Q&A SESSION
NATIONAL PRESS CLUB LUNCH
WEDNESDAY 6 OCTOBER 1999

QUESTION:
Minister, Steve Lewis, from The Australian Financial Review. I just wanted yourself, if you wouldn't mind, just place yourself in the position of a Silicon Valley-based venture capitalist. You've been there a number of times so I'm sure that you're familiar with the scenario: You've got dozens of start up companies which are beating a path to your door; you've been experiencing an extraordinary return on investment courtesy of the information boom which has underpinned the US economy over recent years; you're, of course, a paid-up member of the George W Bush fan club; and you're in the middle of a fairly vibrant business culture, which you of course have pointed out today Australia has not replicated until now.

Given these factors, why should Australia be confident of a flight of capital from the US, particularly the venture capital and pension funds, which the Government is hoping will redirect some of their investment to Australia? And what else has to be done to attract that capital, given that you, yourself have highlighted the lack of entrepreneurial flair in the Australian business community? What else has to be done, and particularly from the business community?

ALSTON:
Well, I think that scenario may well have been more valid a few years ago, but if you look at what's happened in Silicon Valley to date it's becoming increasingly more difficult for them to identify new and brilliant ideas that are worthy of strong support.

There's no shortage, no quantity of problem, but in many respects they are themselves finding that they need to travel to continually refresh the quality of the projects. And we had a very high-powered delegation in Australia, probably still here, I met some of them the other day. People like John Hummer from Hummer Winblatt, who are one of the founders of the venture capital industry in Sandhill Road. And they certainly are of the view that particularly in the early stage - but as you go through prior to listing - they think that a lot of the ideas in Australia are world's best. And the problem has essentially been that they haven't been properly commercialised.

Now I don't think we would predict a flood, but what we would look to is an increasing recognition that it does make sense to come to places like Australia. Australia is very well regarded in the Valley. There are something like three or four thousand Australians working there - Cisco's got over a hundred Australian engineers for example - and we have a very good recognition factor.

I was surprised to be told that they didn't know that LookSmart was an Australian product, or they claimed that they knew but others didn't - which may be the same thing - but certainly I think they are very much aware of the success of people like Quokka, to a lesser extent Spike. But some of the Australian companies that have gone over there are very well-regarded, have very good people in place.

So you will find these firms trawling the world on a regular basis. They will go to countries where they think the climate is conducive to investment. And they were certainly very impressed by the changes that we've recently announced, so I take that as a very encouraging sign.

We'll obviously wait and see whether it's US pension funds that lead the charge, whether it's venture capitalists - either as their own right as direct investors or as general partners in limited schemes. I think you will find there will be a significant uptake in interest and investment in this country. And that is also the view of most of the local players in the VC industry who have been predicting anything from $2 to $400 or even up to $1 billion worth of additional investment.

QUESTION:
How do you address that lack of entrepreneurial activity which you've highlighted?

ALSTON:
Well look, in some ways we like to say it's cultural, and by that we imply that it's really just a product of society and therefore it's very hard to change. But you can address it in a number of ways.

Through the education system you can make people aware of the significant salary premiums that are attached to going into this industry, just the sheer number of jobs that are being created. But I also think that the changes to the tax system have a very important demonstration effect and that they suddenly make people aware that there are very rich pickings to be made if you are prepared to take the big risks. And when you're at an age and state - you've just left school, you're highly IT literate, you spend all your waking hours on the Internet - that's just the very sort of time that people are likely to be attracted by the prospect of significant wealth.

And we shouldn't decry that. I think in some ways we've probably been a bit too ready to deplore the fact that people can get money too easily. But at the end of the day they've got to do something with it, and that's where the GST will come into effect, I'm sure.

But certainly a lot of those people will be the generators of other jobs, other businesses, other industries, and that's why it is so critically important that we provide those rewards for them. Someone like Alex Hartman, who I think Telstra paid him a million dollars when he was fourteen. He's an old hand at nineteen. And if we can get a few more Alex Hartmans we'll be doing very well.

QUESTION:
Minister, Lauren Martin from The Sydney Morning Herald. I think you're continued support for new technology as an innovative industry is welcome, and you've reiterated often. I wonder, if given that, you would be inclined to comment on whether you're prepared to limit a new technology service - namely data-casting - to text and small-frame video?

ALSTON: Well, I haven't read your submission to that effect, but you're certainly narrowing the field more than others. I don't think that's been something seriously put forward in the round of submissions we've seen to date. Clearly this is a classic area where it's very hard to regard any submission as disinterested, but nonetheless there are, I think, some fairly interesting identifications of the opportunities of data-casting and what it might mean.

We are probably, I think, more comfortable in defining broadcasting than we are in defining data-casting, however, and I do think that as always it will evolve in unexpected ways and there will be opportunities there that most of the major players themselves recognise.

So when we finally get around to defining these areas - and we'll do that on the basis of some studies that have recently been conducted, then I'm confident that there will be a good business case for data-casters, as much as there is for existing broadcasters.

QUESTION:
Clinton Porteous from The Herald-Sun newspaper. In response to Steve's question on the idea of entrepreneurship, you talked about perhaps the education system could be brought in. I guess the Australian Democrats - who you're going to be negotiating Ralph with - are saying, 'no, let's make it part of it,' and they've actually said, 'we'll consider reducing tax concessions on physical capital.' But should all this be & there should be used to increase investment in human capital needs, needs to be explored further. We believe that our national investment in education, training and research needs to be increased to create the work skills for the jobs and knowledge industries of the new century. I mean, it sounds like a pretty good idea, and I guess I want to ask you: Is the Federal Government prepared to broaden negotiations over Ralph to maybe bring in things like maybe tax concessions for companies who let their workers do Internet courses for something? And if you're not prepared to do that, I was wondering why, and what will that mean for negotiations with the Democrats when they want it brought in?

ALSTON:
Well we haven't had any formal discussions with them but I think it's fair to say we're already tackling a number of those issues. Most people recognise the growing global IT skills shortage as an issue that very much needs to be addressed in this country, and we've had a number of departments working on that for some time. We've had Telstra and the two industry peak bodies working on it. As a result David Kemp's already announced some initiatives to facilitate more concentration on IT and T in core curriculums.

But certainly I think you are finding that the states themselves are ensuring that students have ready access to PCs, some of the major IT companies are setting up their own schemes - not necessarily simply proprietary ones, whether it's Cisco academies or other institutes - which I think will be of considerable assistance.

There'll always be, I suppose, scope for more assistance through the education sector. But the mere fact that people become IT literate is not quite the same thing as saying that they are about to jump in the deep end as entrepreneurs. There are probably only going to be a fairly small proportion of people who are prepared to firstly have the good ideas, and secondly have the interest and enthusiasm to develop them. And what we've got to do is really remove the impediments to those people being able to go on and take the risk and gain the rewards.

So I think they're really separate issues in many respects. And the mere fact that you have high quality education - which I think we already do have in this country - won't of itself mean that there'll be more budding entrepreneurs taking the plunge.

QUESTION:
Rod McGurk from Australian Associated Press. Minister, I'd be interested to hear your observations of the on-going spat between Paul Keating and the Packer family, and whether you believe that denying media proprietors want they want is likely to lead to warfare?

ALSTON:
Well, I must say I was rather taken aback to hear Paul Keating talking about high-policy principle in the area of media. I'd never detected any inclination in that direction in the past from him. And I did actually pull out a couple of quotes that I think should put his comments in perspective. What he said to Conrad Black a few years ago was. 'if there's any notion you know that bias, that is the barrack for the Coalition on the basis for your conservative proclivities in other places, then there's no way you would qualify as the kind of owner we would like.'

Now Paul Keating of course introduced the cross-media rules, but not for any high-minded purpose. It was essentially a 'get Fairfax' strategy. And if you remember what Max Such said about a board meeting that Keating attended, he said his motives for getting involved in The Herald and Weekly Times takeover were a desire to see the Melbourne Herald broken up, a desire to hurt Fairfax. 'The Treasurer is a product of the New South Wales right wing of the ALP and his conversation is littered with threats, references to getting even, doing deals, assisting our crowd in business, the press, within the ALP.'

Now I haven't seen much sign of a change in Mr Keating's approach in recent times - I noticed some veiled threats, for example, in relation to the Packers - and it just seems to me that once again on this issue, as on East Timor, he fundamentally misses the point. He doesn't show any particular interest in data-casting or the benefits of the information age, he's more concerned to rake over old ground about whether or not it made sense to have regional monopolies for cable television.

Now, without endorsing that particular approach, it did have some respectability, because it was essentially the model adopted in the United States, where cable companies were given exclusive territory and built their own businesses accordingly. And it certainly seems to me that you can just as easily argue that the result of his approach was a $3 - $4 billion overbuild on duplicate hybrid fibre coaxial cable roll outs, which haven't really been of great national benefit either. So I just think that whatever his motivations they really miss the point of the current debates.

CHAIR (Ken Randall):
Minister, just before I call the next question, could I ask you this - rising from those last two questions - do you think there is really any future for cross media-type rules? I mean, Australia's got a history of trying to govern technology by regulation and it seems to be almost an endlessly losing battle. So are they likely to last?

And going back to the previous question, is there a risk that in terms of policy, as with foreign policy for example, where the Prime Minister was emphasising in recent days the need to have people come along with it, understand what's going on. There's a lot of people being educated about IT concepts in schools and universities, but have you lost a couple of generations who are not on the Internet, don't own a computer and don't quite understand what all the emphasis on your portfolio area is about?

ALSTON:
Well, I suppose the last point, yes. Because this is a profound change that's occurring at this point in time it will depend on your age and stage as to whether you feel overwhelmed or excited by it. I suspect most people feel a bit of both. Certainly the over-fifty-five's are one of the fastest demographics for take-up, and I think increasingly you will find people at all ages being interested in the enormous opportunities that are available - not just in managing their own portfolios or playing games, but just getting information and, I think, engaging in a whole new world of activity.

As far as the cross-media rules are concerned, I think it is fair to say that new technology is always going to be pushing the boundaries of regulatory restrictions. And certainly if you take Telstra as a current example - the cross-media rules were designed to apply to radio, print and television - they don't apply to Telstra. Telstra's the largest company in Australia, it has enormous interests across the field. Is anyone seriously suggesting that we should somehow suddenly restrict Telstra from investing in media? I've read that suggestion, but it seems to me they were allowed to do it some years ago when they bought into Channel Seven. So once you start to allow those things to happen I think you are recognising that it is a very difficult job to draw these artificial distinctions.

Now having said that, we went through quite a bit of political pain last time around, and I'm not about to embark on the same journey. Certainly whilst the attitude of the other parties - and particularly the major opposition party - seems to be that they'd be more than happy to have another six to twelve month Senate circus of inquiry but then knock any changes on the head. So I think there would need to be a change of attitude across the political spectrum before we would seriously revisit the issue.

But certainly it's not difficult in this day and age to point to the fact that people are getting their information from a variety of other sources. You've got five-and-a-half million people who have had access to the Internet at one time or another, and increasingly people are, I think, not just relying on the traditional media forms for their information, their knowledge, and their prejudices.

QUESTION:
Good afternoon Senator. Darren Grey from The Age here. My question I guess relates to innovation in television. Do you think there should be a fourth commercial television network, and what's the Government's attitude to this question? And if the answer is no, what would need to change before you would say yes?

ALSTON:
Well, I thought we had this discussion about 12 months ago and we legislated on the basis there would be no additional commercial broadcasting free-to-air network because we recognised that it would be costing the existing players anywhere between half a billion and a billion dollars in digital conversion costs. They have to simulcast for a period of eight or nine years, the advertising pool is not likely to deepen but it will be increasingly fragmented, and Australia has always had world-class television, so we don't simply accept the proposition that because you had an additional player you would somehow come up with a whole range of new and exciting offerings that weren't currently available. They are starting to be very much available through pay television.

There may well be a lot of new, interesting offerings emerging as a result of a data-casting regime. Around the world free-to-air broadcasters are increasingly under pressure so it's not as if it's necessarily a good time to be adding to the numbers and we've taken the view that that was part and parcel of the obligation that we imposed on them to offer digital television, or HD, from the 1st of January 2001.

All those things will be reviewed, including the limitation on multi-channelling in 2005. And I think at that time you may well find, as often in this area, that the world has completely changed and people's attitudes will be very different. But certainly from the perspective of last year's debate I don't have any reason to revisit the decisions we took.

QUESTION:
Minister, Kate Hannon from News Limited. I just want to ask you a question about customer service guarantee, and the sponsor of this address.

There seems to be a growing frustration about the number of complaints about service and maintenance and new installations of phone services with the industry ombudsman, and we've had the customer service guarantee for more than eighteen months now, and yet we don't really have an evaluation of how it's working to date.

Why can't we find out how well it's working. Whey can't we find out how much money Telstra and other carriers are actually paying out in terms of compensation payments, and why is it that with the communications authorities investigation announced last week why is it that they are only consulting Telstra and nobody else in terms of whether Telstra is complying with the CSG?

ALSTON:
Well I'm not sure of that last point. I would have thought they'd be taking information from all available sources and even if they didn't formally approach others I've no doubt that their competing carrier rivals would be more than quick to offer some free advice and information.

It's not correct to say that nothing's happened over the last eighteen months. In fact when the T2 legislation went through we actually made a number of changes, one of which was to require the carriers, but particularly Telstra because it's the dominant service provider, to automatically pay the CSG penalties.

I've certainly seen figures on the amount that is being paid out. I thought by both Telstra and Cable and Wireless Optus, but maybe they're confidential figures, but certainly they'd be available to the ACA and I don't think we would have any particular problem with that material being in the public arena because it would certainly give you a sense of whether or not it was somehow a bearable cost on the part of the carriers and we've always made it clear that we didn't want that to be seen as a viable option. It's meant to be there as a last resort form of compensation and the ten million dollar ultimate penalty for systemic failure is designed to drive that point home, that we do expect world class service to be made available.

Now it is true to say when that last report came out that there were, there was some back sliding that disturbed me and I didn't regard it as acceptable but certainly in a number of other areas I think Telstra has made considerable progress, and you've got to bear in mind that a lot of these decisions are taken up with new investment decisions. Telstra capex spend is about what three to four (billion dollars)? Four.

And in some ways I think it's fair to say that they left some rural and remote areas on the back burner for too long, particularly in New South Wales, and you're now faced with a bit of a dilemma about whether you simply upgrade the existing technology or whether you look at other ways of delivering those services bearing in mind that voice is only a small part of the equation these days. It may not be too long before voice is a optional extra.

So it does pose dilemmas for Telstra in particular but the bottom line is that consumers are the ones whose interests are paramount and that regime is designed to ensure that we get that outcome. I think you'll find the ACA report will be a timely assessment of progress to date, and we'll certainly be very interested in the outcome.

QUESTION:
Minister, John Bruce from the Australian Financial Review. When a third of Telstra was sold last time a lot of investors made a very healthy windfall. The flip side to that is that the taxpayer was short changed. I was wondering what you thought about that view and what steps the Government has taken, if you agree with that, to ensure it doesn't happen again?

ALSTON:
You're not a speech writer for the Australian Democrats, are you? They ran that line. Still do. I mean Senator Allison never tires of claiming that because the share price has gone north that somehow we diddled the Australian taxpayer. I mean it's a preposterous suggestion. We took the best possible advice. It was floated on the basis of that advice. The price was pitched, having regard to the achievements and potential of the company.

There are a large number of stocks around the world that you could point to that have gone up by a much greater premium than Telstra over the last two or three years in this dynamic sector, and it's very much to do with the fact that there are enormous opportunities emerging all the time. There is unlimited potential and particularly for Telcos who are essentially the IT platform for most of these new Internet applications, there is considerable upside.

Now to say that because some of that is actually realised rather than being potential, is somehow reasoned with hindsight for arguing that the original share price was too low, I think just defies the whole way in which market prices are set. If some people thought it was good value well they stayed in for the ride. Other people might have got out early making the judgement that it would stabilise, but these aren't calls for governments.

We simply engage the experts, pay them accordingly and proceed and we've gone down a path that's been followed by most other western countries, and said, well, in fact there aren't too many countries left who haven't moved to privatise their Telcos, and I'm sure most of those would be hoping that the share prices will go in the right direction but it doesn't mean that any of them have underpriced on the issue.

QUESTION (Lewis):
Minister, I was ...

ALSTON:
Is that the reward for being a board member is it?

QUESTION:
Absolutely. And this is not part of any Fairfax conspiracy. I was interested in your comments on cross media ownership, always interested in your comments on cross media ownership as you know ...

ALSTON:
Endlessly fascinating to be insiders isn't it, Steve.

QUESTION:
You said that new technologies are going to be pushing the boundaries of the regulatory restrictions I think was your phrase, and that's very true of course, but given that and given that the Government's I guess stated position is that it believes the cross media rules are anachronistic and do need to be reformed at some stage, is it just a case that the Opposition's continued, I guess, concerns about relaxing the cross media ownership rules, is that the only barrier, if you like, to Australia embarking on some sensible reform of the media environment, and I mean given what's happened in the US just a few hours ago where MCI and Sprint have announced a hundred and fifteen billion dollar merger, US merger, isn't it the case that if we don't embark on a sensible reform of our media environment that a number of media companies in Australia will be left behind in the globalised economy by virtue of them remaining small through the current regulatory restrictions.

ALSTON:
Well we've probably had this argument a number of times before both publicly and privately. At the end of the day we are interested as a government in achievable change and much and all as we might share your view that it's very important to have a sector that's dynamic, that's able to move with the times, that's able to respond to the new technology opportunities and not simply be hamstrung by arbitrary boundary lines, the fact remains that if you're not going to get any of those changes through the Parliament it's rather pointless to embark on the process.

So this issue remains on the back burner as far as I'm concerned because there is so much more around that we can do and should do. I think you will find that the issue won't go away. The real challenge is for other parties, particularly the Labor Party, to adopt a forward looking rather than simply a negative opportunistic approach on some of these things. Then we might get a serious discussion.

QUESTION:
Why don't you, for instance, write to Steven Smith and invite him to engage in a sensible debate about media ownership?

ALSTON:
Ha, ha. Well I'll consider that suggestion, thank you Steve.

CHAIR:
Well Minister, thank you very much for joining us today. It's a period of great change and Parliament will be back next week to look at several other aspects of it. We thank you though for coming along today and we'd like you to have this as a trophy to remember the day by. Thank you again.

ALSTON:
Good, thank you.