Tuesday, June 30, 2009

Two great pieces of news in mobile land

Reports out today that major mobile manufacturers have at last agreed to standardise on power supplies. I will note that when I chaired the handset makers forum in about 2005 at the annual AMTS conference it was a proposition that I challenged all the handset providers on - standardised plugs for power and handsfree. The later has partially been met through bluetooth.

In other news Senator Conroy last week participated in the launch of the Mobile Manufacturers Forum's Glbal Acessibility Reporting Initiative. What was not emphasised enough is that this initiative had its origins in Australian work. A (then) ACIF code on accessbility required service providers to provide information on accessibility to consumers, so this was supported with a requirement on equipment manufacturers to develop statements on the accessibility features of their products.

The initial reaction of the Australian branch offices of the manufacturers was typical outrage. But the initiative found its way up through the food chain, not least because Vodafone, SingTel, Hutchison and Telstra are each well connected through the global mobile community, and because really the proposition mde sense. After all sekking consumers products that don't work for them is not a good idea.

Gunela Astbrink of TEDICORE reminded me of this and it gave me hope to believe that Australia can realise that if it chooses to it can develop global trends.

ut full praise to those in the Australian mobiles community who worked hard to drive this message through.

Never let it be said I'm not generous ... plus my crazy idea!

A sign of generosity is giving publicity to views you do not share. I was alerted buy Communications Day to a site started by Todd Hubers opposing the Government's plan for an FTTP national broadband network. The site, noNBN.org, largely promotes the view that the $43B network is unaffordable, provides more capacity than is needed (and hence for which there is insufficient demand to justify the investment) and that it will take a long time to deliver.

This is all very interesting, even though surely the last two criticisms can't both be valid - isn't one of the reasons the capacity is so much greater than current demand based on the fact that it is being built for the demand in eight years time?

The site shows the classic weakness of having IT professionals from the user side engaging in discussions on the structure of public networks. An example comes in the promotion of various forms of mesh networks over more centralised switching. A claim is made that the latency issues of a mesh can be overcome by designing the entire route at the first switch. This is interesting but while it saves routing calculations at each step, it doesn't save the actual time taken by a router to receive and retransmit the bits, they never "pass through". It also ignores the reason why we use routers the way we do, to find a path when the obvious path is congested.

However, in fairness, the discussion does raise some important questions of overall IP connectivity architecture and whether the existing model is broken, as previously discussed.

I have some sympathy for the view though that wireless can deploy some speed upgrades more rapidly, especially to those not well served in metro areas by DSL. I remain hopeful that Government will understand that and aim to deliver more wireless earlier. But I also have sympathy for the calculations of John Ellershaw that by the time the 90% FTTH is completed it will make sense to continue that further. At this point wireless moves to the point of its major advantage, portability and mobility. We should not waste the radio space on services that can be delivered in fixed mode.

Later in Communications Day there was a further expansive piece from Kevin Morgan on a similar theme. It is written in the same engaging style as Kevin's submission on NBN regulatory reform. It poses to propositions, that this is our Kevin's "Field of Dreams" and that the structural element is distorted and based on no evidence. I don't propose to cover the structural stuff again here, but it is time we addressed the big cost question.

Various efforts have been made to relate a potential $43B build to a price per service. I've attempted my own version recognising that the $43B is for everything, not just FTTH, that there will be various price pioints, and there will be business grade and residential grade services. I could actually make it pay at a 10% discount rate and existing retail price points. A critical element is in the "take-up" rate, how many customers acquire a service. The higher the take-up rate the easier the case is to make (and the ower the price per customer connected).

But there is an entirely different approach to paying for the NBn that I've touched on before. To consider this alternative let's think about what has happened in the past when Government has installed new infrastructure - the example has to be local or State Government.

If you have ever been in an area newly serviced by a town water supply or sewerage you will know that you are not given an option about whether you connect or not, it is a requirement that you connect. And the connection does not come free, there is still a connection charge.

The logical extension is to say that when the FTTH NBN is provisioned to a location that householders have to pay a fee for the fact that the service is now available. There is a certain logic to this. If the NBN is available to house A but not to house B, then there will be sufficient potential purchasers of house A that will value the availability of the NBN that A will command a hgher price in the market. Is it reasonable that this householder achieves a private benefit from a public investment?

The clearest case of this is the greenfield estate issue where the puchaser will pay the whole cost of provision of fibre, whereas their neighbour in a brownfield estate is expecting to get an NBN delivered by the Government.

It is, of course, difficult to demand that householders pay for a service they might not consume (though many local Governments apply various levies to pay for general community programs), especially when the value is only realised on a subsequent transaction. For this reason the Government would be advised to provide a special purpose funding structure that the householder could effectively mortgage the property for the value of the NBN connection fee at a low (bond rate?) interest rate. The mortgage would need to be discharged when next the property is sold.

The scheme can significantly underwrite the capital cost of the NBN, thus dramatically reducing the monthly fees required for connections. In the extreme monthly fees could be limited to the need to pay ongoing operational costs (includingmaintenance and depreciation), plus any financing costs of the scheme.

The scheme could, however, also be used to drive take-up of services. The fee above is just for the NBN pssing the house. An efficient scheme would provide that the actual connection to the house is free if completed at the same time as the area is provisioned. his is only a viable option with the house servicing fee above.

As the Australian Government only supplies telecommunications services, not power or water, it has limited experience. For the last fifty years at least telecommunications provision has been about meeting unmet demand, not building in advance of demand. This makes the idea of a mandatory services levy seem like a crazy idea. But it isn't that crazy. It is capable of being administered, it is actually equitable, it imposes no burden on an individual now that they can't defer and it dramatically reduces the extent to which any funding is an un matched addition to Australian Government liabilities.

More importantly, while the idea is "crazy" I haven't had anyone tell me why it shouldn't be done.

Monday, June 29, 2009

NBN Update

The NBN continues to be an unfolding story of step-by-step announcements, some speculation and some misreporting.

I blogged about the legislation introduced last week. The Bill has been referred to the relevant Senate legislation committee - the actual reference to the commitee in the report of the "selection of Bills Committee" identifies a reporting date of 17 August. However it refers to two appendices (12 and 13) as bases for the referral. The first is "detailed consideration of the requirements and the confidentiality protections" with a suggested reporting date of 17 August. The second is "need to assess the privacy provisions are adequate, and that the powers conferred are commensurate with need" with a suggested reporting date of 28 October and a list of possible submissions from GetUp!, Electronic Frontiers, Peter Black (an academic lawyer) an academic from Bond University and Trevor Barr. It also suggested hearings in late September/early October.

On the strength of the latter reference Stuart Corner wrote this up in Exchange Daily as a possible serious delay to the legislation. The actual 17 August date actually fits with the return of the Parliament for Spring - effectively its next sitting day. Meanwhile writing in Communications Day Richard Chirgwin has noted that almost all the infrastructure referred to is already shown on standard topographic maps. In my blog I had my own go already on why this stuff isn't "confidential".

What is most confusing about all this remains the coalition strategy. Surely if you want to hold the Government to account and really have something to hammer them on come the election you'd get out of the way so that you can hold them to account on delivery not planning. The way we are going the NBN might not get started till afterthe next election but the delay can be sheeted to legislative obstruction in the Senate.

In other developments Dan Oakes has reported in the Smage that this should be a big week for Conroy. Supposedly he will tomorrow announce the routes and the tender for the first $250M for additional backhaul. Also supposedly Egon Zehnder is delivering proposed names for a Board on Tuesday. This would be quick for a contract only issued on 4 June but as I noted the types of candidates are relatively straight forward, but not all those that have been speculated about. Finally Oakes is expecting that tomorrow is the deadline for the three shortlisted lead advisor. Oakes' original story makes it clear this is juast the cut off for the final tender with a selection due in July.

Now while this generates some excitement, a pedant might note that at the joint press conference on 7 April the Minister said "we will be having an implementation study over the next eight to nine months to work through all of those sorts of issues." By the time the lead adviser is appointed three months of the "eight or nine" will have passed.

A pedant would also note Minister Conroy's comments in his speech to the National Press Club on 28 April;

In addition, the first legislation required to underpin the National Broadband Network will be introduced in the winter sittings. This includes a Bill to require greenfield developments to use FTTP technology from 1 July 2010 and for the Government to acquire network information needed to assist in the design of the national FTTP rollout.

The legislation that was introduced in the winter session only addressed the second of these two elements.

Finally today ZDNet is reporting that the Department has extended the consulting contracts for Consultel and KPMG for assistance with the Tasmanian deployment. How these fit with the overall NBN implementation study remains one of the pieces of confusion in the marketplace. (Note, the ZDNet report was that these two contracts worth $410,000 were additional to earlier contracts worth $250,000. However as they are listed as amendments to the earlier contrats, and as they have common start dates of 29 April it looks like the $250K is included in the $410K).

an aside
Looking through the Department contracts on the tenders.gov.au I came across a few others of interest. The first was the contract for executive search for the Deputy Chair of ACMA. It will be interesting to see how that goes. Interesting to note that its value is just about half of that for finding an entire Board for NBNCo.

The second was a contract to Trish Benson for a review of Departmental activities, priorities and resources. The outcome of that has at least been partially released on the Department website. The reason for the only partial release was given as;

The Department will not be releasing the recommendations which were not accepted, because this would unnecessarily unsettle staff, distract them from the business of the organisation and negatively impact productivity.

I found this a quaint reason at best, as if I were a staff member I'd find not knowing what was rejected more "unsettling". After all, that could come around in the future and I don't know wht I can do to mitigate the impact. I am also personally distressed at the idea that the physical library be replaced with an online one. There are many things that are only available in books, and following the demise of the Telstra libraries and the Telecom New Zealand libraries I wonder if all policy will now be derived from blogs and opinion pieces.

Other interesting contracts were the many contracts for legal services, but the mother of them all is the $2M+ for probity advice from the AGS. That's a lot of money to be told you can't talk to anyone about anything. (Note I have a personal view that the probity advice was wrong and was verly restrictive - and that this in part led to the failure of NBN 1.0 to reach a result).

And the final one of interest is the nearly $100K for Edith Cowan University for a Review of existing Australian and international cyber-safety research. I'm just wondering whether that piece of work will see the light of day as a public document or not.

e-book readers

Because I can I thought I'd post a link to a review of e-book readers. I remain convinced these are the next big thing - readers with e-ink technology that are lightweight, easy on the eye and bigger screen than smartphones.

Compelling Viewing

Malcolm Turnbull went on Meet the Press on Sunday. It was a fascinating performance, even though the opportunity was missed for Steve Lewis to out his source that started it all.

Glenn Milne writing in the Oz this morning makes the point that Turnbull’s colleagues were wincing about his decision to go on Meet the Press. Apart from all the matters Milne lists, there are some other serious matters in his performance that raise questions.

The first is his attempt to suggest that his whole attack on the Prime Minister was based on the “sworn testimony” of a Treasury official. A minor point, but witnesses to Senate hearings aren’t sworn in. To give false or misleading evidence is a contempt of the Senate, but it is not perjury. This is barrister Turnbull, not politician Turnbull, speaking (more of which later).

His second error was to suggest that the evidence was clear and unequivocal and effectively was volunteered by the witness rather than a statement was dragged out of Mr Grech that he believed he’d seen a communication from the Prime Minister’s office. No one who reads that transcript, or who already by Sunday knew that Turnbull and Abetz had met with Grech and Grech had told them of the e-mail could be under any misapprehension than that the claim of the existence of the e-mail was made by Senator Abetz. To avoid the attempts by Treasury staff to stop Grech answering the question Senator Abetz asked "All right. The most appropriate official to answer this question: Mr Grech, to your personal knowledge, have you personally sighted any correspondence — email, note, memorandum or any type of documentation emanating from the Prime Minister’s office to Treasury — concerning Mr John Grant and the OzCar facility? and all Mr Grech said is that he believed it existed." This was not a Senator naively asking a question. (37 of the transcript).

Finally, Turnbull falsely restated the central charge. The charge is that Wayne Swan misled the Parliament on 4 June by stating that Mr Grant was treated the same as anybody else or that anybody else would have been treated. Turnbull changed the claim to a claim that Grant as a “mate” of the PM had received preferential treatment. As the Government pointed out in the end Grant got nothing from OzCar (a strange definition of special treatment), other car dealers did have their individual cases referred, Grant was the only car dealer for whom the referring member made the request that the Treasurer speak to them, and the decision to send information to the Treasurer at home was made by the public servant. There is no evidence that the Treasurer did anything as a consequence of receiving those e-mails.

The most telling part of the Grech testimony o 19 June was when he said “Senator, actually I have been in the public service now for 20 years, and I take my work very
seriously. When a Minister’s office — I previously also worked in Prime Minister and Cabinet — so when the PMO or the Treasurer’s office approach you with something, you give it priority. In the case of Mr Grant, the referral came from Andrew, and it was made clear to me that it was something that had to be managed and that is what I tried to do.” (page 23 of the transcript linked above). In other words, the idea that the referral from the Treasurer’s office was anything more than a referral because that is the right thing for an elected representative to do, came from Mr Grech. It is something Mr Grech claims to have learned over the twelve years of coalition Government you are supposed to do.

We learn a lot about Turnbull from all of this. His pride won’t let him drop it and it can only end badly for him. Every time he opens his mouth he adds to his credibility problem. On the weekend we got two more articles on his history, the first was Peter Hatcher with his recount of Keating's assessment to Rudd of Turnbull. That he is brilliant, that he is fearless....and that he has no judgement. Annabel Crabb meanwhile told us that it was not in Turnbull's nature to be cautious. She actually did a good job of analysing how the characteristics of risk taking in a businessman might not be the same characteristics for risk taking as a politician. he did err later in saying "Like the barrister he is, he leaves no point unaddressed." The reality is that Turnbull's career as a barrister was brief - or one brief I think. Spycatcher was, I think, his only case.

Peter Hartcher concludes that Turnbull is now weaker than he bagan. He notes that it was self-inflicted, it has a developed a huge scale due to the eagerness and because its repercussions are felt by all in the Liberal hierarchy, including supposedly some/many who counselled a more measured approach.

Finally, I find the please by Malcolm Farr and Kim Sawyer to protect "whistleblowers" misguided. Grech was not a whistleblower, he was a leaker. A whisleblower provides information that is politically damaging because it reveals maladministration, a leaker reveals information for political gain. A whistleblower provides accurate information, not fabricated e-mails.

Some commentators have tried to compare Turnbull's use of the Grech leaks to Rudd's use of the Wilkie ONA material. The latter may have been Austeo - but it also exposed that the coalition had lied about the nature of the intelligence advice they received on Iraq. That is a very bid difference.

Friday, June 26, 2009

A high point of legislative drafting

The Government introduced its Telecommunications Legislation Amendments (National Broadband Network Measures No.1) Bill 2009 into the Senate yesterday. The purpose of the Bill is to "provide for network information to be provided by telecommunications carriers and other utilities to the Commonwealth for purposes related to the planning and roll-out of the National Broadband Network (NBN) in accordance with the Government‟s announcement."

The amendment starts with probably the most useless definition ever proposed in legislation;

broadband telecommunications network means a telecommunications network that is capable of carrying communications on a broadband basis.

"Broadband" is not otherwise defined, nor in the Telecommunications Act is a "network" defined (only "network unit"). Even more bizarre is the fact that the defined term "broadband telecommunications network" is not used again anywhere in the Bill.

The Bill amends the process of obtaining network information introduced as part of the NBN tender for the purpose of the implementation study of NBN 2.0. The discussion of the Bill has also brought to my attention the fact that the original provision introduced a requirement that;

A copy of an instrument made [by the Minister] under subsection (1) is to be published on the Internet. (s531C(5)).

I'm informed that words like this have recently appeared in other legislation. I have two comments. The first is that nothing is published "on the Internet" it is published on websites that are accessed by the Internet. The second is that the description of where it is to be published is so generis that it could be in the online equivalent of "the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying 'Beware of the Leopard'" (with acknowledgement to Douglas Adams). Is it too much to ask that the Gvernment formally move to an online version of the Government Gazette. That there be one website the URL of which stays the same to which all such instruments are (a) posted and (b) never removed?

But to the substance of the Bill. As mentioned above the Bill amends provisions introduced to get network information for the NBN tender to get the same information from a wider group of people for a different purpose, namely NBN implementation. It also allows for the information already gathered to be updated. There have been three strands of objection raised to this or the earlier legislation;
1. National security,
2. Commercial confidentiality (aiding a rival), and
3. Onerous and unnecessary requirements.

Before going into each in detail I must admit to being totally bemused by the fact that the Government hasn't regarded having this information available to it as necessary. How can a Government claim to be responsible for telecommunications policy and yet not have the ability to require the information necessary for the purpose of setting policy? hy have these instruments been so narrowly cast, rather than saying, in effect, the Minister may require from carriers such information as he deems necessary for the purpose of conducting national telecommunications planning and policy, the Minister can do anything he likes with the information to further planning or development of policy.

Let's go through the three claims in order;

National Security

PIPE and Telstra tried to run this argument last time. I've got news for anyone who is interested - that the information you'd need to cause maximum disruption is readily available. All Telstra's exchange buildings now have the logo on them. If you can't figure it out from that look at the CBDs and see any multistory building without windows - that is an exchange. The major cable routes snake across the CBD with manhole overs with the logo of the provider. This is really easy infrastructure to locate if you are up to no good.

Actually, it might be good for national security to actually know where everything is to cope with a disaster.

Commercial confidentiality

I've always struggled with the concept of commercial confidentiality. After all, one of the core assumptions you have to make to get the conclusion of the efficiency of markets is that consumers are fully informed of offers in the market. It is more comon these days to see suggestions that information will "chill" competition because people will only shadow price or pocket price.

I think commercial confidentiality is almost uniformly over-claimed, and most of it is actually aimed at deceiving shareholders. But in the specifics of the case at hand there are already various provisions through the Act that require the information to be provided from one carrier to another. As a simple example under the facilities access regime a carrier can be required to hand over details of all its duct space. In fact, when I worked for AAPT we wre referred to the then ACA by PIPE for not having it ready to hand over when asked!

Onerous and unnecessary requirements

As a practitioner my experience has been that it is easier to meet ongoing requests for information than to meet various one-off requests. If another party's information requirements can be built into overall information management policy then the task is a minor one to fulfill on an ongoing basis.

That suggests a generic reporting obligation would be far preferable to the process as it is now. It is also an interesting observation that the previous Government commited to providing public advice of the availability of backhaul infrastructure in its Broadband Blueprint. The need for this was repeated by the Glasson review. Yet the Government is heading into its backhaul tender without providing that data.


Maybe we need a thorough rethink about the role of Government. Saying it provides information to facilitate outcome does not mean we want Government to resume a role as the central planner. This change is the same one the BCA made about infrastructure in genral - the fact the Government has a role to play in ensuring information is available. Heck it is even part of the same Department's discussion on the Digital Economy.

Quick quiz;

What is the difference between wallabies in Tasmania and communications policy? Answer - the wallabies in Tasmania have an excuse for going around in circles.

Tuesday, June 23, 2009

Government 2.0

Lindsay Tanner announced yesterday a taskforce to investigate the use of Web 2.0 technologies by Government.

You can go visit the taskforce's blog but it does raise an interesting question, which is why are we doing this as a taskforce on Government 2.0 rather than just keep going on trying it? We've already seen the Department of roadband, Communications and the Digital Economy try a blog. It got a bit swamped with anti-filtering campaigners. Very disappointingly the new blog has already received one such quote.

It is an interesting question of why the taskforce hasn't been graced with a *.gov.au domain name.

Another comment has also been on one of the substantive issues of the DE blog on the use of public sector information. The post is interesting and conflicts quite strongly with the last two decades of "cost recovery charging" in public sector agencies. Two agencies come in for a serve - the ABS and PSMA.

I've talked about both lately. The ABS issue does raise an interesting question about the possibility of providing the much hyped Wolfram Alpha for ABS data. Google wants to make the world's information accessible, Wolfram wants to make it computable!

We'll see how the taskforce goes....

Monday, June 22, 2009

I am confused

I am listening to Malcolm Turnbull in the Parliament. I am still confused as to the nature of the claim.

Firstly, should a person who has been a donor to a political party be denied the opportunity to raise a matter with a Minister? Does the Minister (Treasurer's) answer that he treated the referral as just like any other request mean that he had to have actually treated someone else the same way or would have handled anyone else who made that request?

Turnbull reads "Mr Grant would have received the same treatment as any other car dealer" to mean "would" implied that there may or may not have been an approach by Grant. However, the word "would" in my mind means "had someone else applied".

And Turnbull seems to draw extraordinary conclusions that people in the private sector respond to "signals" that the Government was sending. I'd really hope the private sector would blow the whistle at the time of influence peddling.

It really shows how Turnbull intends to play the game if he is PM.

Friday, June 12, 2009

On separation

Separation of telecoms providers has become an incredibly topical discussion of late, and not just in Australia. The issue has recently aired in Japan with KDD calling for the separation of NTT.

It has been particularly robust in Europe. A few opponents of separation have fallen gleefully on a recent Eli Noam column in the Financial Times. This column was referred to by Henry Ergas at the Sydney Institute last Tuesday and by Barbara Esbin of the Progress and Freedom Foundation.

It is worth reflecting on what Noam really had to say. Once you get past the "literary" allusion to The Communist Manifesto in the opening line ("A spectre is haunting European telecommunications companies") the items has a simple core. The forced separation of incumbents carries such a high burden of transaction costs tht it is better to look to other means to achieve the same outcomes. His approach is a "compact" of behaviours from incumbents to avoid separation. He notes however that this incentive may not be sufficient, saying;

In addition to the carrot of non-separation, there is a stick. If these negotiated compacts would not be met in letter and spirit, then Brussels and European states should proceed speedily to an anti-monopoly challenge, seeking the full break-up of the offenders (and in ways simpler than in America a generation ago).

That is, he is really advocating the route largely already followed by Ofcom with BT. However, there is a fundamental flaw in the reasoning - if the stick is a meaningful stick, then it should be capble of being used now. Put another way the stick is not a credible threat if the reason for not exercising it is the transaction costs of doing so.

Strangely though I agree with Noam in some ways. A problem with enforced separation is that the firm being separated controls the costs of separation and has an incentive to make it as expensve as possible. That is why I've previously favoured weaker forms like operational separation. However, I've also favoured the creation of strong incentives for the voluntary separation of the incumbent. This can be through the differential application of the services access and land access regimes, and indeed the anti-competitive conduct regime, based on the functional form of the regulated firm.

What I do take great joy in is the repeated statements by the ACCC that operational separation hasn't worked. Yesterday Ed Willett said to a conference in Sydney;

There have been attempts in recent years to address these issues by imposing accounting and operational separation regimes. However, these measures have been ineffective in constraining Telstra’s incentives and ability to discriminate against access seekers.

This gives me particular thrill because of an exchange I had at a Senate Committee with Senator Brandis (my CEO referred to it as my "bonding" with the Senator". I quote from Hansard;

Mr Havyatt— I move on to operational separation. Operational separation as currently outlined in this legislation may never happen. The minister gets the power to approve or reject a plan. The minister does have more power than the ACCC has with undertakings—they can at least direct Telstra on how to amend the plan—but there is nothing stopping Telstra making other changes, as it does with its undertakings processes. Telstra is a master of the art of gaming this kind of process. Under the legislation as drafted, there would be no operational separation plan. If there ever were an operational separation plan, it is actually not orceable. Clause 55(3) of the schedule 1 amendments makes it clear that the plan itself is not enforceable and it only becomes enforceable if the minister has formed a view that they have breached the plan—I do not know you breach something that is not enforceable—and directs Telstra to rectify it. So the plan itself, even if it comes into being, is not enforceable.

It is unworkable because, at page 46 of the bill, the inclusion of 151CP and 152EQ in the Trade Practices Act means that all the rest of the regulatory regime has to stop and pay heed to what occurs in the operational separation plan—a plan that itself is not subject to scrutiny and will result in endless appeals under judicial review about whether the ACCC has exercised its powers appropriately.

Finally, the real question is: what is the role of the ACCC in all this? The Minister gets to approve the operational separation plan only considering the ACCC as one of the unwashed public. There is no requirement that the ACCC be specifically asked for an opinion and that the minister be required to pay attention to that opinion. That is at paragraphs 54 and 61 of the proposals. I do not know if everyone else in this room understands regulatory language in the way I do, but I heard Graeme Samuel today in this room say, ‘The ACCC does not support these amendments.’ For him to have answered those questions in the way that he did makes it
abundantly clear, to me at least, that the ACCC does not support these amendments.

Senator BRANDIS—That is certainly not what he said, because he was answering my
questions. You have totally misrepresented what Mr Samuel said.

CHAIR—Let us let Mr Havyatt finish and then we will come back to this under the
relevant heading.

Senator BRANDIS—Do not tell us what we have been told in answer to our own
questions, Mr Havyatt—what a cheek!

CHAIR—Please proceed, Mr Havyatt.

We returned to the matter later.

Senator BRANDIS—Before Mr Havyatt leaves, in fairness to him, I wanted to point out something to him. Mr Havyatt, as I understood you this morning, you asserted that earlier in the morning Mr Samuel and the ACCC witnesses had indicated their opposition to operational separation. I am going to read to you from page 4 of the proof Hansard the relevant answers. Mr Samuel said, quoting himself from his interview with Alan Kohler on Inside Business on 21 August:
Operational separation is simply designed to produce some transparency in the dealings between Telstra’s wholesale division and its retail businesses, and then to ensure that there is some equivalence of dealing in those dealings between its wholesale and retail businesses and Telstra’s other wholesale customers.

Having quoted himself on what it meant, he then went on in his evidence this morning to say:
The government’s proposed model for the operational separation of Telstra maintains the balanced approach of the existing regulatory regime. The proposal recognises that Telstra is in the unique position, through its monopoly over the local access network, of being able to stifle competition and innovation by frustrating its competitors’ investment plans. For this reason, the ACCC welcomes changes which would increase transparency and equivalence in the way Telstra provides key access
services to its own downstream operations relative to those of its competitors.

In answer to a question from Senator Conroy, and this is on page 7, Mr Samuels said:
The proposal announced by the minister back in the middle of August was one that we considered would provide an acceptable outcome in terms of the objectives as we saw them being achieved.

(discussion of a point of order left out)

And then, at the foot of page 9,in response to me, Mr Willett said:
The bottom line is that, subject to the resolution of the issues that Mr Samuel referred to, the ACCC believes this model can lead to an appropriate set of operational separation rules....

In the light of that evidence, Mr Havyatt, do you want to withdraw your assertion that the ACCC, in its evidence this morning, said it was opposed to operational separation?

Mr Havyatt—I do not have the benefits of the proof Hansard—

Senator BRANDIS—Would you like to get it?

Mr Havyatt—but I do not believe that my comment said that the ACCC opposed
operational separation. I have said that the ACCC, when asked a question about whether they supported the government’s model of operational separation, came as close as you will find the ACCC to saying no. I was basing that—

Senator BRANDIS—Well, that is not what—

Mr Havyatt—Senator Brandis, may I answer the question?

Senator BRANDIS—That is not what we just went to.

Mr Havyatt—May I answer the question, Senator Brandis?

Senator BRANDIS—The questions were about not just operational separation but the government’s model—to quote Mr Samuel: ‘acceptable to us’.

Mr Havyatt—May I—

CHAIR—Finish your answer, Mr Havyatt.

Mr Havyatt—May I refer to the comment you made—that is, the answers from
Commissioner Willett which said ‘subject to the resolution of these issues’, which was the point of my statement, which was that the proposal as we see it before us does not have all the issues reconciled. That is the only point I was trying to raise.

Senator BRANDIS—If that is the only point you were trying to make, Mr Havyatt,
perhaps you overstated the point. We know that there are unresolved issues. That is not controversial. But Mr Samuel’s own words were that the proposal announced ‘would providean acceptable outcome’. There you are. Read it for yourself.

I will claim with hindsight that I was right. None of the items on which the ACCC sought resolution were resolved, and as such it currently publicly states that the operational separation regime as enacted is inadequate. (I also particularly enjoyed the attempts at that hearing to try to stick me in conflict with my parent company in New Zealand - successfully avoided)

Wednesday, June 10, 2009

Come on Peter, show your stuff

Everyone's favourite "I nearly" man, Peter Costello, has written in today's SMH an argument that Defence isn't a graveyard portfolio.

He tries to argue that the fact that four Howard Ministers retired from the portfolio shouldn't be misinterpretted as the portfolio is a graveyard. He ven argues that Fitzgibbon wasn't brought down by the portfolio, just his stupidity.

Well, yes and no. The four retiring Ministers were acutely aware that the portfolio had done nothing to ehance their careers. The Fitzgibbon issues over the Liu's and other matters had added poignancy due to the portfolio. Undeclared trips to China are an oversight, but if your portfolio is defence it is interpreted as far more.

But if Peter really wanted to make the point he might have volunteered after he'd had enough budgets (I think he started saying that after eight) to round himself out for the top job by taking a portfolio with an international dimension. Foreign Affairs is a graveyard for potential leaders - you are out of the country too often - but Defence would have been great.

It is not too late - he could offer his services to the leader as shadow defence Minister once he stops the play-acting and advises on 30 June that he does intend to stick around. But I don't see him doing it. Heck, a man who can't even risk writing his memoirs himself (rather than use his father-in-law) wouldn't take that risk.

Tuesday, June 09, 2009

e-conveyancing and the GNAF

An article in the legal affairs section of the Oz on Friday stated that the Australian Government had pulled out of a national e-conveyancing system because, basically, the States couldn't get along.

A first question is whether we do need a national system rather than state based ones given that property law (and title) is a state based concern. I think there are two standout reasons. The first is that we'd like to see a system progress of national registration for lawyers rather than State based. That would seem to suggest that where possible the processes should be aligned.

The second is that we'd like to think that as we move down the path of e-applications that we could do things on a national basis. After all the same answers could be applied to e-health record systems, that health professionals are registered by states and all the health care infrastructure is run by states.

E-conveyancing would have to seem pretty simple compared to e-health. Does this mean there is no hope for developing the kinds of online transaction systems we'd like to see underpin the Digital Economy.

But there is another reason why the failure to progress an e-conyenacing system should be of concern, that is the apparent fact that we have no idea in Australia where people are. That is perhaps a bit unfair - there is a product pu ogether by a Commonwealth/State owned company PSMA called G-NAF which is the authorative list of addresses and includes the "geo-coding" of those addresses.

However, it appears that there are still deficiencies. At least one attempt to map G-NAF addresses to Telstra Exchange Serving Areas concluded that twenty or more exchanges served no addresses. Further the data file doesn't seem to include any particular attributes to the addresses (note: it does appear that provision is made for the inclusion of some such information).

What seems to be the obvious "missing" in all this is the logic of linking the G-NAF to the titles records. A land title should correspond in some way to a property location. The land title might be a strata plan and include multiple addresses. The land title might be a very extensive area and would not geographically locate the premises on the site. But surely we can do better in generating the definitive list of addresses for the country than G-NAF and surely a link to land title records in the e-conveyancng system would be one way to do so. (I note that the G-NAF is supposedly constructed using land title records as well).

There is one depressing feature about the whole operation of PSMA. On its website it refers to its position as not competing with private sector. This is the wrong focus. It should be seeking to do the things that are best done by Government and making its data available cheaply and readily to all users - be that direct end-users or value-adding middlemen.

The whole issue is, of course, also relevant to the question of the NBN. The discussion paper on greenfield estates also poses a question about how progress on delivering FTTP in greenfield estates would best be reported and monitored. The simple answer is that the data needs to be incorporated as an attribute of properties within G-NAF - more correctly as Metadata within GNAF. Unfortunately it does not appear that the telecommunications infrastructure to a premise has been included in G-NAF to date - though there is provision for geocoding a meter box. This is perhaps reflective of the position of telecommunications as the only service that is actually delivered by the Australian rather than a State Government.


Mark Davis writing in the SMH on the weekend has raised the question of whether subsidising household photovoltaic solar power is a cost effective form of carbon abatement.

It allows me to blog about an issue that's worried me for some time - which is the related question of how much power is wasted through heat loss in domestic transformers. Basically electric energy is used in four main ways in households. These are heating, lighting, powering motors and driving consumer electronics. The first - heating - is one where direct conversion of sunlight to thermal energy works really well, primarily solar hot water. Other heating is household heating and heat for cooking (and clothes dryers). For these gas can be a good substitute, or for a cook top at least the use of electric power in an induction cooktop.

Lighting has seen huge advances in lower power consumption devices, and various applications that rely on motors have been made more efficient (especially refrigeration).

But consumer electronics continues to consist of devices operating at somewhere in the range of 6-15V DC but mostly powered by a 240V AC connection hooked up to its own transformer. Each of those transformers wastes a lot of energy in heat. I keep wondering whether there isn't a better way to provide household DC power. Wouldn't one transformer lose less heat? What is the loss of DC power f we try to reticulate it over the whole house? More importantly if we did have a DC power rail, wouldn't a battery and photovoltaic cell arrangement work very well for powering this component only? Significantly, hooking these household devices into a DC rail with battery backup would ensure that all the communications devices continued to operate in times of power outages.

This is becoming an increasing issue in telecommunications policy as we move from copper connections to fibre connections. Because of history the telephone service was built powered from the exchange and with battery back-up in the exchange. This has led to an expectation that the telephone still works as a "lifeline" service during power failures. But with fibre connections there is a need for a powered device in the home.

In its discussion paper on greenfield estates the Department of Broadband etc has referred to the question of whose responsibility providing the battery for the network terminating unit is. This ignores the fact that increasingly households have been relying on powered phones or computers requiring power to communicate anyway. Surely the more effective emergency management question is "is there a better way to manage power in the home so that emergency power is available for all communications devices?" It would certainly be true that that would be better supplied as a DC source rather than an AC source.

Perhaps I should pose the question to the equipment industry through something like the Digital Living Network Alliance.

Monday, June 01, 2009

On bubbles

Alan Wood writing in the Oz last week made the point that "Regulators should be neither bubble poppers nor blowers" (at least that was the headline).

In so far as the comment is actually about central bankers rather than all regulators the comment is probably valid. Wood quotes from a monograph by Stephen Kirchner of the Centre for Independent Studies. Kirchner makes many valid arguments about the limitations of monetary policy as a means to control bubbles. He cites Bernanke's claim that the Great Depression was caused by a move to high interest rates, but Galbraith in his analysis I think also agrees that monetary tightening was the final trigger the problem however was that an asset bubble had run for so long before the tightening.

Kirchner does less well in arguing that bubbles don't exist, or if they do are a benign part of the system. He attacks the usual claim (Plagrave no less) that a bubble can be defined as "asset prices that exceed an asset's fundamental value because current owners believe they can resell at an even higher price". His basis is the simple statement that "few people buy or hold an asset in the expectation of making a loss" hence invalidating the degfinition. But in this he ignores the real benefit of an asset which is either meant to be the utility of its use (it is a house and you live in it), or it is the cashflow you expect to earn from it (it is a house and you earn rent from it). In this he has probably been easily misled by the distortion of the modern equity market that measures "shareholder value" in terms of asset price increase rather than divident flow.

Not only does he fail to accurately identify speculation, he tries to defend speculation by attacking its attackers, saying "much of the popular hostility to financial speculation reflects this concern that it results in undeserved gain." Well that might be the poluar hostility, my hostility is entirely based on the fact that it all ends in tears.

When Kirchner allows himself to admit that bubbles may exist he claims that of fifteen stock market crashes over the course of a century "only" eight resulted in financial system distress. He then seeks solace in a neo-Darwinian (with overtones of Schumpeter) defence that these moments of stress result in innovation. The argument is that "bubbles breed variety, and variety feeds economic evolution". This is a particularly callous view and ignores the real human pain and suffering that can be experienced. And, as Hayek stated in The Road to Surfdom there is also a randomness about who this affects. Hayek warned about the arrogant presumpton that those who are doing well are doing so because of their talents rather than just luck. ("And this is none the less true because in competition chance and good luck are often as important as skill and foresight in determining the fate of different people." Chapter 8 PP 105-106)

Wood in his piece referred to a speech by RBA Assistant Governor Guy Debelle, the concept of "macro-prudential stabilisers". The concept can be understood better in prudential regulation based on Basel I, with a simple capital adequacy ratio based on risk-weighting of certain asset classes and amount of capital required to fund the portfolio. In such a system the risk assessment of an asset class could be increased automatically if the prices of the assets are increasing "too quickly" (as assessed against the overall price level).

This becomes more problematic in a Basel II type world, where ultimately the "risk" of assets was determined by ratings agencies. One of the many problems we've encountered was the way ratings agencies dealt with increasing house prices - they assumed this made lending more secure as a potential defaulter woul have an asset worth more than the original purchase. This, of course, is a great theory so long as the price path continues.

However, it works disasterously when, as it did with sub-prime mortgages, it feeds the machine that offers increasingly risky loans.

Apart from building rules into risk assessment that should discount the value of assets undergoing excessive aset-specific inflation, another very simple policy instrument is consumer credit laws as apply in Australia. In Australia a lender cannot make a loan merely on the basis that the loan is "secure", the lender also needs to be satisfied that the borrower can adequately service the loan (and not by refinancing, which was the other under-pinning assumption with some sub-prime loans).

Monetary policy is definitely not a good mechanism for popping bubbles - as bubbles are by definition increases in the price of one asset class out of sink with the price level in general. Monetary policy can only work on the overall price level.

That does not mean that we don't need to take regulatory action globally to ensure improvement in risk assessment of assets undergoing excessive price growth, and some "duty of care" legislation on lenders.

Finally, the other lesson we learnt in the process is that the assumption that corporate finance markets need less direct supervision than consumer markets on the assumption that the lenders and borrowers are better able to "protect and inform" themselves is complete and utter nonsense. For some insights into the ways of the finance markets one can read this item in the New Yorker.

There are other great reads in two books House of Cards and Fool's Gold. The latter makes particularly interesting reading in the sections dealing with the processes in the large investment banks who basically got remunerated for increasing profit but not managing risk. What gets missed is that this only could occur because these banks had moved to be listed rather than partnerships. They represent another failure of what I refer to as managerial capitalism.

In this context it is interesting to note the moves by APRA on remuneration of executives of DTIs, and the simultaneous inquiry by the Productivity Commission. The PC specifically trucks out the following;

The alignment of board and executive interests with those of shareholders has been a fundamental issue of corporate governance dating back to the first joint stock companies in the 17th Century. What is known as a ‘principal–agent problem’ arises when the interests of boards and executives do not accord with those of shareholders and the wider community. Shareholders (the ‘principal’) have an interest in their company maximising returns over time, and the board and executives (the ‘agent’) are tasked with running the company to achieve this goal. However, executives — like any worker — have their own interests to consider, which can potentially conflict with those of the company’s shareholders.

I'd be prepared to dispute this and actually argue that it became an identified issue only with the publication of Berle and Means study in the 30s. I'm also prepared to have a fight over the underlying premise that the shareholders interest is in "maximising returns over time". If what I sought was a "utility" stock promising a good divident stream that's what I want management focussed on. More generally, investors are interested in both the level of the return and the volitility of that return.

Either way all attempts to tie executive remuneration to short term performance targets, or long term outcomes via "options" are doomed to fail. I've written previously on this topic. The disaster that befell Wall Street is just another example.

Note: Next instalment sometime will be on risk management and risk amplification.

NBN Co Capital structure and commerciality

Also from estimates (P ECA 93) we have;

Senator Conroy—Let me reassure you that we will not re-create the old problem. If we have our network competing with any of the incumbent networks, by definition, there is still competition. If one company, let us call it XYZ Proprietary Limited, decide they want to vend in their assets, the maximum stake that we have indicated that a collective of companies can take is 49 per cent. If the company was a vertically integrated supplier there would be a cap on the amount of shares that they would be entitled to if they vended their assets in. There have been figures quoted, though there is no final decision and the implementation study is examining these very issues. Let us say the sort of figure that is being kicked around is 15 to 20 per cent. If XYZ company was a vertically integrated monopoly or former monopoly and it wanted to vend in, in its current structure, then it would be allowed 15 to 20 per cent. If, in the future, any company changed its structure then it is possible that we could consider a changed set of circumstances—possible. All of this is subject to ongoing discussion and an implementation study. What would not be allowed to happen in the future is that a retail arm would be allowed to buy into the company when we sold the other 51 per cent.

I and others are seriously concerned about all this discussion of "vending in assets". Firstly because it has led people who really only own "transmission" assets (like AAPT) to speculate about vending in assets. Most of us hope that NBNCo will be tightly limited as a layer 1 and a bit of layer 2 wholesale access company, and that it won't be offering end-to-end services. Secondly it would be stupid for the Government to be investing in further "competitive" backhaul if NBNCo wound up being in the backhaul business.

But the biggest concern is the idea that someone who vends in assets winds up with an equity stake in their name. Let's not pussy-foot around the only assets worth talking about are Telstra's CAN assets. It doesn't matter whether Telstra can be effectively constrained from obtaining full control, there are real governance issues created if Telstra has a stake of somewhere between 20% and 49% and the Government is conflicted as shareholder and regulator. In particular if the Board is seen to pursue a public policy as opposed to a company objective there could be a claim of suppression of minority rights.

If any Telstra assets are to be "vended in" that vending in needs to occur as the endpoint of a "One Steel" process. That is the clean divide of Telstra into two companies with each shareholder in the old company getting a matching number of shares in each of the new companies (well, only one new one needs to be created), and once that split occurs the shareholders of the new company merge their company with NBN Co on a script basis (or that company becomes NBN Co by the Commonwealth investing sufficient funds to get to a 51% shareholding). My earlier comments about the possibility of two classes of shares could still apply.

The estimates hearing also explored the issue of the commercial returns of the company (ECA 98);

Senator MINCHIN—I just wanted to touch on the commercial issues surrounding the NBN company. I presume it will be required to operate commercially.
Ms Scott—That is correct.
Senator MINCHIN—Can you tell me whether the department has collected evidence as to whether this government owned NBN company will be able to operate commercially?
Ms Scott—We have done some preliminary analysis on that issue. The implementation study will look at all of those issues. As you know, we have already gone out for the lead adviser for the implementation study.
Senator MINCHIN—I have in front of me the issues to be examined by the implementation study. Perhaps you could point it out to me, but I cannot see any of these dot points on page 43. I am sorry, I am using the Select Committee on the National Broadband Network as my source. It refers to the issues to be examined in the implementation study and then lists them. I am using this for convenience. It does not list anywhere, on the basis of the document in front of me, the issue of commercial viability. I stand to be corrected. There is mention of the legislation, the regulatory regime, ownership restrictions, funding requirements, developments to maximise private ownership, and capital structure. Which one of those would be the head that would go to the commercial viability of the company?
Ms Scott—It does refer to government objectives. The government has made it clear that it is required to be commercial. Also, in clause 34.3 it states ‘development of strategies to maximise the scope for private sector investment in the network company’. We anticipate that, in order to attract private investment, it would need to be commercial.
Senator MINCHIN—You think it is implicit in that, do you?
Senator Conroy—All of those go implicitly to it. Also, in the next clause, it states that the list outlined in clause 36.3 is not exhaustive, but indicative. Is it 36.3? Is that a typo? I am assuming that is a typo.
Ms Scott—It is 34.3.
Senator Conroy—Yes, that should be 34.3; that it is not exhaustive, but indicative of the breadth. I think there is a typo there that may have added to your confusion.
Ms Scott—I will just see if I can find you another part of the paper. There is a section that refers to the government’s statements in the public domain. Certainly the government has been clear from the outset about its desire for the project to be commercial and for the project ultimately to be privatised.
Senator MINCHIN—I will believe that when I see it. You are satisfied that at least implicitly in the elements of the implementation study is the issue of commercial viability?
Ms Scott—Yes.
Senator MINCHIN—Does that mean the implementation study will be the one that, rather than the department itself, will do work on what prices to consumers will be required to ensure this is viable?
Ms Scott—That is correct.
Senator MINCHIN—I am not going to the prices, but someone has to examine whether it is going to be viable.

These are all references to the REOI for the lead adviser (in Part 5 statement of requirements). Once again the discussion may need to turn to the idea of a two class share structure where the external shareholders get a guaranteed return but limited upside, while the Commonwealth gets a second slice. That is, the Commonwealth absorbs the volatility.

And a final aside on one of my other favourite topics (Henry Ergas P. ECA 100);
Senator Conroy— ....Can I say I am pleased that you have terminated Mr Ergas from doing your tax review. That is such a sensible decision.
Senator MINCHIN—I am not sure that is correct. But I would not use this to cast slurs upon one of Australia’s most eminent economists over your differences of opinion.
Senator Conroy—Mr Hockey has indicated that the project is not going ahead that he was hired for. I am just congratulating you on that wise decision.
Senator MINCHIN—I would cast aspersions upon Mr Ergas in that way.
Senator Conroy—Mr Ergas made a string of completely questionable assumptions. He assumed a 15 per cent rate of return. Neither Telstra nor the G9 proposal was shooting in that ballpark. He then made an assumption about the—

Staffing NBN Co

Thus far I have seen press reports identifying Paul Twomey, Peter Shore, Chris Anderson and Doug Campbell as front runners for the CEO or Chair's job at the new NBNCo. I even had one journalist ring me and tell me that the rumours were that Conroy had my CV and was considering me for an NBN gig.

We thankfully now have a bit more detail on that, but overall it is not that promising.

In Senate estimates last week in some opening comments on the NBN Senator Conroy said;

With respect to the National Broadband Network company and implementation study, the company has been established with an interim board made up of senior public servants with appropriate skills and experience to manage the company in its infancy. Establishing a company is a major exercise and it does not all happen instantly. The first task, and the one that the company is currently working on, is getting in place the systems and structures to allow it to operate. In terms of a permanent board management an executive search firm is being engaged to recommend names to the government for appointments in coming months. (Page ECA 51)

Senator Minchin then questioned departmental officers in more detail;

Senator MINCHIN—Could you advise the committee on the process by which this company will acquire a board and a chief executive?
Mr Lyons—The government is moving to engage an executive search agency to assist in the appointment of the ongoing board.
Senator MINCHIN—Is it clear that the board, once appointed, will choose a CEO for this company in accordance with normal practice?
Senator Conroy—Yes, the board will have that responsibility.
Senator MINCHIN—Do you have a time line for the (a) appointment of a board and (b)—
Senator Conroy—Free trade agreement requirements, as I am sure you are conscious of, always require a rigorous process and an open and transparent process, so we are bound by the guidelines of the trade agreements we have entered into. Perhaps Ms King or Mr Lyons may be able to update that.
Senator MINCHIN—When should we anticipate the announcement of a—
Senator Conroy—We will engage the firm first.
Mr Lyons—Once we have engaged the firm it will then be a matter for government to make that decision and make an announcement.
Senator MINCHIN—This is probably some months down the track?
Ms Scott—As to the selection of the executive firm, we hope that we can move reasonably quickly to that. Then it will just be a matter of time after that for government deliberations.
Senator BIRMINGHAM—Have those firms been shortlisted?
Ms Scott—We are going to go to select tender and we have identified a number of suitable firms that we
will approach.

That seems to be a pretty clear statement that all the Government is appointing is the Board, and that the Board will appoint the CEO. For those keen to see rapid appointments the facts are that the search firm hasn't even been appointed yet. The FTAs provisions that the Minister referred to are of course the provisions that require transparent processes of contracting an executive search firm, though as one person commented when I discussed this with them, "Why do they need a search firm anyway – surely there are people within the Department who know who is out there and who is good? Perhaps we should never trust anyone in the Department to choose the successful tenderer for a big job, or to decide what they want for lunch today…".

Given in fact the usual process by which Boards refresh themselves in which the Board itself contracts the search firm, maybe the Minister and department could have moved more quickly to make three relatively "safe" Board appointments and given them the task of finding the remainder. I also hope that the Government doesn't choose a Board and the chair but instead chooses a Board and lets the Board select a chair.

The process to one side, what kind of people do we want on the Board. The first thing is we want a oard that will act as a Board - not as de facto management. That means a Borad who can reliably select the CEO, can work with the CEO in the process of establishing the strategy and then be confidant in letting the CEO execute the strategy while providing oversight on "performance and conformance".

To the extent the Board needs people who can help coach the CEO and his executive team, what are the core skill sets required? Is a Board full of telco expertise required?

The first thing to note about the NBN is that it is primarily a giant civil engineering job, with a bit of electronics. It is a huge project to be delivered across the entire land mass with multiple stakeholders. Sandy Hollway of SOCOG fame (and non-gold IOC award infamy) springs to mind as the kind of skills required there.

The second element is the ability to work with large corporate customers in a close and integrated manner. Somebody from a banking background, especially institutional banking would be ideal. David Murray doesn't fit that description but could be relied upon to suggest somebody.

The relationship with state governments will also be important. Somebody who has worked in the senior reaches of the public sector ithin states could be useful. Bill Scales is a possiblity there. After that the Board would benefit from a senior engineer or two. Actually reaching back to the last Telecom Australia CEO in Mel Ward is not illogical.

Finally there is a need to ensure some diversity on the Board. Im acutely aware that thus far I've only named men. The temptation to find women from the law or accounting professions should be avoided, quite frankly most boards are better off without lawyers and accountants because other Board members inappropriately defer to and rely on their expertise. The diversity should include seeking Board members with expertise in the social sciences and in cultural and media issues. Professor Elizabeth More from the MGSM offers the kinds of skills that could be useful.

Finally, the Board needs to be kept small. Seven people in total including the CEO should be sufficient.

Then we confront two other issues - what kind of CEO and how do we deal with the problem of minority shareholders.

The Board will get to appoint the CEO, but I note a number of people who have emphasised the need for an engineering type or at least a skilled telco practitioner as the CEO. I'm not so sure. While there is a need to ensure a strong engineering capability this dos not need to come from the CEO. After all there is also a huge money management and relationship management task. What is really needed is a good old fashioned "leader" - someone who can bring a diverse set of management skills together and get the most out of them. Most importantly it needs someone whose track record is about managing the executive team they have rather than one of the modern era CEOs who brings a team with them.

To deal with the problem that the Board will be responsible to minority shareholders as well as the Government is our next task. The Board will also be running a business with natural monopoly elements, which means there are prospectively monopoly rents available. How do we ensure the Board does not feel the need to set monopolistic prices, other than direct regulation and the conflict with the regulator that would entail. The short answer is that this needs to be very explicitly stated in the documents of incorporation - that the purpose of the firm is the delivery of NBN services at cost reflective prices and returning to shareholders a return commensurate with that objective. More simply the non-government equity could be through some version of secondary shares that have no voting rights but have first claim on dividends up to a certain percentage return on the face value of the investment.

The role of the implementation study and the lead adviser to that study in relation to NBNCo hasn't been touched on. Gioven the sequential process of Board then CEO appointment we could be close to the end of the year before NBNCo is ready to take responsibility for the delivery of the NBN. But as a firm governed by a Board can they be expected to just fully adopt whatever the implementation study generates, or will they really need to undertake their own study? Is the purpose of the lead adviser to create a "project" that can be transferred to NBN Co mid-stream?

Every time I look I find more questions.

Ergas Tax Review

I can easily be accused of obssessing about Henry Ergas. My letter to the SMH to point out they had incorrectly awarded him a doctorate was unpublished. I have, however, pursued him through various channels for failing to declare that he was conducting a tax review for the Liberal Party when writing (particularly columns in the Oz and Communications Day).

The SMH article referred to above stated in May that;

He said Dr Ergas would publish discussion papers, consult widely and convene a tax reform conference before handing a report to the Coalition by late 2008 or early 2009. None of those things have happened. An Ergas review website set up by Mr Turnbull has been dormant for months.

It now becomes apparent that the reason for that somnelence was that the outcome of the tax review was presented to the Liberal Party in "June or July" 2008 according to Glen Milne writing in the Oz. It is claimed that the Ergas review resulted in exactly what you'd expect from that source, a classic "neoliberal" view of tax that moves to flat rate income tax, argues that, effectively, because of deregulated markets our tax policy needs to be "competitive" because we face flights of capital and skill if we don't have the world's best tax system, and, more bizarrely, that taxes on alcohol and tabacco should be cut because they are distortionary.

This is all very fascinating and explains a couple of things. Firstly why it hasn't been released. Secondly why Ergas hasn't felt the need to declare the conflict because the assignment has ended. And thirdly Milne makes it clear the work was done "pro bono" though I suspect that still means it is a contribution in kind to the Liberal Party and will need to be included in the declaration of donations.

But the really interesting question is how come Milne had the story? he story is highly unflattering to Malcolm Turnbull as it highlights that he undertook the work without advising his leader, and that the outcome is politically putrid. Given Milne's record as the chief urger for Peter Costello could this be the start of a challenge, have the Costello forces finally had enough of Malcolm?

Watch this story, I suspect it has further to run. And let's see if the Government has the courage to goad the coalition into releasing their review.