine how to facilitate more infrastructure collaboration to promote retail competition and consumer choice in regional Australia.

2. Regional Backhaul PricingThe ACCC should reconsider their backhaul determination as a matter of urgency .

3. Utilise NBN for Backhaul: As a quick win for regional Australia, the NBN should also provide backhaul services. This will not require a network redesign.

4. Pro competition government fundingIf taxpayer funds are going to be made available, develop policies that promote rather than hinder retail competition in regional Australia.

ConclusionThe new paradigm• The digital revolution is transforming

everything.• The world is going mobile (but fixed has an

important role).• Convergence is blurring the fixed/wireless

distinction.• The telco industry must change.

The ongoing challenges• The industry must upgrade its fixed and mobile

network, modernise its systems and improve customer service.

• There is more to be done to overcome the serious structural flaws in the Australian market.

• Industry and governments need to work together to deliver coverage, competition and choice for all Australians.