My former colleague Dr Phil Burgess (in the sense that everyone in telco public policy is a colleague)has been busy talking and writing as he prepares to leave our fair shores. This has included an article in the SMH and a speech at the Lowy Institute.
I thought it was appropriate for someone to write a valedictory. It was too long just to include here, so you'll have to follow the link.
I conclude with "Phil I think will understand if I say (in the Australian vernacular and the Fullbright sense) “Mate, you are a great Australian patriot, but you’ve been wrong about a few things.” To understand that you'll need to read the item and listen to the Lowy speech.
Thursday, September 25, 2008
Tuesday, September 23, 2008
Poor Kevin
Glen Milne reports criticism of Kevin Rudd that he is too much of a micro-manager, while Phillip Coorey reports complaints that the Ruddbot shouldn't be travelling to New York "when the work is mounting up at home".
The latter includes the delightful criticism that Kevin in 10 months will have met UN Secretary-General Ban Ki-moon three times and SA Senator Nick Xenophon not at all. Bizarre really - Ban Ki-moon represents all 205 or so countries in the UN, Xenophon represents about 14% (a quota) of the citizens of South Australia who are also represented by a host of Labor Senators, Penny ong among them. Plus Nick has actually been a Senator for under three months. And really the PMs message to the opposition and cross benches at tis stage should be "bring it on" - it is the PM who would be suited by a double dissolution.
As for the Milne piece, I'm trying to figure out how he has a report about a meeting carried out under what he (incorrectly) calls "Chatham House rules". There is only one rule. That, for the record, is;
"When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed".
Get it right.
The latter includes the delightful criticism that Kevin in 10 months will have met UN Secretary-General Ban Ki-moon three times and SA Senator Nick Xenophon not at all. Bizarre really - Ban Ki-moon represents all 205 or so countries in the UN, Xenophon represents about 14% (a quota) of the citizens of South Australia who are also represented by a host of Labor Senators, Penny ong among them. Plus Nick has actually been a Senator for under three months. And really the PMs message to the opposition and cross benches at tis stage should be "bring it on" - it is the PM who would be suited by a double dissolution.
As for the Milne piece, I'm trying to figure out how he has a report about a meeting carried out under what he (incorrectly) calls "Chatham House rules". There is only one rule. That, for the record, is;
"When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed".
Get it right.
Tuesday, September 16, 2008
Strange Silence
The Senate Select Committee on the NBN has published the submissions received by the closing date (which had been extended).
The list is noteworthy for the absence of Telstra amongst the submitters. Is this because they feel they don't need to as they are in "the box seat", because they decided that to submit to an opposition committee might raise the Minister's disapproval or because they still can't really figure out their own strategy on the NBN bid.
Telstra will spin it as a version of one or two, but I wouldn't be really surprised if it is number three.
Telstra's difficulty remains that they have a position of not wanting any money from the Government but probably can't make the commitment on the 98% build on their own.
A very tricky dilemma.
The list is noteworthy for the absence of Telstra amongst the submitters. Is this because they feel they don't need to as they are in "the box seat", because they decided that to submit to an opposition committee might raise the Minister's disapproval or because they still can't really figure out their own strategy on the NBN bid.
Telstra will spin it as a version of one or two, but I wouldn't be really surprised if it is number three.
Telstra's difficulty remains that they have a position of not wanting any money from the Government but probably can't make the commitment on the 98% build on their own.
A very tricky dilemma.
Friday, September 12, 2008
What is a big share of the "innovation system"
The Government has received its report on innovation from Terry Cutler and his committee. I haven't waded through it yet - but note that no hard copies of the report are available only the online version, and the Criky story with the Cutler comment on copyright.
This blog post is about the interview Dr Cutler gave on Lateline Business. In the interview he said "First of all, focus on your strengths. I mean, Australia is a small economy in global terms; we're roughly two per cent of the world's innovation system."
I'm assuming Dr Cutler thinkks that one's share of the global economy is the same as one's share of the "global innovation system". For this he uses the 2% number most commonly used. However if you use World Bank numbers the figure and go to two decimal points the number is 1.51% (on a table revised on 10 September 2008).
While that sounds small, when you realise there are some 200 countries it makes us three times the size of an "average" economy. By rank we are the fifteenth largest economy on the planet - ahead of Sweden on 19(Ericsson, Volvo, Saab), Denmark at 27 (Lego), and Finland on 32 (Nokia).
The reality is that Australia faces another disadvantage compared to these economies in being more remote from sizeable markets. However our biggest disadvantage remains our ability to be fat dumb and happy on the back of resource endowments.
What we don't need is people writing innovation reports perpetuating the myyth that this is a small economy.
This blog post is about the interview Dr Cutler gave on Lateline Business. In the interview he said "First of all, focus on your strengths. I mean, Australia is a small economy in global terms; we're roughly two per cent of the world's innovation system."
I'm assuming Dr Cutler thinkks that one's share of the global economy is the same as one's share of the "global innovation system". For this he uses the 2% number most commonly used. However if you use World Bank numbers the figure and go to two decimal points the number is 1.51% (on a table revised on 10 September 2008).
While that sounds small, when you realise there are some 200 countries it makes us three times the size of an "average" economy. By rank we are the fifteenth largest economy on the planet - ahead of Sweden on 19(Ericsson, Volvo, Saab), Denmark at 27 (Lego), and Finland on 32 (Nokia).
The reality is that Australia faces another disadvantage compared to these economies in being more remote from sizeable markets. However our biggest disadvantage remains our ability to be fat dumb and happy on the back of resource endowments.
What we don't need is people writing innovation reports perpetuating the myyth that this is a small economy.
Wednesday, September 10, 2008
Grocery Review
The ACCC review of grocery prices came in for mixed reviews. In fact Frank Zumbo gave it a bollocking in a piece he wrote and as quotes in another.
I have only just got around to getting a copy of the report and the skim reading disappoints me. There are so many ways. But most importantly it is the complete failure to deal with industry structure in a meaningful way. Two small examples:
The report disparages the idea of greater transparency in pricing in the supply chain as it creates the opportunity for implicit collusion or explicit cartelisation. This ignores the power of information assymetry to entrench market power and ignores the fact that the best remedy against collusion is industry structure without a small number of large players.
The second is the extent to which the report treats speciality stores as competitors to supermarkets, as if the authors have never read about so called "imperfect competition" or monopolistic competition built around no-price differentiation.
But by far the worst is that the ACCC has now concluded a grocery and a petrol enquiry and hasn't discussed the "shop a docket" fuel voucher system. So let me explain how that works to increase prices.
Assume I need to buy $100 worth of groceries and $100 worth of petrol a week. ($100 worth means that much assuming the goods are priced at cost - i.e. competitively). When I go to buy my groceries I know they will give me a voucher for a 4% petrol discount. So I'm prepared to pay $103 for my groceries because I'll still be a dollar in front.
Having bought my groceries I'm prepared to pay $103 for the petrol because I'm a dollar in front on my purchase over buying petrol at cost elsewhere. Therefore the "discount" entices me to pay $206 less my $4 discount thus spending $2 more than if I'd purchased at cost.
Each decision of the consumer is rational. Unfortunately most cases of product bundling result in this kind of outcome. Bundling does not benefit the consumer, it benefits the firm with sufficient market power in one or ideally both firms to induce customers to pay too much.
By the way - ending shopper dockets is entirely within the power of the ACCC.
I have only just got around to getting a copy of the report and the skim reading disappoints me. There are so many ways. But most importantly it is the complete failure to deal with industry structure in a meaningful way. Two small examples:
The report disparages the idea of greater transparency in pricing in the supply chain as it creates the opportunity for implicit collusion or explicit cartelisation. This ignores the power of information assymetry to entrench market power and ignores the fact that the best remedy against collusion is industry structure without a small number of large players.
The second is the extent to which the report treats speciality stores as competitors to supermarkets, as if the authors have never read about so called "imperfect competition" or monopolistic competition built around no-price differentiation.
But by far the worst is that the ACCC has now concluded a grocery and a petrol enquiry and hasn't discussed the "shop a docket" fuel voucher system. So let me explain how that works to increase prices.
Assume I need to buy $100 worth of groceries and $100 worth of petrol a week. ($100 worth means that much assuming the goods are priced at cost - i.e. competitively). When I go to buy my groceries I know they will give me a voucher for a 4% petrol discount. So I'm prepared to pay $103 for my groceries because I'll still be a dollar in front.
Having bought my groceries I'm prepared to pay $103 for the petrol because I'm a dollar in front on my purchase over buying petrol at cost elsewhere. Therefore the "discount" entices me to pay $206 less my $4 discount thus spending $2 more than if I'd purchased at cost.
Each decision of the consumer is rational. Unfortunately most cases of product bundling result in this kind of outcome. Bundling does not benefit the consumer, it benefits the firm with sufficient market power in one or ideally both firms to induce customers to pay too much.
By the way - ending shopper dockets is entirely within the power of the ACCC.
National Consumer Law and Mobile Phones
This is a tale from the Australian Financial Review so I can't do it with links. So I need to simply quote.
AFR 16 August David Crowe
Customers will gain new rights to quit unfair contracts with businesses ranging from fitness centres to phone companies under an agreement between Canberra and the states for a single consumer protection law to apply nationwide....
Minter Ellison partner Richard Murphy said the concept of what was unfair remained "woolly" but it was a major step forward to have a single national law. He cautioned, however, that companies not operating in Victoria would have to review their contracts to ensure they complied with the new regime.
In Victoria, for example, AAPT was found to have used unfair contracts because its terms allowed it to vary phone charges without notice, apply reconnection fees for any reason, charge customers for suspended services and end a service unilaterally....
AFR Letters 20 August David Havyatt
In the item on proposed changes to consumer protection laws you note that AAPT was prosecuted in Victoria for unfair contracts (“National laws to protect customers” AFR 16 Aug). While this is factually correct the manner of its reporting is misleading.
While AAPT’s contracts were found to have unfair terms, in the judgment it was noted that the terms had never been used and no compensation or restitution was due to any customer. Nor was AAPT required to make any changes to its contracts as they had been fully revised by the time the judgment was made.
In fact Consumer Affairs Victoria was fully aware that AAPT was in the process of changing its contracts when they commenced the litigation in December 2004, and was fully apprised of progress the week following the action being brought. AAPT, along with all other telcos at the time, had been dealing with the need to comply with the Victorian legislation and to meet requirements being introduced through an industry code.
Uniform consumer protection laws will be welcome by all in industry. However, this should not come at the expense of incorporating poorly designed legislative provisions such as the Victorian unfair contract provisions.
AFR Letters 21 August David Cousins
David Havyatt's [letter of 20 August] complains about "misleading reporting" of the AAPT case and then puts his own nique spin on that case.
He suggests the judge found "no compensation or restitution was due to any customer" when Consumer Affairs Victoria did not seek such relief. I was director of CAV and initiated the action against AAPT.
The public interest declaratory and injunctive relief sought by CAV was not granted only because AAPT had included, in the changes to its consumer contracts (that were prompted by the CAV action and still did not come into effect until four months after the proceedings were started), a provision that applied the new terms and conditions retrospectively.
The critical fact is the judge found that many of the terms of AAPT's contracts, as identified by CAV, were unfair terms and, therefore, void. Rather than being poorly designed as suggested, the law was shown to be effective.
After refusing to deal with the regulator, AAPT recognised finally the writing was on the wall about its unfair contract terms and chose to fix the problem with retrospective effect. As far as the industry code is concerned, it was made to conform with Victorian law only after CAV had intervened in the code development process.
The Victorian unfair contract terms law has been designed to ensure a minimum appropriate stanard of commercial conduct for the protection of Victorian consumers and businesses.
Effective unfair contract terms provisions are essential for Australia's national consumer law.
AFR Letters 25 August David Havyatt
While your original article on the prosecution of AAPT for unfair contracts was misleading, David Cousins’ [letter of21 August] contains simple untruths.
The most specific of these is his claim that the changes in AAPT’s contracts “were prompted by the CAV action” and that AAPT “recognised the writing was on the wall…and chose to fix the problem.” The facts of the matter were that AAPT was already in the process of making these changes, a fact that CAV was aware of before initiating the action and was reminded of on the day they informed us (and the media) of the action.
He engages in his own sophistry by suggesting that the basis for there being no compensation or restitution was due to CAV not seeking such relief. My recollection is that CAV did not seek the relief because there were no customers for whom they could seek relief as none of the clauses had been used.
Victorians might like to contemplate whether they got value for money from a prosecution that ultimately had no impact on telecommunications contracts. They might also like to contemplate whether the attitude of the Victorian Government in pursuing the pointless prosecution had any impact on AAPT’s decision to relocate its call centre from Bendigo to Sydney.
Summary and other points
For reasons of space the second AFR letter was shorter than I first submitted. That included the following points.
Cousins provides as a reason why AAPT was singled out for the prosecution rather than one of the other providers of mobile services who had similar contracts at the time, his assertion that AAPT refused to deal with the regulator. The facts were that the telecommunications industry at that time had already instituted a guideline on contracts, and all operators including AAPT were in the process of revising contracts and had adopted a practice of not using any contract terms outside the guideline. The industry regulator, the Australian Communications Authority, required the industry to strengthen the guideline to a code, so AAPT paused the implementation of new contracts pending the finalisation of the code.
It was in the middle of this process that CAV approached AAPT about its contracts, and AAPT advised the process we were going through and that it was wasteful to duplicate the process. To ensure the message wasn’t misunderstood I visited the Chief of Staff of CAV’s Minister John Lenders to explain the AAPT position a week after replying to CAV (I was unable to see Lenders himself because of probity issues in relation to TPAMS).
When CAV launched its action in December it was Minister Lenders who issued a press release to trumpet the prosecution of the “giant phone company AAPT”. At the time AAPT had 2% market share, and CAV did not prosecute the other mobile providers with the same contract terms.
Throughout the process of CAV trying to make a case of the telecommunications industry they refused to meet with the industry through its industry ssociation or collectively. After commencing its litigation CAV refused to meet with AAPT with a view to terminating the proceedings.
Finally it is worth noting that the recommendation of the Productivity Commission on unfair contract terms was for a version that would only see prsecutions brought in cases where customers had suffered detrimental outcomes from the unfair terms. The CAV action against AAPT would not have been brought in these circumstances.
AFR 16 August David Crowe
Customers will gain new rights to quit unfair contracts with businesses ranging from fitness centres to phone companies under an agreement between Canberra and the states for a single consumer protection law to apply nationwide....
Minter Ellison partner Richard Murphy said the concept of what was unfair remained "woolly" but it was a major step forward to have a single national law. He cautioned, however, that companies not operating in Victoria would have to review their contracts to ensure they complied with the new regime.
In Victoria, for example, AAPT was found to have used unfair contracts because its terms allowed it to vary phone charges without notice, apply reconnection fees for any reason, charge customers for suspended services and end a service unilaterally....
AFR Letters 20 August David Havyatt
In the item on proposed changes to consumer protection laws you note that AAPT was prosecuted in Victoria for unfair contracts (“National laws to protect customers” AFR 16 Aug). While this is factually correct the manner of its reporting is misleading.
While AAPT’s contracts were found to have unfair terms, in the judgment it was noted that the terms had never been used and no compensation or restitution was due to any customer. Nor was AAPT required to make any changes to its contracts as they had been fully revised by the time the judgment was made.
In fact Consumer Affairs Victoria was fully aware that AAPT was in the process of changing its contracts when they commenced the litigation in December 2004, and was fully apprised of progress the week following the action being brought. AAPT, along with all other telcos at the time, had been dealing with the need to comply with the Victorian legislation and to meet requirements being introduced through an industry code.
Uniform consumer protection laws will be welcome by all in industry. However, this should not come at the expense of incorporating poorly designed legislative provisions such as the Victorian unfair contract provisions.
AFR Letters 21 August David Cousins
David Havyatt's [letter of 20 August] complains about "misleading reporting" of the AAPT case and then puts his own nique spin on that case.
He suggests the judge found "no compensation or restitution was due to any customer" when Consumer Affairs Victoria did not seek such relief. I was director of CAV and initiated the action against AAPT.
The public interest declaratory and injunctive relief sought by CAV was not granted only because AAPT had included, in the changes to its consumer contracts (that were prompted by the CAV action and still did not come into effect until four months after the proceedings were started), a provision that applied the new terms and conditions retrospectively.
The critical fact is the judge found that many of the terms of AAPT's contracts, as identified by CAV, were unfair terms and, therefore, void. Rather than being poorly designed as suggested, the law was shown to be effective.
After refusing to deal with the regulator, AAPT recognised finally the writing was on the wall about its unfair contract terms and chose to fix the problem with retrospective effect. As far as the industry code is concerned, it was made to conform with Victorian law only after CAV had intervened in the code development process.
The Victorian unfair contract terms law has been designed to ensure a minimum appropriate stanard of commercial conduct for the protection of Victorian consumers and businesses.
Effective unfair contract terms provisions are essential for Australia's national consumer law.
AFR Letters 25 August David Havyatt
While your original article on the prosecution of AAPT for unfair contracts was misleading, David Cousins’ [letter of21 August] contains simple untruths.
The most specific of these is his claim that the changes in AAPT’s contracts “were prompted by the CAV action” and that AAPT “recognised the writing was on the wall…and chose to fix the problem.” The facts of the matter were that AAPT was already in the process of making these changes, a fact that CAV was aware of before initiating the action and was reminded of on the day they informed us (and the media) of the action.
He engages in his own sophistry by suggesting that the basis for there being no compensation or restitution was due to CAV not seeking such relief. My recollection is that CAV did not seek the relief because there were no customers for whom they could seek relief as none of the clauses had been used.
Victorians might like to contemplate whether they got value for money from a prosecution that ultimately had no impact on telecommunications contracts. They might also like to contemplate whether the attitude of the Victorian Government in pursuing the pointless prosecution had any impact on AAPT’s decision to relocate its call centre from Bendigo to Sydney.
Summary and other points
For reasons of space the second AFR letter was shorter than I first submitted. That included the following points.
Cousins provides as a reason why AAPT was singled out for the prosecution rather than one of the other providers of mobile services who had similar contracts at the time, his assertion that AAPT refused to deal with the regulator. The facts were that the telecommunications industry at that time had already instituted a guideline on contracts, and all operators including AAPT were in the process of revising contracts and had adopted a practice of not using any contract terms outside the guideline. The industry regulator, the Australian Communications Authority, required the industry to strengthen the guideline to a code, so AAPT paused the implementation of new contracts pending the finalisation of the code.
It was in the middle of this process that CAV approached AAPT about its contracts, and AAPT advised the process we were going through and that it was wasteful to duplicate the process. To ensure the message wasn’t misunderstood I visited the Chief of Staff of CAV’s Minister John Lenders to explain the AAPT position a week after replying to CAV (I was unable to see Lenders himself because of probity issues in relation to TPAMS).
When CAV launched its action in December it was Minister Lenders who issued a press release to trumpet the prosecution of the “giant phone company AAPT”. At the time AAPT had 2% market share, and CAV did not prosecute the other mobile providers with the same contract terms.
Throughout the process of CAV trying to make a case of the telecommunications industry they refused to meet with the industry through its industry ssociation or collectively. After commencing its litigation CAV refused to meet with AAPT with a view to terminating the proceedings.
Finally it is worth noting that the recommendation of the Productivity Commission on unfair contract terms was for a version that would only see prsecutions brought in cases where customers had suffered detrimental outcomes from the unfair terms. The CAV action against AAPT would not have been brought in these circumstances.
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